Why We'll Never Have Real Wall Street Reform

Remember all that talk of reining in Wall Street and giving the Securities and Exchange Commission more money to do its job? As part of the government's effort to prevent another economic crisis like the one that still has America in its grip, significant and striking regulatory changes were supposed to be on the horizon, thanks to the Dodd-Frank financial reform legislation that President Obama signed into law last summer.

If you were counting on this sweeping reform to make your investments safer and your economic future a little more sound, you might want to think again.

Significantly increased funding levels for the SEC and other financial agencies were called for in that legislation to create a bigger regulatory hammer. More enforcement attorneys are needed to ramp up investigations of such schemes as credit default swaps and subprime mortgages. An influx of new employees was also going to allow the quick writing of regulations needed to implement Dodd-Frank, rather than rely on the already over-burdened SEC staff to pick up the slack.

There was great optimism when President Obama signed the bill. The headline on a New York Times blog summed up what many expected: "A New World Begins for Wall Street Oversight."

That shining moment didn't last long. There shouldn't have been partisan bickering over better investigations of wrongdoing and increased protection of hard-working Americans' investments. But now that Republicans are back in charge in the House, that Times prediction has proven to be a smidge premature.

Even though Republicans are generally law-and-order guys and gals, they've tended to back off that stance when it comes to those corporate Masters of the Universe who open up their wallets in each new election cycle. So it shouldn't come as a surprise, now that the Republicans again have control of the House purse strings, that their 2011 goal is to keep the SEC weak, which can only benefit their Wall Street benefactors.

By refusing to approve the FY 2011 budget, and permitting the government to keep running only by continuing resolution at 2010 budget levels -- and by promising to cut back even further to 2008 funding levels -- the Republican wave in Congress is channeling its inner Emily Litella, telling Americans "never mind" when it comes to building a bigger and better "investors' advocate."

The SEC has long been an underfunded agency, with its hands tied for long-term planning or large or complicated fraud investigations. The only way it's been able to persuade Congress to provide even meager budget increases has been to show that it brings increased numbers of cases each year. But if you're busy focusing on quantity just to keep enough money in the budget for the status quo, it's almost impossible to think about quality.

Even though the money to fund the SEC comes from fees collected directly from those it oversees, it's not a self-funded entity, like the FDIC or the Federal Reserve. The money must go to the Treasury first and then commissioners must go to Capitol Hill every year, hat in hand, with elaborate justifications for why the agency should be permitted to add programs and staff, and pay its employees enough so they won't jump ship at the first lucrative private job offer that comes along.

Republican Majority Leader Eric Cantor told CNBC immediately after the midterm elections that it's the will of the American people to keep the financial regulators small and under Congress' thumb, because if Congress allows financial regulators more muscle power over corporate America, it would choke off job creation. I'm not really sure I follow the logic there, but if what Cantor is saying is that corporations and investment bankers need some wiggle room to play with the law and use a little financial hocus-pocus to create some as-yet-to-be-identified jobs, I'm not sure that's a road we want to be on.

As long as Congress is in control of funding the SEC and the agency has to submit an annual budget titled "Congressional Justification," there will never be true Wall Street reform, the kind needed to prevent another Bernie Madoff Ponzi scheme or another Bear Stearns meltdown or another AIG accounting fraud. And as long as members of Congress rely on campaign contributions from Wall Street bankers and regulated corporations for their political survival, there's no incentive for them to take up the cause of investors whose pockets will never be nearly as deep.


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