SEC Budget Insufficient for New Hires

How many scandals have to occur before SEC enforcement gets a decent budget?

Sigh. We talked about this over a year ago:  Congress cuts S.E.C. budget. Its not getting any better, and new regulations requires more enforcement.

Why is this important? After the 1929 crash, the widespread perception was that the game was fixed, the government was in cahoots with the investment trusts, and the public did not stand a fair chance.

An entire generation of investors left the markets — for good. It took until 1954 to get back to breakeven from market highs in 1929. That’s a full generation later.

We are risking a similar investor exit. The lack of adequate enforcement, despite the many, many scandals, means we are inviting another generation to toss up their hands in frustration and bail. A perception can develop that Commodoties and Real Estate offer the same upside — but without the corruption.

This is potentially a huge negative on the sentiment side. I’d be curious if any polling has been done asking individual investors their thoughts on how fair they thought the corporate environment is and whether an individual stands a fair chance in the stock market.

Everyone hates losing, but its part of life, and of playing a game. But if the perception becomes that the game is fixed or the refereres are corrupt, well, that becomes a very different issue.


SEC Says Budget Proposed by Bush To Slow Its Hiring
WSJ, March 14, 2005; Page B2,,SB111057917207577453,00.html

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What's been said:

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  1. bhaim commented on Mar 15

    Here’s a LA Times poll from March 2004:

    “Have corporate scandals in this country made you more willing or less willing to invest in the stock market, or have corporate scandals not played a role in your investing in the stock market one way or the other?”

    More Willing 6%
    Less Willing 37%
    Not Played a Role 31%
    Don’t Invest 23%
    Don’t Know 3%

    N=1,616 adults nationwide. MoE ┬▒ 3.

  2. chris commented on Mar 15

    You should look at the numbers carefully. The SEC budget grew in 2002 (FY03), 2003 (FY04), and was essentially static last year (FY05). Actually, there are well staffed and have a lot a leeway in there budgeting. The problem is a lack of sound resource allocation. They don’t need more money or staff, just better management.

  3. dd commented on Mar 15

    Perhaps the rapid changes in financial engineering, markets, and innovation have made the SEC a bit player in the new dynamic. Could the corporate scandals have been prevented if the SEC had the same regulatory power over derivatives that it has over securities and the securities markets? Could the timing scandal have been prevented if the SEC had the same regulatory power over hedge funds as it does over mutual funds? Just asking.

  4. Barry Ritholtz commented on Mar 15

    Hey Chris,

    You are technically correct, but your arguments are disingenuous in the extreme.

    1) Sarbanes-Oxeley massively increased enforcement requirements of the SEC. Doing twice as much with the same budget mean less dollars/[personnel per enforcement action. Hence, this is effectively a cut.

    2) The SEC has been a perennially underfunded department, with antiquated tech and low morale (under both Clinton and Bush). They needed a massive increase years ago, and are way behind

    3) A static budget in the face of an increasing population is essentially a decrease.

  5. Chris commented on Mar 16

    Fair enough. I concede the points. I enjoy your site. Cheers.

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