Government Secrecy Gone Wild: The SEC

Among the most cherished and powerful market principles is the direct relationship between the free flow of information and market efficiency. In our networked economy, of course, this is even more pertinent. The more information that flows, the more powerfully and quickly the markets can adjust. If one or more organizations gain control over information flow, trouble follows (e.g. see today’s earlier post of about the flow of information around the widely shared but false idea of ‘authenticity’ in our political markets).

Those who favor openness and free flow of information also believe the same is the best possible policy for countering the ill effects of dis-information. That is, when one ‘let’s it all flow” the odds improve that markets will more quickly and effectively adjust to bad or false information.

But, of course, those who currently rule instead of govern our nation have a strong, predictable set of beliefs and behaviours — strong shared values — that opt for secrecy over openness, and controlled/trumped up misinformation over the free flow of information.

It now looks like their diseased values have spread to the SEC.

Earlier this week, a jury returned guilty verdicts against two of the architects of the Enron scandals. In a subsequent letter, Chris Cox, the current head of the SEC congratulated the agency for their hard work and persistence in helping with the prosecution. Too bad that Cox’s new secrecy policy at the SEC — the policy of nondisclosure by that federal agency most iconically associated with the idea of disclosure — is but one more brick in a growing wall separating our government from competence and sanity.

Have Chris Cox and his lawyers lost their minds? The basic point of disclosure laws and practices is to help the markets react and adjust as quickly and as efficiently as possible to ‘news’ — especially news of possible wrongdoing. Had Cox’s wrong-end-of-the-telescope policy been in place in late 2001, the SEC would have blocked — not disclosed — information about the Enron investigations Cox now so proudly celebrates — and, in doing so, would have left tens of thousands of investors in the dark about what was emerging as a major scandal.

Yes. That’s right. The financial markets would not have been given the earliest possible moment to begin adjusting for the Enron malfeasance — and those same tens of thousands of investors would have held on longer — only to have been burned worse before the word came out.

Your job Chris is to help faciliate large, effective, and efficient capital markets. That’s job No. 1.

Your job is not primarily to ‘get scalps’, build your resume of successful prosecutions, and along the way harm investors.

Start doing your job.

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