'Strange bedfellows' watch: Compliance lawyers want more compliance enforcement 

The liberal mainstream media has many consistent faults, and one of them is the assumption that Big Business and Big Government are inherently enemies. But you would think it's obvious that lawyers like Big Government. Alas, the Big Myth is so persistent that the New York Times is surprised when corporate lawyers want more corporate law to wrangle with:

the S.E.C. is cutting back on investigations, halting hiring — Ms. Schapiro was supposed to hire 800 new people this year — and canceling much-needed technology upgrades to monitor the markets. (Think “flash crash.”)

You might expect that most Wall Street lawyers would be quietly breathing a sigh of relief.

But, perhaps curiously, some of the industry’s best-known lawyers, many of whom once worked at the agency, have been not-so-secretly lobbying Congress for the S.E.C. to get more money.

Think about the characters here: these are revolving-door lawyers, whose value to their employer is their connections to the SEC, their familiarity with SEC regulations. If the SEC isn't enforcing regulations aggressively, these lawyers become less valuable.

This far, the Dealbook headline is misleading: "Wall St. Joins S.E.C. in Plea for Bigger Budget." Really, it should read "Wall St. Lawyers Join S.E.C. in Plea for Bigger Budget." Some of what's going on here is the principal-agent problem. Lawyers are agents of Wall St. firms, and part of what they do for Wall Street is lobby the SEC. But the agents (the lawyers) and their principal (the banks' partners or shareholders) don't have identical interests. The banks may or may not want a smaller SEC, but the lawyers, to remain relevant want a more active SEC.

But there's more here, suggesting that the financial firms themselves, and not just their lawyers, want more SEC enforcement.

In an open letter to lawmakers, 41 prominent securities lawyers and professionals wrote: “Investors sidelined with decimated 401(k)s will be unwilling to again risk their capital if Wall Street’s cop-on-the-beat increasingly comes to be seen by the public as a cop-on-furlough.”

This is what I call the "confidence game," and it happens all the time in all sorts of industries. It goes like this: Businesses, through some mixture of perfidy and stupidity, get a bad reputation and lose the confidence of investors and customers. Instead of earning back confidence, they ask for a government stamp of approval. We've seen this in Wall Street after Enron, toys after the leaded toys scare of 2007, and food in recent years.

Then there's this:

The group of lawyers petitioning Congress is going a step further than calling for a budget increase at the S.E.C. They say they believe that the department should be able to “self budget,” meaning that it should set its own annual budget.

I like the idea, but I also wonder if it opens avenues for even more industry capture of the SEC.

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Timothy P. Carney

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