The SEC

This is an excerpt from Chris Wood, of Casey Research:

I would say that rather than worry about it right now, we should first go ahead and abolish the SEC.

Of course this won’t happen until we witness a complete collapse of our current economic system as we know it. But let me briefly lay out part of the case for why Congress should do it. And please note that in the interest of time, I will be borrowing heavily from Graeme B. Littler’s essay titled, of course, “Abolish the SEC.”

* The SEC profits from its blunders. As Ludwig von Mises observed, “government regulation generates unforeseen problems, which excuses more regulation, which causes still more unforeseen problems.” The SEC has a history of growing and profiting from crises. Most recently, a guy by the name of Bernie Madoff comes to mind. Although the SEC missed uncovering Madoff’s $50 billion Ponzi scheme for a decade (despite constant warnings from outsiders), the commission now says it needs more money to prevent schemes like that in the future. In FY 2008, the SEC was authorized to spend $906 million, by the way.

* The SEC erects barriers to competition. Thanks to the SEC, it costs a lot more than it otherwise would to raise capital by issuing stock. The process requires a mountain of paperwork, CPAs, and lawyers. Many small companies, which don’t have the resources to negotiate this bureaucratic maze, can’t raise new money and grow. Large, established firms do just fine, however, and like the lessened competition.

* The SEC is anti-shareholder. By hampering corporate “raiders,” the SEC defends the interests of corporate management over the shareholders’. Raiders seek to make a profit by buying out a firm’s owners, firing inefficient managers, and replacing them with people who will make the company more profitable. The SEC requires “raiders” to file public reports after they acquire a small percentage of a company’s stock. These filings are designed to tip off management about possible tender offers, thus giving them plenty of time to plot a takeover defense to secure their jobs at shareholder expense.

It’s true that the securities industry is not problem-free. And it never will be. But it would function better without the SEC.