Greed Trumps Regulation Every Time

Wed, June 17, 2009

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My friend David at It’s Not a Lecture tipped me off last night that President Obama was going to announce new financial regulatory efforts to help prevent the Wall Street shenanigans that have put us in our current economy and to better protect American consumers.

As someone who spent a bunch of years at the Securities and Exchange Commission, I’m all for trying to find ways to keep the Bernie Madoff’s of the world at bay. But I also know that no matter how much regulation is out there, people like Bernie will still prevail. Why? Because no amount of regulation would have prevented what he did — the Ponzi scheme. Everyone thinks they’re going to get rich quick when people like Madoff come along. Many of his victims didn’t know they were involved because Bernie went through money managers who were supposed to be looking our for their clients.

As for the mortgage industry and the huge corporations like Enron and WorldComm, no amount of government oversight is going to prevent that kind of fraud because greed is one powerful motivator. If people refuse to comply with reporting requirements or keep two separate sets of books to hide what’s really going on, nothing but a whistleblower is going to bring that kind of fraud to light. And big corporations have a LOT of resources to be able to set up ways to get around the regulators and to keep throwing roadblocks in the way of investigations.

Trust me — I’ve experienced it first hand.

I don’t know what the answer is, but I’m hoping that the Obama administration can change that, though I’m not all that hopeful. Unless and until civil regulatory institutions have the kind of teeth that criminal prosecutors have, fraudulent financial schemes will continue to be born.

No amount of clear disclosure requirements or increased regulation will keep greed from prevailing. If Obama can change human nature, that might be more helpful in keeping fraud and Ponzi schemes from taking our money and wreaking havoc on our economy.

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5 Responses to “Greed Trumps Regulation Every Time”

  1. impromptublogger Says:

    As Obama isn't G-d and can't change human nature I'm afraid this is how it is. It is the same reason that communism can never work – human nature.

    I hope this is just the start and I know it'll take a while before the clock on regulation will be turned back.

  2. Kristen Says:

    Having worked criminal investigations, I have found that greed out-trumps regulations as well. I think if you have no soul, there is no hope for you.

    I'm not a fan of too much regulation. It never seems to be effective. But maybe that's the libertarian in me talking.

  3. Dobbie Says:

    How many people directly involved in helping create the threat of insolvency of our biggest financial companies was arrested for fraud?

    How many people recieved millions in bonuses for helping create this mess?

    Its wasn't Ponzi schemes that threw our economy into recession. It was our trust that our relatively free market would act in its own best interest. It didn't because a relatively small number of people were concentrated on beefing up their annual bonuses and boosting their companies numbers in the short term that led to this crisis.

    The health of our economy and financially well being of hundreds of millions of people should never come down to the greed and shortsightness of a few people.

    That where regualtion comes in. We should have enough regulation in place to keep greed in check while not stifling our economy's growth. Our current circumstance shows we don't have enough regulation in place.

    "Greed is good" but not when it means you make a few million while relatively everyone else collectively loses billions of dollars.

    Maybe, in the future we can go

    "Go ahead, sell and buy those bad mortgages and dice into CDOs and buy a bunch CDSs from shortsighted and overleveraged companies willing to sell to you at AAA rates. When you collect that fat bonus check, we will be waiting to snatch it right out of your hand and promptly find a place for you at one of our top-notch facilities that we use to house people like you."

  4. SpiderWoman Says:

    It seems to me that our modern view of banks as profit centers is coloring your thinking. When they were regulated so that they did not act as profit centers – so that those at their helms could not get filthy rich by scams – there was no problem. It was deregulation that allowed the profiteers to line their pockets at everyone else's expense.

    What's happened can be laid directly at the feet of deregulation.

  5. Garrick S. Says:

    The only thing that prevents criminal activity is exposure and law enforcement consequences. Adding regulations will do nothing if not enforced, as we learned that during the last administration.

    GW Bush proved that the law is a tool of convenience to attach credibility to whatever purpose in political power decide. New laws were made, old laws were reinterpreted, still other laws were ignored. The law is secondary to political will. There were enough laws and regulations to prevent the bank failures, but the regulatory agencies did nothing.

    The new regulations are simply a confidence game as are the bailouts. They will do anything restore confidence while retaining the status-quo.

    Unless those greedy decision makers truly the cause of the bank failures are exposed, the next bank bailout will happen in a few years as soon as public memory fades.


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