Posted by
Andrews on Tuesday, December 30, 2008 9:12:59 PM
Whenever I propose that we end regulation, especially when I suggest that we end stock regulation, people will immediately mention that we "need" regulation to protect us from scams. However, I have to say, this recent Madoff arrest shows us a different, important lesson. Regulation in no way prevents scams. Enron taught us the same thing.
And that is the sad part of regulation. People have become convinced that it keeps us safe, while all the time they see around them countless scams carried out during an era of regulation. So, what does regulation do? It makes it harder to invest. It keeps compliance costs high. It makes it harder for new firms to issue stocks, and thus protects established firms. And it makes it hard to establish competing stock exchanges, entrenching the NYSE and others. But other than helping to preserve the status quo, and costing firms a fortune (and perhaps making the current crisis worse as SOX made reporting real values of dubious mortgages impossible) it does very little to benefit the investors or the firms issuing stocks.
In fact, if we want to blame Madoff on anything, at least anything other than his own greed and overly trusting people with too much money, the real culprit may be our inflationary monetary system. As all economists know, and a few even admit, inflation of the money supply makes interest rates drop, makes money cheaper and encourages ever more unsound investment. So does it seem a coincidence to anyone that a an can run a $50 billion confidence scheme during an almost unprecedented stretch of 16 years constant inflation?
POSTSCRIPT
Fell free to refute my initial premise if you wish, but I would ask that you wait until I get to my more detailed article about the harms of regulation. I plan on writing at great length on the topic of regulation, how it provides few, if any, of the safety benefits claimed, while increasing costs and entrenching established practitioners. I may even examine how, by creating the false impression that licensing proves competence, it discourages individuals form exercising due diligence, and may actually make us less safe rather than more.
But if you feel you must argue, go ahead. I will reply as best I can either in the comments or, if they come late enough, in the more elaborate post itself.