The government reward for doing a bad job

In the world of competitive markets, if one does a bad job, the typical result is less resources, less power, and more oversight by interested parties. If a firm makes a bad product, there will be fewer profits, lost market share, and additional attention from Consumer Reports, plaintiffs’ lawyers, and regulators.

In the world of government, however, the opposite is often true. The SEC, one of the most highly regarded agencies in Washington, did a terrible job over the past decade. One could cite innumerable examples, but two stand out: the SEC failed to detect the Madoff fraud despite countless audits and investigations; and the SEC’s “Consolidated Supervised Entities” program, which allowed investment banks to increase leverage ratios to more than 30 to 1, was a root cause of the financial crisis.

What is the SEC’s reward for consistently bungling its job? The financial reform legislation recently signed by the president gives the SEC vast new powers, which the SEC says it needs 800 new employees to implement. In addition, the SEC is now claiming that the law exempts it from the Freedom of Information Act.

Failure = more resources and less transparency. That is an equation one would only find in government.

Filed under: truth on the market