SEC is Toothless Tiger According to Harvard Legal Team

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The SEC was created after the Great Depression. It's mission was to restore confidence in our financial markets. Its record after the latest financial scandal is reviewed in an article published by Harvard Law School. The SEC's performance is on par with the performance of the banking executives who were responsible for the financial crisis. Despite widespread evidence of fraud, the SEC has not brought criminal charges against any of the corporations or their executives. There is no reason to believe that actions taken by the SEC will deter future abuses of trust. The civil fines that the SEC has preferred to use are minor relative to the harm, and they are viewed as just another cost of doing business.

There are many reasons why the SEC has not acted in way that would deter future abuses and restore confidence in the financial markets. In the first place, it is underfunded and undermanned. It has been given new duties as a result of banking reform but Congress has not granted its request for additional funding. Apparently, deficit reduction is a higher priority than criminal justice. There is also a revolving door between the SEC and the Wall Street law firms that defend the bankers. The better lawyers at the SEC often move to higher paying jobs on Wall Street, and the Wall Street lawyers are more valuable after they take a "tour of duty" at the SEC. Economists call this regulatory capture. Its even possible that we are seeing an example of "state capture". The Justice Department has been AWOL. It prefers to give the appearance of action by starting up an organization with a powerful title, but whose actions speak louder than its words.

The Harvard Law School article is welcome, however. Thus far, details about the failures of the SEC to act in way that might deter future abuses have appeared in articles written by journalists without the prestige of legal scholars at Harvard Law School. The banks may not be too big to change if pressure comes from our elite institutions.