SEC Commissioner: We Shouldn’t Be Promoting Investor Confidence

A leading Republican regulator, SEC Commissioner Michael Piwowar, said in a speech to Cato recently that the goal of the Securities and Exchange Commission should not be to “promote investor confidence,” but instead to “promote investor skepticism.” This is pretty remarkable, and it’s a scary example of a radically libertarian philosophy that could cause our financial system to melt down in a big way. It is always fascinating (not the only word that comes to mind) when people who don’t believe in government are charged with running it, especially when it comes to our country’s financial stability. The three biggest financial meltdowns of the last 100 years — the stock market crash of 1929, the Savings and Loan crisis of the 1980s, and the financial collapse of 2008 — happened on the watch of our three most conservative administrations in terms of economic policy of those 100 years, and that is no coincidence (I’m counting Coolidge and Hoover as one administration since the ‘29 crash happened so early in Hoover’s term). Presidents and regulators who let financial titans run wild and free pay a heavy price — or at least the countries they run do. Piwowar fills one of the two SEC commissioner seats allotted to Republicans. Although he was appointed by President Obama last year, he is exactly the kind of commissioner a Republican president would pick — a regulator who disdains regulation. Since late May, Piwowar is or has been a featured speaker at events for three of the most right-wing, libertarian groups in the country: the Cato Institute, the Federalist Society, and the Mercatus Center.

At the Cato event, Commissioner Piwowar was asked whether he knew of any time in history when the SEC had saved investors any money, an odd question given the SEC’s role in forcing more financial disclosure for investors and stopping fraud in financial services. In fact, from the time the SEC was created in the early 1930s until financial deregulation accelerated in the 1980s, there were none of the major financial crashes that had been wrecking the American economy about once every 20 years from the 1830s to the 1930s. The SEC’s role in preventing fraud was a major factor in that change, along with Glass-Steagall, which broke up the investor banks from the commercial banks.

But Piwowar’s answer to that ridiculous question is chilling: “I can answer that in three words: I don’t know.” Here’s an SEC commissioner so radically libertarian he doesn’t know if the agency he is a part of has ever, in any way, done any good at all. Worse still is Piwowar’s belief that the SEC should not promote investor confidence, but investor skepticism. He apparently wants investors to have no faith in our financial institutions because it is better if they assume everyone in the marketplace is trying to cheat them. Protections for investors make them soft and careless, and are another example of the nanny state. According to this worldview, you deserve to lose everything, even if you are scammed, because you have failed to do your homework. This is such a bad idea on so many levels. Markets don’t function effectively or fairly without rules that make it difficult to swindle people, and investment is far more likely to happen if people don’t assume they are about to be cheated.