Failure, Money, and Power
Recently, I attended the Security Traders Association (STA) congressional conference in Washington. The buzz at the conference was about Enron and the failures of the United States Securities and Exchange Commission, despite every manner of mandatory audit, to foresee Enron's problems, as well as those of Global Crossing.
What lesson did our masters draw from this huge failure? We need more regulators with much bigger budgets. Indeed, it was all explained at the outset of the conference by a securities industry official familiar with life on the Potomac.
The SEC "screwed up big-time in Enron. So Congress says give them more money," said Stephen Blumenthal, a vice president with Schwab Capital Markets Trading.
Blumenthal, whose analysis would be verified by the parade of congressional members that followed, said that "there is bi-partisan support for dramatically increasing the SEC budget." And in case anyone doubted that sharp analysis, our first speaker at the conference was more than happy to support the Blumenthal take on the world.
"I was calling for a 200 percent or 300 percent increase in the SEC a while ago, but nobody listened," bragged John LaFalce (D-N.Y.), the ranking minority member of the House of Representatives Financial Services Committee.
LaFalce, by the way, was almost salivating at the thought that the Democrats might recapture control of the House in the next election. He was practically laying out an agenda for what he will do when he becomes the next chairman of House Financial Services Committee, as one set of pirates would replace the other.
Talking about market structure, LaFalce said Congress had not provided effective oversight. "This neglect can no longer be neglected," LaFalce said in a comment that didn’t remind one of Cicero’s best days in the Roman Senate.
The "neglect," he said, "will be a priority concern if I am the chairman." I don’t think he was dribbling as he uttered that sentence. Still, he did appear to be very excited, even though he seemed to say the word "if" very softly. Nevertheless, our great tribune did stay with the party line.
"There is a vital need for more funding for the SEC," LaFalce announced. "The SEC can’t be a tough regulator without adequate funding."
Carolyn Maloney (D-N.Y.) repeatedly said she was happy to be at the conference. She also stayed on the message and pointed out what a shame it was that there was so much turnover at the SEC staff. Her solution? SEC pay should be increased.
Richard Baker (R-La.), a key House Republican chairing a financial industry subcommittee, also joined the act. He had an even better take than LaFalce on the SEC: "Whatever they tell me they need, I am for."
This is how government works: If you can be really egregious at what you do--say, you run Amtrak, the Defense or Education departments or, better yet, the SEC--you scream out that there is a dire national need. Then it will be easy to find legislators to turn on the money spigot for you, and they give you "whatever" you need.
Now I may be just nitpicking here, but isn’t it the duty of Congress to oversee commissions like the SEC? And as they have funded the SEC over the past few years, haven't members of Congress ever had any criticism of the same people they now want to shower with more dinero?
Where was Congress’s famous oversight to ensure that the taxpayers received fair value? Was it in the same place as it was when Congress decided to give hundreds of billions of dollars to various national security and defense agencies that couldn’t even defend the airspace over the White House and the Pentagon?
The solution to these problems of government disasters? More government. It is the one that will be joyfully supplied by our congressional Falstaffs. Create another cabinet level department, and, by all means, spend tens of billions of dollars more on national defense in the mistaken belief that more government means more good times. (By the way, I took the high-priced government train, Acela, down to D.C. The train was an hour and half late. Guess that means Amtrak will be getting a lot of your money.)
I’m being too hard on Falstaff, who was, after all, a humorous fellow and much more of a truth teller than the average pol who is elected to Congress to spend and never ever question if the taxpayers’ precious dollars are squandered. It is Falstaff who is credited with saying: "Lord, Lord how this world is given to lying."
Gregory Bresiger, a business journalist, is assistant managing editor of Traders Magazine. He has also written for the Free Market and the New York Post. He lives in Kew Gardens, New York. See his Mises.org Articles Archive, and send him MAIL.