Aguirre blows whistle on regulation

Hayek and other real economists demonstrated long ago that government regulation of the economy is a farce, a primary aim of which is to protect large, established firms from competition by entrepreneurs. Matter Renner of Truthout provides a perfect illustration of the thesis in his interview with former SEC investigator Gary Aguirre, the man fired for wanting to issue a subpoena to John Mack during an insider-trading investigation of Pequot Capital Management.

Renner begins the interview by asking Aguirre about Madoff, but soon turns the subject to the SEC more broadly. Aguirre skillfully demonstrates the function of the revolving door between the SEC and Wall Street law firms and departments.

At the conclusion of the fascinating conversation, Renner asks Aguirre whether there are “other Madoffs out there.” Aguirre’s response:

We have to look back in history. Yes, I do. I believe there are other Madoffs out there. I don’t think that the banks are finished collapsing and imploding, and I think we will also see more evidence of market abuse and insider trading. The way it works is when markets are going up, none of this comes to light. But when you have the markets begin to go into free fall and people begin losing money, it becomes hard to conceal the fraud. That’s what happened in Madoff’s case. In 1929, when the market crashed and the Senate Banking Committee surveyed the rubble, they discovered all kinds of fraud by Wall Street elite.

I’m not sure that all of the dirt has come to light at this point. I think one reason for that is because [Treasury Secretary Henry] Paulson, a representative of Wall Street, has been pumping money into the system. We’re transferring trillions of dollars from taxpayer’s pockets to Wall Street to try to stem the downward cycle that we are in and perhaps to some extent we have. But that may help conceal the extent of the fraud. It is when the veneer is completely stripped away; that’s when you discover the fraud. To the extent that we are pouring trillions into the capital markets, we may delay, postpone or even prevent the full extent of the fraud from surfacing. But I think it is out there and I don’t think the downward cycle has ended yet. As long as it continues, we’ll discover more.