Friday, March 19, 2010

More Proof Regulators Aren't the Answer

Former Merrill Lynch officials warned the Securities and Exchange Commission and Federal Reserve that Lehman Brothers was incorrectly calculating its liquidity position months before its collapse, according to FT.

It's real difficult for the average guy on the street to understand this, but there is a kind of code that you don't go after people who are in the club. Despite specific warnings, for years, about Bernie Madoff made by Harry Markopolos, the SEC did nothing. Despite warnings about Lehman by former Merrill execs, nothing was done. Suspicious trading in Congress is not examined.

New and expanded regulatory agencies are not going to be any different. They will be captured by insiders and used only to stamp out competitors who aren't members of the club.

It would be hugely advantageous to tear down these regulatory walls and let these companies fight for the only thing left, customers. A regulatory free environment would also prevent companies from stamping out new competitors.

In a competitive world, the short-sellers would take out firms like Lehman, which they did, after Treasury Secretary Paulson pulled the government protection card that Lehman was holding. Without these cards, Goldman Sachs and Morgan Stanley wouldn't have survived the crisis period.It was regulator protection that caused them to survive despite their bogus, over leveraged financial statements.

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