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Here We Go Again

If the 2008 crisis proved anything it was that industry self-regulation is a total failure and an invitation for excess, recklessness and taxpayer bailouts.  The anti-regulatory zealots let the financial industry operate almost entirely on their own with nothing but their own self-regulation to protect our economy, our treasury and our taxpayers from about 1999 until it all blew up in the financial crisis of 2008, which unfortunately continues to this day from the US unemployment crisis to the European debt crisis. 

Yet, we are going down that same path again, sometimes by design, sometimes by necessity.

The latest example is a proposed rule by the SEC dealing with the arcane area of derivatives, swaps, swaps dealers and major swap participants.  All that jargon could cause a geek to fall asleep, but those instruments and market players were at the core of the last crisis and will almost assuredly be at the core of the next crisis - WHEN it happens, not IF it happens.

The financial reform law was supposed to put some limits on those activities to try to reduce the likelihood of the next crisis and/or the severity of it when it happens.  This requires regulatory agencies like the SEC to pass rules making that happen.

The SEC did that yesterday, but, as reported in the Washington Post, the proposed rules largely rely on................you guessed it, the discredited approach of industry self-regulation:

"Under the plan it proposed Wednesday, the SEC would rely heavily on assurances by those firms. The agency would require senior officers of the firms to certify that they have the needed operational, financial and compliance capabilities."  (Source)

It is suggested that such an approach is necessary in this era of austerity and limited resources, even for the SEC which is self-financing and actually takes in much more money than it spends in policing the industry - something that is remarkably almost never mentioned. 

But, if you think regulation is expensive, you're forgetting or ignoring the cost of the crisis, which has been trillions of dollars and continues to this day. 

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