Several years ago the Fraser Institute spearheaded a drive to deregulate Canadian banks so they could act more like U.S. banks. That potential disaster was in line with the Fraser Institute objective of economic freedom, a concept that can be interpreted simply as “deregulation good – regulation bad.”
It is a popular cry among libertarians and modern day corporatists. At least in Republican years, the American White House supported the cause by routinely appointing people who scorned the concept of government regulation as heads of regulatory agencies.
Matt Taibbi, writing at Rolling Stone, reports how the SEC has been perverted by corruption, incompetence and lack of resources. According to Taibbi, the agency,
“devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation.”
As a result,
“By whitewashing the files of some of the nation’s worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG.”
Reuters published special reports that provide examples of what seem to be purposely feckless financial regulations. In The bonds that turned to dust,
“Reuters has followed a paper trail from [Italian economics professor Alberto Micalizzi’s] hedge fund’s offices in the upmarket London neighborhood of Kensington to the dusty American southwest, from the fund’s registered home in a Caribbean tax haven to a suburban house in Canberra, Australia.
“The story’s cast includes an Arizona businessman on the run from U.S. authorities, a Russian allegedly convicted for fraud, and the Italian at the center of it all: a 42-year-old specialist in options pricing who teaches economics at the respected Bocconi University in Milan.
“What emerges is a cautionary tale from the wilds of offshore finance, a lesson to investors about how easy it is to be drawn into a global maze of paper companies with little substance.
“Micalizzi’s saga shows how America’s role in the global proliferation of anonymous shell companies may enable fictitious assets to be magically transformed into real ones for a time, siphoning money from unwitting investors along the way.”
I conclude that humans must evolve a considerable degree before we are ready for laissez-faire economic systems. Ineffective regulation and deregulation are enablers of widespread financial fraud that inevitably makes victims of the weak and the uninformed, the people least equipped to protect themselves.