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Debunking The Myth Of Free Market Self Regulation
We have all heard the talking point that if we just get the government out of the way, prosperity will come and the free market will self-regulate. It comes as no surprise to those of us on the left that this is being proven absolutely false right before our eyes.
In a recent article regarding the Securities and Exchange Commission (SEC), Matt Taibii, wrote about the shredding up of massive amounts of documents, about 18,000 of them.
Many of the destroyed files involved firms and people who later played prominent roles in the financial collapse of 2008.
A 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.
“In at least one case, according to SEC attorney named Darcy Flynn, investigators at the SEC found their desire to bring a case against an influential bank thwarted by senior officials in the enforcement division – whose director turned around and accepted a lucrative job from the very same bank they had been prevented from investigating.”
In very recent news Representative Darrell Issa (R-CA) has hired a gentleman by the name of Peter Haller, also known as Peter Simonyi, a former Goldman Sachs VP. He is in charge of blocking regulations on Goldman Sachs and others Wall Street firms. This man changed his name in order to stay inconspicuous, I guess.
According to Think Progress, this is his work history,
After completing his law degree in 2000, Haller was employed by Federal Energy Regulatory Commission as an economist, and later with the Securities and Exchange Commission in the Office of Enforcement.
- In April of 2005, Haller resigned from the SEC to take a job with Goldman Sachs. Although he was not a registered lobbyist, he soon began lobbying the SEC on compliance issues on behalf of Goldman Sachs.
- In 2006, Haller left Goldman Sachs, according to a Goldman official who spoke to ThinkProgress.
- In 2008, he took a job with the law/lobbying firm Brickfield Burchette Ritts & Stone.
- In January of 2011, Haller was hired to work for Issa on the Oversight Committee. Under the supervision of Haller, Issa sent a letter dated July 22, 2011 to bank regulators (including the heads of the Federal Reserve, FDIC, FCA, CFTC, FHFA, and Office of Comptroller) demanding documents to justify new Dodd-Frank mandated rules on margin requirements for banks dealing in the multi-trillion dollar OTC derivatives market, like Goldman Sachs.
If Goldman Sachs is in the Oversight Committee and former employees of Wall Street are in the SEC, doesn’t this equal self-regulation of the free market? It seems to me that it is by definition, self-regulation.
So if we did what those in the GOP want and eliminated the SEC would we be better, worse or just the same? I think we would be just the same, considering like I stated earlier, Wall Street is already regulating itself through the SEC.
How do we change this situation? We need honest leadership without ties to Wall Street to make sure the SEC is cleared of all the moles and rats. Considering that to be a huge uphill battle, President Obama started the CFPB.
The Consumer Financial Protection Bureau was target number one on Wall Street’s radar. We have an agency that isn’t infiltrated by the Wall Street elitists and Elizabeth Warren would not have allowed them in. That is why they tried their hardest to kill it and kill it’s funding through the GOP.
Free market self-regulation is a myth, and it’s time to stop believing in conservative fairy tales.
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12 Responses to Debunking The Myth Of Free Market Self Regulation
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D. L. MacKenzie
Aug. 20th, 2011 at 8:21 pm
Ray, I couldn’t agree more, and sad to say, we see this perverse form of self-regulation in nearly every agency. From the FAA to the FDA, there are innumerable instances of “the fox guarding the hen house,” with predictable results. In a way, it’s worse than outright self-regulation, because the appearance that various industries are answerable to independent federal agencies promotes a false sense of security, whereas the truth is that many industries have a revolving door relationship with government that makes nonsense of the notion of government oversight.
e
Aug. 20th, 2011 at 9:46 pm
The cons did that on purpose so government “doesn’t work”.
mike
Aug. 21st, 2011 at 7:42 pm
You can’t possibly say that regulation or deregulation rules one over the other. There’s always going to be a balance needed.
Shiva (Moderator)
Aug. 20th, 2011 at 10:50 pm
throughout the history of the market, corporate environmental actions, the banks and any other industry you can think of, given no regulation there is rampant cheating.
Wall street is still doing what it did in 2008 and we are still susceptible to losing everything we have to them. And they will take it, you can count on it.
Obama needs to step on these people hard.
Jeremy
Aug. 21st, 2011 at 3:31 pm
I dont think anyone has made the arguement thay we need “no regulations at all for businesses to be prosperous”. That alone makes this arguement pointless misrepresentation of the opposing view. People make the arguement that small businesses are weighed down now by over regulation. Weighed down by a massive government so huge, we cant pay for it.
The number of commercial activities requiring govenment permits to work has skyrocketed over years. One example of the massive overreaching of our government is the following link which mentions the story of two girls running a lemonade stand who were shut down by police because they didnt purchase hundreds of dollars of government permits. Does that sound like the wonderful country you grew up in? Or george orwell’s 1984?
www.nationalreview.com/co...
