The SEC Fails America, Again

The SEC Caves on China – WSJ.

From The Wall Street Journal:

U.S. stock-market regulators say they promote transparency and fair play, but this month the Securities and Exchange Commission quietly carved out a China-size exception: When Chinese companies list on U.S. markets, basic auditing rules won’t apply.

Why would the SEC agree to this? Again, the Journal:

Why? Because China’s government doesn’t want them to, and Washington bent to Beijing’s pressure.

I think that answer is, at best, is partly correct. The other bit – and the bit that the WSJ would never cop to – is that Wall Street is terrified that if it does not provide an exemption for Chinese auditors, the deal flow from China to the US exchanges and investment banks will dry up.

Let’s not kid ourselves. The chairman of Goldman Sachs and the President of the NYSE carry far more weight in the White House and on the Hill than Xi Jinping ever will.

We here at the Bull Moose have deep objections to gratuitous regulation. But there are some places where regulation is essential, and the SEC is in business to protect individual investors and, on their behalf, the transparency of the markets. They have failed here, and in so doing they have undermined everyone’s market on behalf of a small number of privileged players.

More demonstration – if any were needed – that as Republicans we should not automatically align ourselves with ideals, policies, and leaders who place the interests of corporations ahead of the individuals who own and work for them.

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Author: David Wolf

An adviser to corporations and organizations on strategy, communications, and public affairs, David Wolf has been working and living in Beijing since 1995, and now divides his time between China and California. He also serves as a policy and industry analyst focused on innovative and creative industries, a futurist, and an amateur historian.

4 thoughts on “The SEC Fails America, Again”

  1. David,

    The stated mission of the SEC may be to protect individual investors but it has never acted that way in actual practice. Like too many Washington agencies, the regulators come from the industry and will return to the industry once their tour of duty is up. The SEC can always be depended upon to protect the interests of the big 5 despite the occasional well publicized “show trial” and tax deductible fine. One could be forgiven if upon looking at recent Sec. of Treasury, that being a big Goldman Sachs exec is prerequisite for consideration.

    1. Thus the essence of regulatory capture. This is where I tend to diverge from those who think that the value of a government is a constant inverse to its size: whether we like it or not, we need a government agency looking after the best interests of individual investors. We need it to have a tightly focused mandate and mission and adequate resources to do its job. And we need it staffed, from top to bottom, with cops, not with investment bankers on Washington leave.

  2. This is deeply disappointing. Another example of privatizing the gains and (inevitably, when this brain-dead policy goes horribly wrong and takes the whole market with it) socializing the losses.

    Perhaps some bipartisan legislation making it illegal to invest other people’s money (particularly retirement funds) into firms which don’t follow basic audit rules could get enough steam to head this off at the pass?

    1. My gut is to start with shareholder activism. First, refuse to invest in these scams (because that’s what they are: scams with factories, not actual companies.) Second, call out the companies and funds who carry positions in these dreck enterprises as being, by definition, overvalued.

      You’re right: Chinese stocks are the new credit default swap.

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