Sad account of how toothless SEC enforcement against bank fraud really is: In SEC Fraud Cases, Banks Make and Break Promises Again and Again

Conservatives complain about too much regulation; liberals say there isn't enough. I think the truth is that there's too much, done badly. A lot less, done well, might be the right answer. I've been thinking a lot lately about how internet companies do what is the equivalent of regulation - Google and Bing have to fight web spam, ISPs have to filter email spam and viruses, Paypal and credit cards have to detect and deal with credit card fraud. This is a kind of "algorithmic regulation," where there's a desired outcome and a variety of tools deployed to achieve it. They aren't always as effective as we wish they were, but you don't have this sense of utterly useless bureaucratic handslaps while the behavior continues.

Here's the opening of the NYT article about toothless SEC regulation:

"When Citigroup agreed last month to pay $285 million to settle civil charges that it had defrauded customers during the housing bubble, the Securities and Exchange Commission wrested a typical pledge from the company: Citigroup would never violate one of the main antifraud provisions of the nation’s securities laws.

Senator Carl Levin, left, a Michigan Democrat, said the S.E.C.’s method of settling fraud cases, is “a symbol of weak enforcement." Robert Khuzami, the S.E.C.’s enforcement director, said never-do-it again promises were a deterrent, especially when there were repeated problems.

To an outsider, the vow may seem unusual. Citigroup, after all, was merely promising not to do something that the law already forbids. But that is the way the commission usually does business. It also was not the first time the firm was making that promise.

Citigroup’s main brokerage subsidiary, its predecessors or its parent company agreed not to violate the very same antifraud statute in July 2010. And in May 2006. Also as far as back as March 2005 and April 2000.

Citigroup has a lot of company in this regard on Wall Street. According to a New York Times analysis, nearly all of the biggest financial companies — Goldman Sachs, Morgan Stanley, JP Morgan Chase and Bank of America among them — have settled fraud cases by promising that they would never again violate an antifraud law, only to have the S.E.C. conclude they did it again a few years later."
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