Sunday’s Meet the Press had a fascinating colloquy on securities regulation, revealing Washington’s immense capacity for self‐​deception.


David Gregory set up the story, on which CNBC’s Erin Burnett commented:

MR. GREGORY: … I want to stay in New York and something else that has rocked Wall Street beyond the economy, and that is Bernard Madoff. Big money man, investment man who was the darling of Wall Street for many, many years. Now it turns out he ran a giant Ponzi scheme and billions have been lost, from the small investor to, to Jewish organizations and, and philanthropies across the country. Steve Pearlstein, who writes about the economy for The Washington Post, wrote this: “With the Madoff story, it is now revealed that the masters of the universe aren’t just too clever by half—they’re not that clever at all. For years, they not only allowed themselves to be bamboozled by a con artist but also willingly and enthusiastically served as his market agent, offering friends, relatives and favorite charities the opportunity to invest with their good pal, Bernie Madoff. (So much for the idea that wealthy individuals and ‘sophisticated’ institutional investors don’t need the protection of government regulators.)” Was anybody watching?


MS. BURNETT: It, it is incredible, because there had been credible complaints brought to the SEC that said along the lines of, “This is too good to be true. You don’t get these sorts of consistent returns.”


MR. GREGORY: Mm‐​hmm.


MS. BURNETT: And they didn’t do anything about it. But they’re—you know, I was talking to Mort Zuckerman, the New York real estate man, earlier this week, and he had lost $30 million in one of his charities that was invested with Bernie Madoff. And he said, “I didn’t even know who the guy was. I had given my money to somebody else who actually”…


MR. GREGORY: Right.


MS. BURNETT: …“entrusted the entire $30 million to one guy, a guy I’d never heard of, and then I get a letter finding out that it’s completely gone.” So you’re talking about some very sophisticated people who were completely duped, and maybe some of them should have been doing more due diligence. Some of them were trusting that role to others…


MR. GREGORY: Right.


MS. BURNETT: …who had a fiduciary responsibility to do it. But there’s no question we need a real regulator.

“[W]e need a real regulator.”


Ms. Burnett, the SEC that failed to prevent this is a real regulator.


When regulators fail to address a problem ahead of time, when they regulate inefficiently, when they hand their rulemaking organs to the industries they are supposed to oversee, those are all the actions of real regulators. That’s what you get with real regulation.


What Burnett meant when she called for a “real” regulator, of course, was “the regulator I can imagine.” The regulators people imagine are foresighted, interested only in the public good, they’re resistant to lobbying, and they run efficient organizations. But these characteristics are simply imaginary.


Watching discussions like these, you come to realize how legislation and regulation thrive on self‐​deception and the appeal to ego.


Thousands of people come to Washington and stay because they believe that they can design the ideal regulatory system. They think they know how to write a law or a regulation that works for everyone, that protects consumers, that doesn’t pick winners and losers in the marketplace, that doesn’t make the glaring errors that we see month in and month out on Sunday morning political shows.


(If only voters didn’t elect the wrong guy. If only lobbyists didn’t ‘corrupt’ the system. If only, if only, if only .…)


Alas, we’re stuck with real regulators. They fail, and when people rely on them, the failures of regulation are magnified. (Not that Mort Zuckerman should get his money back from anyone other than Bernard Madoff. No bailout.)


Libertarians and pro‐​Washington people (for lack of a better term) have the same goals: honest, transparent marketplaces, productive economies, healthy and happy people. The difference is that Washingtonians strive to defeat human nature rather than harnessing it, and they build a bigger and bigger machine for doing that, sometimes calling it “real regulation.”