The growth of the economy in large part depends on the capital markets that fuel our businesses and drive employment. For these markets to effectively commercialize the next great idea or product, our capital markets have to be fair, transparent and relatively fraud/crime-free. That’s where investor confidence comes from, which is what causes people to put their money into bonds and, especially, stocks.
The primary and often the only regulator of those capital markets is the Securities and Exchange Commission (SEC). It is responsible for implementing and enforcing the laws and rules that enable the capital markets to work. Corporate finance, or ensuring that capital is available to US businesses large and small, is its ultimate mission. That is why the SEC is so crucial and why the next SEC Chairman is such an important appointment.
Right now too many people believe that the markets are rigged by insiders for insiders. It doesn’t really matter if it’s true (although there’s lots of evidence that it is) because people act on beliefs, which are the building blocks of confidence. No one is going to put their money where they think it’s at needless risk or where the game is rigged against them.
That’s the problem with the so-called Flash crash, Facebook and BATS IPO debacles, Knight Capital’s computer program running amuck, high frequency trading, and other predatory practices and fiascos in our capital markets. Of course, there was also the near collapse of the entire financial system, which flowed from Wall Street’s reckless creation, sale and distribution of trillions of dollars of worthless securities that caused massive investor losses. (And no one has been held accountable for this.)
These aren’t market “glitches” or “mishaps” as Wall Street likes to dismissively call them. They are confidence-killers and are causing people to lose trust in the markets. That means fewer people putting their money into the capital markets, which means less money available for corporate finance, which means less innovation as well as less business, employment and economic growth. That only leads to one place: a lower standard of living.
I’m not saying that’s where we’re headed, but that is, in part, what is at stake when talking about our capital markets and its primary regulator, the SEC.
That’s why it’s so important to have someone lead the SEC who will aggressively protect investors, the markets and our financial system. Applying the law to Wall Street just like it is applied to Main Street is also critical. Only a chairman willing and able to do that will restore confidence and trust in our markets, which will enable not just businesses and our economy to thrive, but also Wall Street.
The country is still paying the price for deregulating Wall Street in the years before the most recent financial crisis. That caused the worst financial collapse since the Great Crash of 1929 and the worst economy since the Great Depression. The resulting economic wreckage is still devastating families and communities across the country.
That must never be allowed to happen again and, as the primary regulator of Wall Street, the financial industry and the capital markets, that will require the SEC to do a much better job than has been done in the past. The next chairman has a lot resting on his or her shoulders.
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