Settlements with Mutual Funds Settles Nothing
Elliot Spitzer wrote an editorial in the NY Times this morning. I wrote the following over the weekend.
Knowing what I know and seeing what I have seen, I can only wonder at people's indifference to the recent surfacing of the problems of mutual fund regulation.
I believe that this is only one aspect of the problems facing Wall Street. But from its self serving research down to NYSE bucket trading, Wall Street has so far been able to mute the government's response to scandal. The federal government seems to be not only sweeping these problems under the rug, but in fact supporting the systematic "inefficiencies" (a kind word) through unwarranted liquidity (loans), bail outs, and laissez-faire regulation--or lack thereof (such as the repeal of Glass- Steagal). An old friend of mine who escaped Wall Street calls it, "the most highly regulated legalized corruption in the world."
And so one of Wall Street's greatest rationalizations is "it's legal". But this doesn't make it right. One of the few things I do advocate as a government function is regulation of our public institutions. Why can't they just clean it up? I have heard the reason, "because, it is in everyone's best interest not to" referring to the same logic that causes a ponzi scheme to collapse: it would too significantly harm investor psychology. Although public ideology makes it much more difficult, I don't believe that mitigating the response instead of the problem is the right approach, not in the long run. Wall Street policing itself is like communist leaders "serving" the people. It just doesn't get any more ironic.
How did we get to this point? I would say through years of indifference (naivety by investors) and devious chicanery by the brilliant minds attracted to money and power. If those same talents had become engineers, we would be on Pluto by now.
Mutual fund regulation is just one area that needs radical treatment. Like any bad medicine, it is not easy to take. But if you don't take your medicine, you can get very sick. Mr. Spitzer is like the good doctor: he will force us to take the medicine.
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