Required versus Probable Reform and the Madoff Distraction

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3 Responses

  1. A.W. says:

    Argh, here we are once again. Someone does something illegal. then congress discovers that despite having made it illegal, someone did it. So congress says, “well, maybe now we can 100% prevent bad behavior with another rushed, ill-concieved law.”

    Why is it that every time some breaks a law in the corporate law, there is a rush to put in a new law? It would be one thing if someone did something deeply wrong but not technically illegal, but that isn’t what we have here. Just someone breaking the law. And maybe it is even an occasion to recalibrate punishment, as in make them even higher.

    But if the bad behavior is itself illegal, then I don’t see the argument to change the substantive law itself (as opposed to new punishment). of course we all know what this is really about: looking like you are doing something of value. As in Congress wants to be able to claim they did something about the problem.

    This is how the administrative state runs amuck.

  2. Quidpro says:

    Correct AW. But you forget the statist drive for perfection. If only a new law is passed, or better enforcment mechanisms were in place, so the thinking goes, then we could have prevented the Madoff scandal.

    As Professor Cunningham observes, “nearly all serious students of financial regulation” favor merging the SEC and the CFTC as if creating one large bureaucratic agency in place of two imperfect agencies would be better. And thus Leviathon grows.

  3. ohwilleke says:

    One reform that recommends itself is the public disclosure of tips which the SEC decides to not actively pursue (perhaps with a period of delay) along with a brief statement of a reason for not pursuing it (e.g. lack of resources, insufficient coroboration, etc.).

    Presumably, someone in the market would monitor such disclosures and engage in a little detective work to see if smoke means fire.