Mike
Aug. 21st, 2011 at 4:48 pm
What does the foolish overreach of a some local government employees have to do with the actions of the federal government to stimulate the economy on a national scale?
Phil
Aug. 21st, 2011 at 4:08 pm
Major corporations Exec’s sitting in governmental regulation panels is not the free market, nor is it “self-regulation.” It is even laughable that you think they are one in the same. You seems to be confusing what Neo-Cons and real marketers mean by free market.
jeem
Aug. 21st, 2011 at 5:09 pm
We hope that soon there will be good news for the market
Mark
Aug. 21st, 2011 at 9:20 pm
The SEC is Wall Street’s public exploitation assurance bureau. In a free market, the SEC wouldn’t be there to protect Wall Street. You would have competitors, who have a real stake, and sound knowledge/expertise, exposing fraud of rival businesses. Harry Markopolis, for example, was a finance guy assigned the task of figuring out how Madoff, a competitor, could make so much money. As a guy who knows the business, he discovered Madoff’s ponzi scheme. He tried to expose the scam for decades with no response from the SEC. Basically, Madoff had the protection of the SEC, while Harry endured threats to the well-being of himself and his family. (Was the SEC really *that* stupid? Or were they in on it?) Read “No One Would Listen.” Without the SEC, fraud of this scale would be impossible. Offenders would be behind bars because rivals who are at the leading edge of the industry would have the interest and ability to sniff out the rats at rival firms. The law would be there to prosecute criminals instead of the SEC to protect them. What we really need is rule of law and sound enforcement. Yes, the free market is the answer. It is the only just and effective way to prevent crimes against humanity like the Madoff scam (unless you are making big bucks trying to convince the public otherwise – and trust me, those are bigger bucks than ever these days).
xtofm
Aug. 22nd, 2011 at 12:48 pm
This does not equal self-regulation of the free market, because there is still significant state intervention causing involuntary behaviors to occur by force.
Free market theory does not say private businesses make valid or even ethical decisions. It says merely that parties only engage voluntarily with each other, and that you can agree to not participate and thus neither become liable for that company’s mistakes nor gain from that company’s gains.
But in this example, what’s happened is private businesses (banks) injected themselves directly into government, and used it to benefit themselves disproportionately to the rest of the market: their own consumers but also non-participants. The people who have no money in those banks, who own no stock or bonds in those banks, have been compelled involuntarily to become responsible financially for the mistakes of those banks in a way that normally not even shareholders are responsible (limited liability to that of investment).
So this is actually a gross distortion of a free market, not an example of self-regulation. Free market theory does not say businesses regulate themselves, whoever thinks that is full of crap. What regulates businesses are consumers (even non-consumers when they effectively vote “no” by not buying or investing). What this state capitalism has done is force everyone to become a sort of bond holder liable for the losses of banks, without a vote in how the company is run, without any upside potential.
This is what is so nefarious about the Republican party. They lie about how markets work, they lie about what they want to deregulate. They only want to deregulate certain parts of the equation like consumer protection laws. They are all to happy to enable state capitalism so their cronys get rich, and can use government against us, which is precisely what they’ve done.
JR
Aug. 22nd, 2011 at 9:26 pm
It’s easy to understand why the country is at odds with each other when laymen try and use terms and Economic systems/Philosophies incorrectly. Regulation/Deregulation and the invisible hand guiding the market.
Regulation isn’t bad – Many conservatives hate the term because they don’t understand how the Government should regulate and many democrats desire regulation because they think they’re going to get something that they won’t.
The market will self adjust and balance if regulations are setup to punish cheaters and prevent illegal actions. That’s how a Government SHOULD regulate. Everyone plays by the same rules, everyone gets punished if they break them. Currently though, Government plays into lobbying and imposes tarrifs, tax breaks, subsidies, price floors/ceilings, bailouts etc. The Government approves the very measures that have created the trashing of the American Economy – Matrix banking is legal. Most people don’t want a Government that will regulate HOW a business operates but one that keeps the playing field level. “We can’t compete with the world price of sugar” shouldn’t be met with an tarrif on sugar and a subsidy on corn but one of “Oh well?”
America is NOT a free market system and these Economic downturns aren’t an example of a failed “Free Market” system. This is very much an example of how Government cannot possibly predict the millions of variables in any given market and adjust accordingly. Right now America is a football league where one team has most of the refs on their payroll while telling the fans it’s totally fair.
Jr,
Dice
Aug. 26th, 2011 at 6:45 pm
“Right now America is a football league where one team has most of the refs on their payroll while telling the fans it’s totally fair.”
Yes, yes, yes, and YES AGAIN. Thanks, JR. Government should make competition part of the “game” instead of allowing itself to be used by one sector of the economy (Koch Ent., for instance) against another (poor schmucks like me, an employee of the state of Wisconsin).
Thank you again,
Dice