The Blog Of The Securities Industry Professional Association

Lessons from Parkland

Making laws that don’t matter 

The recent horrifying events in Florida have caused many to become unhinged in their rush to prevent this sort of tragedy from happening again.  Admittedly, as a father of a high school teen, I do not know how I would react if faced with the same horrific event. The media has been conducting town hall meetings, nonstop debate and bringing expert after expert in to tell all of America exactly what to do to protect us in the future.   While in no way comparing the loss of life with our industry, the parallels are amazing when you think about it.  When there is a crisis in this country, our knee jerk reaction is to “Pass a law to stop it”.

When 9-11 occurred, our country quickly passed a series of laws from the Patriot Act to the Bank Secrecy Act because that would stop funding for terrorism.  Here we are 17 years later and has terrorism home or abroad stopped?  Of course not, but while trying to stop this, thousands of brokerage firms have been closed for not complying with these ‘laws’ that have yet to prove valuable.  Think about this for a moment: Can you recall over the last 17 years a press conference in which the SEC, Treasury and FBI announced that  “due to the Patriot Act and strict AML guidelines, a sleeper cell of ISIS was broken up or funds were confiscated that were going to be used to buy explosives” ? In the haste to instantly find a cause/solution to a horrific event, we have caused so much stress, confusion and costs to small owners of firms that had nothing to do with 9-11.

FINRA and the SEC pass numerous new regulations on a weekly basis based on reaction to something that has already happened.   When the big banks and brokerages were going under in 2008, new regulations were quickly enacted by congress under the Graham-Leach-Biley act, the regulators were quickly put on notice about the new requirements for all financial firms.  PCAOB audits began to sky rocket due to new requirements and once again small firms were forced to shutter their doors because of the sins of a few, however, why was this new law required?  The SEC already had a net capital rule that was enforced and perfectly implemented for 75 years, yet despite that law nobody enforced it.  Some of the largest firms on Wall Street like Lehman Brothers, Bear, Goldman and Merrill Lynch were BILLIONS of dollars under net capital due to the derivative losses.  But only Lehman and Bear were shut down, Merrill, Goldman and the Morgan sisters were allowed to operate below net capital.   So what is the purpose of a net capital rule if you will not enforce it and how do you solve this by putting in another rule or Act on top of that?  The SEC had a law that was violated and instead of enforcing the existing law, they created even more laws to go on top of that.   Its obvious law making does not work, only law ENFORCEMENT will work.

While we all want to wave a magic wand in Parkland and make it all go away, there is little chance a new law will fix the problem since we are not enforcing existing law.  Our hearts and prayers go out to all of the victims and their families in Parkland, Florida.

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April 5th, 2018



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