Golden Oldies: The Farce of Self-Regulation
by Miki Saxon
Poking through 11+ years of posts I find information that’s as useful now as when it was written.
Golden Oldies is a collection of the most relevant and timeless posts during that time.
Sometimes old posts just depress me. I wrote this one in 2008 and it’s still applicable today. With very slight alterations, it would be just as applicable in 1908 or 1808 or even earlier and it will probably be just as applicable in 2118 and beyond.
Expecting companies to “do the right thing” when they think the right thing will impinge on their bottom line is just plain stupid. It hasn’t worked historically and I doubt it will work in the future; certainly not on the tech world, whose arrogance makes Wall Street look humble.
The only thing stupider is businesses’ inability to understand that the right thing is often more profitable — of course, they could take a lesson from Blackrock, but more about that tomorrow.
Read other Golden Oldies here.
Yesterday I asked, “What else does Wall Street and the financial industry do besides cripple corporate strategic efforts?”
They fight for self-regulation, assuring watchdog agencies and Congress that they are good guys that should be trusted to do the best thing and that the economy will tank if any kind of control or regulation is enacted—and they win.
They win based on the money spent to focus the efforts of well-connected lobbyists on stopping cold, or at least significantly watering down, any legislation or rules that might offer protection to us—the people who keep them all in BMWs and champagne.
Wall Street and the other financial services industries aren’t alone in this, every industry does it, but the money guys seem to be exceptionally successful—until something blows up. Then, when public outcry is loud and tempers are hot, Congress has the leverage to pass anything—whether it fixes the problem or merely makes them look like they care.
Deregulation was one of the prime factors in the S&L mess in the eighties; earnings pressure combined with personal greed fueled many of the recent corporate financial fiascos—think Enron, WorldCom, Adelphia Communications, Citigroup, Goldman Sachs, J.P.Morgan Chase, Deutsche Bank, and others.
And now, of course, we have the Sub-prime debacle with which to contend.
And after each of these, Congress, the SEC and others all run to add laws and rules to prevent it from happening again.
The repercussions from the latest snafu (Navy term meaning ‘situation normal—all f*ked up’) are reverberating through the credit markets making it more than difficult for corporations, small business and just plain folks to access it.
Who will step into the breach to provide investment and liquidity?
Private equity and big hedge funds—both with even less regulation and even larger egos and greed factors than more traditional Wall Street firms.
But a land grab by big hedge funds and private equity firms might create new problems. The Securities & Exchange Commission and the Finance Industry Regulatory Authority oversee investment banks to some degree, and the Federal Reserve is moving in that direction. But hedge funds are largely unregulated and aren’t bound to make any disclosures to anyone but their investors. Even that information is often incomplete. A move by hedge funds into traditional corporate finance would mean even less transparency than exists on Wall Street now.
It’s a sad fact that the 214-year-old force that was instrumental in building the most powerful industrial nation on the planet could be just as instrumental in presiding at its demise.
Understand, it’s not that I have much faith in government regulation, but have seen little-to-no proof that self-regulation works—it’s too much like having the fox care for the hen house.
So-called government intrusion is the result of the inability of various industries to “self-regulate” for any reasons other than short-term profit, doing as much they can get away with and pushing the boundaries beyond what’s reasonable.
So you tell me, how can we get well-reasoned laws that aren’t defeated or seriously watered down by special interest groups and industry lobbyists before the crisis?
Image credit: pinkfloyd
