Regulator : Industry :: Fox : Henhouse

OK That Tautology is Not Quite Right. Whatever.

From a Wall Street Journal editorial on the CFTC and MF Global, and on the more general question of regulatory effectiveness when the regulators are from the industry that they ostensibly regulate:

As if to underline that Monday was a political exercise to deflect blame and make the CFTC look busy in the wake of the disaster, the commission also invited market players to seek exemptions from the new rule on a case-by-case basis. So the reforms are “critical,” but well-connected players can still lobby Mr. Gensler to avoid them.

This bureaucratic eyewash is not going to satisfy MF Global clients who have had their funds frozen, if not plundered. The CFTC chairman sought and received vast powers under the Dodd-Frank law on the premise that he and his staff had the wisdom and knowledge to re-engineer derivatives trading. CFTC regulators have now failed at a much less complicated task, and one of central importance to customers.

In classic Washington fashion, Mr. Gensler is nonetheless using his agency’s regulatory failure in MF Global to impose still more rules and argue for still more power. A better response would be to acknowledge that the political system has already entrusted too much power to regulators, who can never be all-knowing and all-seeing but are often vulnerable to political influence from executives or firms they know and like. Investor beware: Regulators cannot protect you.

Continued calls for more regulation are more likely to increase corruption than to to mitigate, especially in today’s environment of rampant crony capitalism.

(via Review & Outlook: The Talented Mr. Gensler –


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