What kind of mess will this legislative provision give us?
No clever titles this time. I’m putting my message into this post’s title. A soon to be enacted congressional provision is a big mistake!
According to “House Agrees with Senate on SEC Self-Funding” at Jim Hamilton’s World of Securities Regulation, Congress has added a provision to the financial reform bill (currently in committee to iron out differences between the House and Senate versions) that removes the SEC from the federal budget. Presumably, the SEC will levy a tax on SEC registrants.
In support of SEC self-funding, SEC chairs always argue in public that they lack sufficient and consistent funding to enforce securities laws and regulations. As proof, they point out that Congress occasionally cuts back on SEC funding.
What they don’t mention is that the budgetary review process provides an opportunity for Congressional oversight of the SEC. When the SEC is performing poorly, say due to the poor leadership of the Chairs (i.e., Cox and Schapiro), a Congressional budget cut is a natural and effective response. Of course SEC chairs want self-funding, it gives them a pass from oversight. Who wouldn’t want that?
Moreover, giving a governmental agency a free hand in levying taxes (or fees) leads inescapably to exorbitant rates and inefficient service. A great example of this is the Ohio Turnpike Commission which manages the I-80 toll road across northern Ohio. When faced with no further need for its existence, it instead raised rates several times and spent money on projects unrelated to the toll road. Need I say that the commissioners are paid exorbitantly?
The SEC should not be rewarded after several recent failures. Its staff has failed to investigate tips of historic frauds (e.g., Madoff). Moreover, its oversight of the FASB has been non-existent. I think we need to disband the SEC and start over from scratch. Providing permanent funding is as wrong as it gets.
Unfortunately, I am writing in hindsight. The Conference Committee hammering out compromise legislation between the House and Senate versions has already agreed to the self-funding. Democrats control both chambers of Congress and eventual passage is assured. Please recall my earlier comments that Congress should not be permitted, under any circumstances, to create financial regulation legislation.
P.S. Victory! SEC self-funding was dropped from the final version of the bill.
Debit and credit – - David Albrecht
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