Instead, like second-rate matadors, they wait until the bull has been poked and prodded to the brink of death before they enter the ring, whereupon they wave their cape over the carcass and wait for the bouquets to land. The effect of their crowd-pleasing is to exacerbate the market's natural manic-depressive tendencies. They raise the cost of doing business at exactly the moment when doing business is most costly.
The usual ethical complaint made against people who work at the SEC is that they wind up taking jobs with the companies they are meant to police. All over Wall Street, former SEC employees are paid great sums of money to monitor their firm's relations with the SEC.
But that is a small problem compared with this other systemic one. The SEC cannot behave like an honest, well-run police force because it does not have the incentives of an honest, well-run police force.
It isn't really paid to fight financial crime. It is paid to create the illusion that it fights financial crime -- and at the same time not offend important politicians who give it funding.
That is, the people who work for the SEC must at once police the markets and play politics.
They know that good public relations translates into bigger budgets. They also know that if they create a stink when the market is flying and investors are happy, they will invite not just derision but punishment, in the form of lower budget allocations from Capitol Hill. Only in bad times, when their activity is pointless, do they find it rewarding to leap into action.
Michael Lewis, whose books include Next: The Future Just Happened and Liar's Poker, is a columnist for Bloomberg News. The opinions expressed are his own.
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