25 Apr Integrity In Finace
REGULATIONS ARE BOUNDARIES
Rules are important. Regulations are important. Integrity in finance is also important. Boundaries of acceptable actions are important. Just as the rules guiding the behavior of a child, regulations are boundaries for adults. Telling a child they have to finish their meal and if they don’t finish, they won’t have dessert. Giving a teenager a curfew that, if broken, will result in being grounded. It all provides boundaries for behavior. If boundaries are crossed, the prescribed punishment will be enforced. As we rise to adulthood, enforcement of crossing boundaries become the job of other adults. Regulators have to enforce noncompliance.
REGULATIONS & CONSEQUENCES
Walk into the office of any compliance officer and you will find row upon row of rulebooks. But those large leather-bound rulebooks offer the framework for how a self-regulatory organization must operate. They can provide the boundaries, but they can’t enforce compliance.
Madoff Investment Fund was reported to the SEC 9 times by an asset manager in Boston. Nothing further than a cursory investigation was undertaken. Had the SEC compared the reported trades to the volume of contracts traded, they would have seen a reason to pursue Mr. Madoff further. The amount of heartache and destruction a full investigation could have prevented is staggering.
Jon Corzine directly or indirectly allowed desegregation of clearinghouse funds. The most fundamental cornerstone of clearinghouse safety to date, Corzine has yet been called by regulators to answer for either his actions or lack of oversight. Investors received 84 cents on the dollar and the industry seems to have moved on from the event.
In 2008 came the great credit crisis and Washington bangs on their tables saying a solution must be found!! I have to question their surprise.
Didn’t they think the process through before loosening the lending rules and allowing for no doc mortgage borrowers?
Why did they completely dismantle Glass-Steagel brick by brick?
Regulations without consequences are meaningless. Unless reports of non-compliance are investigated, unless obvious violations are punished completely, any regulation is just words on a page. Little more.
REGULATIONS & MORAL COMPASS
Dodd-Frank must include enforcement with punitive measures. Using the sandbox as an analogy, if a person cannot follow the rules of the sandbox, they should be removed from the sandbox. Permanently.
Madoff has spoken barely a word other than that he feels so much less stress amongst the trees of North Carolina’s Butner Federal Corrections Facility.
Jon Corzine has still not answered for MF Global.
Businesses, where large amounts of money are involved, require people to examine their personal ethics and moral compass. Maybe if summer homes and new cars became secondary to fiduciary responsibility to clients and ethical responsibility to their employers, an underlying culture of morality would expand organically.
SUMMARY & CONCLUSION
Don’t get me wrong, I’m not a charity. I work with the client offering the most money for work I’m able to complete on time. It’s just good business sense.
While the handshake agreement may be out-dated in reality, “You’re done” is still a binding contract in financial markets. Those who are not playing by rules need to be removed from the sandbox. Lest the sandbox resemble another kind of box and no one will play in a dirty (cat littered) sandbox.