Crybabies

You know, don’t you, that government is trying to tinker with the mechanics of the market? And you know that it’s a really, really bad idea, right? Here’s the thing: the stock market can go up and it can go down. Lately, when it goes down, people seem to feel that government should step in and fix things. No! And no again! The government gets to tinker with the economy, not the market. The market is free. In the market, one is free to make money or lose money. The whole point is that — other than some regulation to protect everyone against manipulation by insiders — in a free-market economy, the market should be exactly that, free. Government can’t fix the market. It has enough trouble trying to fix the economy.

And it is doubtful that regulators — and new government departments — can protect investors against the Bernie Madoffs of the world. Bernie made his killing, and now the Next Bernie (NB) will have to come up with a new scheme. (Well, all the schemes seem to stem from the original, developed by Charles Ponzi, but there are variations.) Once the regulators understand the NB scam, then they will make rules. But here’s the idea: the crooks like Madoff don’t really pay attention to the rules; they pay attention to rules only to the extent they need to for circumnavigation. So, the rules are for those of us who are not doing anything wrong. Congress always shuts the barn door after the horse escapes.

The idea of the TV show “White Collar” is interesting in that it seems, directly or indirectly, based on “Catch Me If You Can,” the book and movie by and about Frank Abagnale Jr. (Who, by the way, lives in Tulsa. Mr. Abagnale and I used to eat breakfast at the same joint most Saturday mornings, and he and I would simply nod in greeting at one another. When I was a kid in New York, I’d even been in his dad’s stationery store on Madison Avenue.) Although Mr. Abagnale has morphed into a respected citizen and does work for law enforcement agencies, the idea of using a crook to catch a crook seems productive. Regulations and regulators don’t seem to catch crooks, although they may make Congress feel better about itself. (Again, it’s the close-the-barn-door-after-the-event school of thought.) If the wish is to catch crooks, the government should employ some financially creative, white-collar criminals and some crackerjack math and computer programmer folks. Maybe instead of creating massive new bureaucracies, the government should create lean-and-mean fraud squads, made up of people who actually know how the games are played. Gee, they could work for the FBI and the SEC. (Question to the SEC: have you hired any CFAs or financial whizzes yet? Or is the organization still mostly lawyer-based?) We don’t really need any more agencies, do we? Fraud squads inside the FBI and SEC sound fine to me.

Have a terrific and happy week and, for goodness sake, don’t do anything wrong.

For more on regulation, see:

Will More Regulation Mean Fewer Producers In the Medicare Markets?