Back in 1934, after months of Congressional hearings run by Ferdinand Pecora, wherein every imaginable variety of scam, fraud, scheme, larcenous undertaking, flim-flam, and cheat surfaced as the standard operating procedure of Wall Street's biggest names, the SEC was formed, amidst much howling from Wall Street, which threatened dire and ominous predictions of doom and economic collapse if anyone dared to attempt to regulate its "perfect system."
Perfect for the cheats on Wall Street, that is.
The industry fought any regulation tooth and nail, and when it became obvious that the public would require it after the Pecora hearings, went to work to gut any proposal. Indeed, commentators at the time stated that the final bill that passed, creating the SEC, had been so gutted as to be a non-issue for the industry, removing any prosecution power, and watering down the proposed hard and fast rules to the point where it could be said no actual rules had been passed - those were sort of left up to the SEC, which was immediately chaired by one of the most notorious stock pool operators of the century: Joe Kennedy.
As part of the gutting of the bill, a system of self-regulation was proposed. Somehow, all the lying, cheating, scamming, fraud and such would be harder if the cheats all had to work together, and regulate themselves.
That has never worked, from day one. The notion itself is preposterous. Sort of like saying that embezzlers could self-regulate the banking industry, or that drug addicts could self-regulate the controlled substance distribution system - no, better yet, that gangs could self-regulate crime in the inner city.
It is silly on its face, and the woeful and demonstrably flawed history of the self regulating entities is a testament to human nature's continued inability to change. Consider that the biggest crash of all time took place after all this self-regulation was in place, decimating the nation's economy to the enrichment of the short players on Wall Street.
It was always a lie, just as the notion that, "Your government wants what is best for you" is a lie. Our founding fathers knew that was a lie, and warned against any federal apparatus that would concentrate power away from the states and the individual. That warning was subsequently ignored. And here we are.
Like many big whoppers, the public was always supposed to believe that self-regulation could work. Wall Street spent millions to assure the masses that it would. Never mind that there is no other example to draw from where it has - certainly not in government, and in no other industry I can think of where big money is involved.
Oh, and did I mention that the same guys who were supposed to be able to regulate themselves were the ones just revealed to be the most larcenous miscreants ever imagined, in the Pecora hearings' shocking testimony?
In today's WSJ commentary piece, William Donaldson and Harvey Pitt, two astoundingly inefficient and forgettable ex-SEC commissioners, chime in to laud the new self-regulation scheme of a merged NYSE/NASD entity.
Lost on them seems to be the clear and demonstrable evidence that self-regulation doesn't work, like the recent revelation from the Senate Judiciary's hearing on the topic of insider trading that insider trading is pervasive in today's markets. If self-regulation worked, how could it be? How could those busy self-regulating also be the ones violating insider trading laws?
Even in the commentary piece, they say, "The self-regulatory status quo does not work." No kidding. So self-regulation as it stands today doesn't work, but a merged entity predicated upon the same silly notions will? 10 monkeys trying to use a hammer to loosen a screw is going to work better than one.
I see.
That Wall Street was able to con the Congress back in the 30s into believing that Wall Street could self-regulate, or rather, that the public could be convinced that it could, is stunning. That this farce could continue as long as it has is even more stunning. That the talking heads now accept this gibberish from another era as wisdom, is pathetic.
Here's another bit of gibberish from the 1930s that was passed, amidst considerable protest from those who could think: Social security numbers.
The biggest problem many critics had with issuing social security numbers was that it would devolve into a national identification system, conflicting with constitutional rights of the individual to not have to participate in such a scheme. At the time, the public and Congress was assured that at no point would or could the SS # ever be used as a de facto ID number, literally required to do anything in the US. Fast forward to present, where it is required to be employed, get credit, get a driver's license, buy a house, open a bank account, etc. etc. etc.
The idea that it wouldn't be used by a government intent upon expanding its reach far beyond that allowed by the Constitution and Bill of Rights was always ludicrous. Nobody believed it at the time, and their cynicism was well justified. Nobody should believe that an industry routinely shown to be as corrupt as any envisioned can regulate itself. There is no basis for that idea. None in recorded history. None. Ever. No Utopian civilization exists where absolute power didn't corrupt absolutely. Self-regulation is the creation of a monopoly, where the participants in the monopoly get to decide which among them is to be punished for which transgressions. That is stupidity of the lowest order, and for the life of me I never cease to be amazed by commentary pieces like this one.
Pure, unadulterated horse poop. To put it kindly. And apparently, Wall Street is busy selling this fecal material as the new old wisdom, trotting out warhorses to spin the story for the unwashed mouthbreathers that are we, the public.
Is anyone buying this?
Let those who routinely pay token fines for bilking the public, who participated in massive schemes to defraud investors (like the mutual fund front running scheme, or the specialist scam, or any of the other examples), police themselves.
Sure thing. Perhaps pedophiles policing child molesters? Oh, wait, we just had that. Perhaps the Church self-regulating against bad priests? Oh, wait, that didn't work, either.
I could go on and on and on.
But what's the point? They clearly believe you and I are stupid, and that if it is printed in the WSJ, it must be true, or smart, or something superior.
And people wonder why I'm cynical...