Increasing US Government Regulation of the Stock Market

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Now that the health care bill has been passed, the next item on the agenda is to increase government regulation of the stock market. It seems strange to me that we would want the government to try to regulate something that it has such a large stake in, another big conflict of interest. Just the fact that the SEC filed a claim against Goldman Sachs just as the government regulation bill came to the table appears unlikely to be coincidental. There have been news reports in the past that sometimes the SEC was afraid to take action against certain companies because members of the SEC feared it could affect their own personal security. Furthermore it is important to the government officials that the stock market does well. If people are making money in the stock market, they are more likely to vote for the present majority party in the next election. This could affect one’s judgment when deciding whether or not to take action against a company. What could also affect one’s judgment is if they happen to have some connection to a company, it’s sector, or an affiliate of the company. Given the size of our government, it is not unlikely that at least a few of our government officials would have a connection with a company or two. Of course the biggest potential for conflict of interest is the fact that it is usually companies that make the largest contributions toward the government official elect when they are running for office.


To me, the best solution to all of this is not necessarily more regulation or adding another branch of government. While it may do well to increase the number of jobs in the country it would probably do little toward the alleged intended effect of preventing our banking institutions from investing large unnecessary risks beyond what would be accomplished by simply enforcing the laws already in place, perhaps creating a single new law which mandates 100% disclosure and transparency of businesses, and perhaps mandating that each business hire a 3rd party auditor that needs meet some standard for proper auditors set forth by the SEC.

Continuing down the road of having the SEC alone try to regulate businesses without 3rd party involvement is a recipe for disaster. I believe we will spend a lot of tax payer money trying to get to the bottom of the Goldman Sachs claim only to find out that it is extremely expensive and probably nearly impossible to come up with every law necessary to keep bank institutions from making risky bets on the market.

We need to keep in mind that the reason banks are making risky bets on the market in the first place is that the government has removed much of the risk from the bets by offering bailouts and pouring money into the stock market over the last several years. We have created a can’t-lose situation for large banks at the tax payers’ expense. At the same time smaller businesses and banks are being left out in the cold not qualifying for bailout money since their individual failure does not have the same potential to wreak havoc on the overall economy as the failure of larger businesses and banks.