Critique the Focus

In an episode of Seinfeld, George Costanza built a small bed and napping area beneath his desk at Yankee Stadium where he worked. I have a sneaking suspicion that Seinfeld is a huge hit at the SEC. I pose a question to the SEC very similar to that posed by audiences to Costanza: Do you actually do anything constructive at work?

In all fairness, SEC regulators actually do something. They watch porn. How does that sound for a job? Get paid to watch people screw, and in the same act, screw the people.

The focus of SEC regulators is in entirely the wrong place. SEC employees aim to satisfy their boss, the U.S. government, under the false assumption that if the boss is happy, the customers – U.S. citizens – are happy as well. However, the SEC must aim to please in exactly the opposite fashion. Please the customers first, and your boss will be happy (eventually, if not at the time), allowing you to keep your job and pursue your interests. In other words, the SEC should focus on what is best for the people, and in so doing, will satisfy the U.S. government.

Unfortunately, this has not been the case over the past few years. Whistleblower Harry Markopolos – who, in the context of our story, we can call a customer – submitted a report to the SEC back in 2005, describing the financial impossibility of Bernard Madoff’s returns and ultimately concluding Madoff was running the largest Ponzi scheme in history. A college junior with knowledge of the basic fundamentals of finance and investment strategies could have arrived at such a conclusion, given Madoff’s SEC filings. It seems apparent the securities and regulation “experts” at the SEC must have forgotten these elementary principles, or at least, did not come across this material at thedailybabelog.com.

When, of course, it was revealed that Madoff was running a Ponzi scheme, customers were unsurprisingly upset, and many had lost their life savings. This could have been prevented had the SEC been focused on its customers rather than their boss, who was content at the time. SEC regulators pulled a Constanza and hit the snooze button when the customers needed them the most.

In that brief example, the customers were dissatisfied, while the boss seemed to be content. A similar negative outcome is experienced in the converse situation in which the boss is upset and forces change not in the best interest of the customers.

Facing an upset superior, the SEC recently enacted curbs on short selling in an attempt to appease the pressuring U.S. government. Whether the boss was pleased or not aside, the focus was not on the customers. The customers are mad that their houses are worth nothing, their investment portfolios have crumbled, and they have been laid off, not that investors are utilizing short selling as a legitimate investment strategy. Focus on the customer!

Sure, the customers are angry and want the SEC to do something. But why short selling? The merits of short selling and the uselessness of this SEC regulation was discussed in a previous post. The customers know they have little understanding of financial markets and the forces that move it. That is why they pay taxes to the U.S. government, who has hired the SEC to implement policy in the best interest of the people. Get out from under your desk, close the browser window for hiboobs.com, and open up a real financial textbook.

Over the past couple of years, suffice it to say there has been a fan with some poop involved. The SEC, had it more carefully regulated mortgage-backed securities and financial derivatives trading, could have prevented or at least ameliorated the magnitude of the economic crisis and Great Recession. However, that is all in the past, and what needs to be determined is how such severe mistakes can be avoided in the future. The focus on the content boss, causing neglect for the telling signs of a major economic fallout, is to be blamed. Focus on the customers, what is best for the customers, and do not sleep on the job, and next time we might be able to avoid a $700 billion bailout. Oh yeah, keep the web-browsing clean while you're at it.