There's a growing gridlock over at the Securities Exchange Commission (SEC) about regulating Wall St. While this has been a running narrative for the government agency basically from the time of its inception, it's all the more worrisome considering that's the SEC's job!
The stall has centered around the confirmation of two new members to the five-person SEC. The problem wouldn't necessarily appear to be about partisanship, as both a Democrat and Republican were nominated to the commission by President Obama. But with confirmations for these candidates still forthcoming, the SEC has been left with just 3 commissioners for the past 3 months.
As much as we can criticize the SEC itself for lack of doing its job—and this has undoubtedly been the case for years—it's also incumbent upon the Senate to do its own job. The Senate Banking Committee is tasked with approving the two nominees in conjunction with a full vote by the do-nothing, 100-member chamber.
Awaiting approval are Hester Peirce, a Republican who serves as a senior research fellow at George Mason University, and Lisa Fairfax, a Democrat who works as a law professor at George Washington University. Both women will testify in front of Congress today.
Why the Hold Up?
Beyond its own penchant for inaction, the snail's pace of the confirmation process really does come down to partisanship in our broken political system. Neither party wants the nominee from the other side of the aisle approved. This leads to the real problem: a shorthanded SEC can't possibly get around to its main task, namely, reigning in the excesses of Wall St.
In fact, SEC Chair Mary Jo White has earned a reputation for this sort of delay. According to Bloomberg, the crawling pace of rule-making by the commission has been so slow under White, her staff has taken to nicknaming her office the "Cheese Cellar": where policy goes to age.
The most obvious failing of the SEC has been its inability—or indecision—in enforcing punishments on Wall St. Most observers remain outraged that each and every one of the big banks proven guilty of various white-collar crimes has been forced to pay any big consequences other than fines.
Additionally, there are currently three main issues facing the SEC that have yet to be resolved:
- How to deal with high-frequency trading (HFT) and the imbalances it causes;
- How to discourage stock brokers from engaging in blatant conflicts of interest;
- How to require asset managers to hold more capital to mitigate risk.
Blowing the Whistle on Wall St
One of the main reasons why the SEC is as ineffectual as any government agency (and Lord knows they all are about as useless as they come) is because it has gotten far too cozy with the industry it is tasked with regulating. This phenomenon is known as "regulatory capture," and it implies that the regulator is in the pocket of its target.
To be frank, rampant regulation is one of the great ills of of Big Government and the bloated bureaucracy. Regulation is anathema to business and the free market—but in this case, we're talking about the Wall St casino known as the stock market. The SEC was created specifically to be the whistle-blower on shady activity by Wall St. The distinction between trading securities and actual business is an important one, because the stock market doesn't actually create anything of value; it only inflates asset bubbles. It's high time that the SEC got off its hindquarters and tackle one of the biggest problems facing our country and the U.S. economy.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.