4 ms·

I don't understand how anyone can make the argument that securities regulations are in any way effective after the Madoff debacle. I don't understand why the SE

I don't understand how anyone can make the argument that securities regulations are in any way effective after the Madoff debacle. I don't understand why the SEC wasn't just disbanded after it came to light they dropped the ball after being handed the case on a silver platter. Any regulation acts as a tax on legitimate business but the idea is the cost to legitimate businesses is out-weighed by the good done by stopping bad actors. If the regulations don't stop bad actors then all we are left with is a tax on legitimate businesses

dmix 15y ago
Indeed the solution to every problem these days always ends up being: regulate it. But noone stops to ask if: A) Regulation will actually stop anyone, or just make people try harder to hide it and B) Will the side effects of the regulation create more destruction than not having it
- mkr-hn 15y ago
  What is the alternative to regulation when an industry's lack of self-control becomes harmful to the world around it?
  - JoshTriplett 15y ago
    If you have to regulate, don't regulate behavior, regulate results. So, rather than saying "you must do X because !X causes problem Y for the world around you", say "you must not cause problem Y" (usually in the form "you incur all liability for any damage you cause by problem Y", since regulations imply an associated threat). You then make it possible for someone to come up with a more creative solution to not causing problem Y.
    - mkr-hn 15y ago
      That seems reasonable, but the only real world examples I can think of come with inconsistent outlooks. The ESRB formed when video games were at risk of being regulated. Since then video games soared past the movie industry. The counterexample to that is the CCA, which is largely credited with keeping the comic book industry from diversifying and expanding. What is needed to make self-regulatory organizations work out as well as the ESRB?
      - JoshTriplett 15y ago
        The regulatory situation I described only applies when some serious problem exists that will cause harm to others, but no existing law makes people liable for causing that harm, and no other financial incentive exists to self-regulate (e.g. the target market doesn't actually care about the problem in question). In such cases, regulation might make sense; I suggested that such regulation should just address the harm caused rather than the details of what (at the time of regulation) seem like the "right" steps to prevent that harm. In the case of the ESRB and the CCA, self-regulation serves primarily as a marketing tool, with varying degrees of success; a strong financial incentive already exists to self-regulate. The ESRB works reasonably well because it helps the gaming industry target a broad age range and have everyone get what they want and expect. The Comics Code and similar systems worked badly because they attempted to censor rather than just label, and because they didn't do a good job of keeping up with what target audiences wanted; CCA failed because it no longer provided value to anyone. Similarly, the automobile industry introduces a huge number of safety features because their target market cares deeply about safety; most such features don't come from regulatory requirements, and even the mandated features would continue to exist in the absence of regulation, because people demand them. Advertising for vehicles often touts independent safety ratings as primary selling points. So, self-regulation works out very well when the target market wants it as a feature. It doesn't work well by itself when it provides no value to the target market.
- rhizome 15y ago
  A) That applies to all laws and restrictions. B) What do you mean by "destruction?"
joe_the_user 15y ago
And the answer to ineffective regulation is to toss it out entirely??? That's like saying "the fire department is sure doing a bad job putting out fires, we should just disband it"
- fleitz 15y ago
  Actually it is, since the sec doesn't do their job any more what is the point of having the rules? When we decide that we want an sec that does something we can bring the rules back.

dmix 15y ago

Indeed the solution to every problem these days always ends up being: regulate it. But noone stops to ask if: A) Regulation will actually stop anyone, or just make people try harder to hide it and B) Will the side effects of the regulation create more destruction than not having it

mkr-hn 15y ago
What is the alternative to regulation when an industry's lack of self-control becomes harmful to the world around it?
- JoshTriplett 15y ago
  If you have to regulate, don't regulate behavior, regulate results. So, rather than saying "you must do X because !X causes problem Y for the world around you", say "you must not cause problem Y" (usually in the form "you incur all liability for any damage you cause by problem Y", since regulations imply an associated threat). You then make it possible for someone to come up with a more creative solution to not causing problem Y.
  - mkr-hn 15y ago
    That seems reasonable, but the only real world examples I can think of come with inconsistent outlooks. The ESRB formed when video games were at risk of being regulated. Since then video games soared past the movie industry. The counterexample to that is the CCA, which is largely credited with keeping the comic book industry from diversifying and expanding. What is needed to make self-regulatory organizations work out as well as the ESRB?
    - JoshTriplett 15y ago
      The regulatory situation I described only applies when some serious problem exists that will cause harm to others, but no existing law makes people liable for causing that harm, and no other financial incentive exists to self-regulate (e.g. the target market doesn't actually care about the problem in question). In such cases, regulation might make sense; I suggested that such regulation should just address the harm caused rather than the details of what (at the time of regulation) seem like the "right" steps to prevent that harm. In the case of the ESRB and the CCA, self-regulation serves primarily as a marketing tool, with varying degrees of success; a strong financial incentive already exists to self-regulate. The ESRB works reasonably well because it helps the gaming industry target a broad age range and have everyone get what they want and expect. The Comics Code and similar systems worked badly because they attempted to censor rather than just label, and because they didn't do a good job of keeping up with what target audiences wanted; CCA failed because it no longer provided value to anyone. Similarly, the automobile industry introduces a huge number of safety features because their target market cares deeply about safety; most such features don't come from regulatory requirements, and even the mandated features would continue to exist in the absence of regulation, because people demand them. Advertising for vehicles often touts independent safety ratings as primary selling points. So, self-regulation works out very well when the target market wants it as a feature. It doesn't work well by itself when it provides no value to the target market.
rhizome 15y ago
A) That applies to all laws and restrictions. B) What do you mean by "destruction?"

joe_the_user 15y ago

And the answer to ineffective regulation is to toss it out entirely??? That's like saying "the fire department is sure doing a bad job putting out fires, we should just disband it"

fleitz 15y ago
Actually it is, since the sec doesn't do their job any more what is the point of having the rules? When we decide that we want an sec that does something we can bring the rules back.