From out here on the fruited plain looking at Washington D.C. and New York City, you could conclude that things are cozy between the rich and powerful.
Former Commodity Futures Trading Commissioner Bart Chilton joined white-shoe law firm DLA Piper. Former Senate staffer Kara Stein is at the SEC. Ousted electorally as House Majority Leader, Eric Cantor is now vice-chairman of investment bank Moelis & Co. without ever having the burden of working at a banking job. Modern Markets Initiative, which lobbies for high-speed trading, hired Bank of America and NASDAQ OMX exec Bill Harts and staffers from the Obama and Romney presidential campaigns. A top lawyer at the firm that counsels us was a longtime congressman from Texas.
Beware Hens In the Fox Den: How the HFT Lobby is hiring former regulators for “educational purposes.”
I dont begrudge folks their jobs, and the relationship between business and government would merit no further glance were people doing as our founders intended. Back then, successful citizens offered a period of service in order to perpetuate our free and very new republic. Youd succeed in business, become a citizen of standing, and volunteer for a time in government in oder to bolster a new democracy that still needed support in its earliest years.
But this, alas, is not that. Regulators joining the regulated implies a merchandising of office and not the support of the citizens of the republic. Alexander Hamilton, whose gravestone greets passersby on Rector Street by Trinity Church en route to the pedestrian bridge across New Yorks West Side Highway, might concur.
In Federalist 60, penned in 1788, Hamilton wrote, Every new regulation concerning commerce or revenue, or in any way affecting the value of the different species of property, presents a new harvest to those who watch the change, and can trace its consequences; a harvest, reared not by themselves, but by the toils and cares of the great body of their fellow-citizens. This is a state of things in which it may be said with some truth that laws are made for the few, not for the many.
The problem isnt that regulators jump ship to businesses but the perversity of a system where that seems necessary to businesses.It means the referees are no longer merely refereeing but determining outcomes. If the rules are the same for all, the best players win. When the rules are selective, subject to revision through pressure, possible to game, and so complicated that following them better than somebody else alters the outcome, then government is running things.
Back at the beginning, none supposed the federal government would come to so dominate commerce that businesses would be compelled to employ legions lobbying the District of Columbia. In fact, the Constitution contains a command in Article I Section 4 that Congress convene at least once per year, implying a belief that the threat wasnt overreach but absence.
If only they gathered for just a day. Weve somehow progressed from government regulation of commerce with foreign nations, Native American tribes and between the states, to government regulation of commerce, period. That violates the 9th Amendment, which says the enumeration of some rights (for government) in the Constitution shall not be construed so as to deny or disparage the people and the states of others they retain. But nobody now cares what the Constitution says save subjectively to justify policy.
James Madison, lobbying against the first Bank of the United States, told the House of Representatives in February 1791 that it was important to understand how its powers were limited: It is not a general grant, out of which particular powers are excepted – it is a grant of particular powers only, leaving the general mass in other hands. So it had been understood by its friends and its foes, and so it was to be interpreted.
Madison observed that if Congress by virtue of the power to borrow money, can create the ability to lend, they may by virtue of the power to levy money, create the ability to pay it. The ability to pay taxes depends on the general wealth of the society, and this, on the general prosperity of agriculture, manufactures and commerce. Congress then may give bounties and make regulations on all of these objects.
And so it has. And now we have government running the equity market, and hordes of lobbyists, often now comprised of the very people previously lobbied, who, possessing knowledge of processes, command high prices for navigating them.
This is the corruption of government, and of freedom. The only way out, when things progress to this point, is to start over. Governments are after all constituted among free people to suit happiness, not to make regulators rich lobbyists.
Tim Quast is president and founder of market-structure analytics firm Modern Networks based in Denver.
The views represented in this commentary are those of its author and do not reflect the opinion of Traders Magazine or its staff. Traders Magazine welcomes reader feedback on this column and on all issues relevant to the institutional trading community. Please send your comments to Traderseditorial@sourcemedia.com
