Marketplace Scratch Pad

The Wolves and the Sheep

Scott Jagow Feb 9, 2010

I read an article in the New York Times which points out the difficult task the SEC faces in trying to stay ahead of Wall Street. It reads like David vs Goliath. Or an Aesop’s Fable.

From the Times:

The practical challenges are formidable. Wall Street vastly outdoes the S.E.C. in terms of people, money and, many in the financial industry argue, talent. The administration has requested a budget of $1.3 billion for the S.E.C. for 2011. Hedge fund stars can make that in a year. Big banks usually pull in the equivalent in revenue in a single week.

Since the Madoff debacle, the SEC has taken steps to turn its tortoise into a hare:

It is the job of Robert S. Khuzami, the S.E.C. head of enforcement, to unmask the next Madoff — and, equally daunting, to convince skeptics that the commission can reassert itself and adequately police Wall Street.

Since arriving at the S.E.C. a year ago this month, just as the Madoff scandal was grabbing headlines, Mr. Khuzami has cut red tape, created specialized teams to plumb hedge funds and other worrisome areas and tried to make the S.E.C. quicker and more nimble.

“It is a real challenge to keep up with the street in developing these products,” Mr. Lench said. He said he hoped to recruit people from Wall Street, and to acquire technology that would put the S.E.C. on a more equal footing with the industry.

Some SEC observers say the agency needs to become self-financed like other government entities, through the collection of fees and penalties. Right now, the SEC’s financial master is Congress, which is infested with Wolves in lobbyists’ clothing:

The Wolves and the Sheep

“WHY SHOULD there always be this fear and slaughter between us?” said the Wolves to the Sheep. “Those evil-disposed Dogs have much to answer for. They always bark whenever we approach you and attack us before we have done any harm. If you would only dismiss them from your heels, there might soon be treaties of peace and reconciliation between us.” The Sheep, poor silly creatures, were easily beguiled and dismissed the Dogs, whereupon the Wolves destroyed the unguarded flock at their own pleasure.

Of course, just having regulation doesn’t mean the flock is safe. Wall Street can see right through a mask:

The Fox and The Mask

A Fox had by some means got into the store-room of a theatre. Suddenly he observed a face glaring down on him and began to be very frightened; but looking more closely he found it was only a Mask such as actors use to put over their face. “Ah,” said the Fox, “you look very fine; it is a pity you have not got any brains.”

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