Rip van Winkle in Reguland

Chidem Kurdas

“Had Rip van Winkle gone to sleep in America circa 1900 and woken up a century later, he would have found himself bewildered not only by new technologies, products and fashions but also a new mode of governance. A novel system had developed, consisting of numerous federal offshoots with clunky titles. Reduced to acronyms, they are collectively known as the alphabet soup of agencies.

The ideas that underpin this development were impressive in their time and are widely accepted still. Starting in the late 19th century, American thinkers in law and social sciences made a powerful case for the regulation of economic activity. …”

They looked to government action to correct the shortcomings of private individuals, organizations and markets. The result is a wide-ranging and largely independent regulatory world. The prevention of financial fraud is a small and straightforward corner of this realm. If any regulatory attempt can work, this is it.

“Stamping out fraud is not a controversial goal. There is broad agreement that false information subverts markets, that deceiving investors is a bad thing and that misleading claims should be discouraged. ….

The policy goal of preventing deception is not only backed by near consensus but also has the unusual virtue of being relatively clear. It is readily comprehensible not only to government players responsible for making and implementing rules but also to a significant part of the public. Much is known about the topic and there is a wealth of experience to draw from. What Charles Ponzi did in the early 20th century is not fundamentally different from a Ponzi scheme headlined in today’s news. Whether a conman uses postage stamps, an insurance company, a bank, a hedge fund or some other means, the basic mechanism is the same. While the specific instruments change, the mechanics of deception don’t.

Therefore regulators have the wherewithal to improve their craft by learning from the long history of similar schemes. The mission is achievable. Preventive actions against fraud can and should be reasonably effective. This is possibly the least contentious, most straightforward and best documented policy goal, well within the powers of the sprawling United States financial oversight system. …

Yet regulation against financial deception has been a failure by any common sense standard.”

Rip von Winkle would’ve been amazed at the gigantic government apparatus that promises so much and provides so little. For some dramatic failures and the reasons thereof, please click for my 2014 book, Ponzi Regulation

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