Statement Summary
In a reflective address, a departing SEC Commissioner underscores the significance of the U.S. capital markets, which play a pivotal role in fostering economic growth by efficiently directing capital to innovative ventures. The Commissioner notes that the strength of these markets is largely due to minimal government interference, adhering to a regulatory framework that instills investor confidence. This framework is rooted in foundational principles of personal liberty, as articulated in the Declaration of Independence. The speech also touches upon recent regulatory actions, emphasizing the need for the SEC to operate within its statutory boundaries and the Constitution while addressing complexities in market dynamics. The Commissioner advocates for a collaborative approach to reforming regulations to enhance market functionality and support economic prosperity for the future, while also expressing gratitude for nearly three decades of service.
Original Statement
Thank you, Jim [Febeo]. I am delighted to be part of the Summit. My views are my own as a Commissioner and not necessarily those of the Commission or my fellow Commissioners. My days of giving that disclaimer are rushing to an end. After nearly thirty years in DC, I am leaving the city and moving to the beach.
When I think back on my time here, many memories were born within several blocks of where I am standing now. I spent one summer during college as a research assistant for scholars at the Smithsonian’s Castle, a wonderful building on the mall. Some years later, I sat nervously on a bench in Lafayette Park as I prepared for an interview with Judge Roger Andewelt on the Court of Federal Claims. Early in my clerkship, Judge Andewelt took me and my fellow clerk to the top of the Hotel Washington at 15th and Pennsylvania for a breathtaking view of the city and my first (and I hope last) raw oysters. Following the Judge’s wise counsel and ceaseless cheerleading, I found my way into a law firm several blocks west of where we are today. I also have many memories from this building in which I have enjoyed hours of conferences on fascinating financial regulatory issues. I mean that sincerely. I love this stuff. I love it because it matters.
The Importance of Capital Markets
Financial markets underpin our vibrant economy. And capital markets are particularly important because they are so good at directing money to its highest and best use. Capital markets facilitate the sharing of risks and rewards. They organically match enterprise and capital to achieve socially useful ends. Someone who has a good idea but does not have rich family or friends can get funding to commercialize her idea. A company that wants to build a new factory can get money from strangers to build it. The capital markets embrace and support the risk-taking innovations that propel human progress.
Failure happens routinely in these capital markets; innovation is a risky business. But capital markets absorb these failures and redirect capital to new endeavors. Contrary to some misrepresentations of these markets, they are not bastions of isolated individualism; they bring people together to build things. The more people who participate in these markets, the better they work. Each person brings a necessary input to the market: ideas, capital, speculative appetite. Together, market participants build companies, which, in turn, make products and provide services that people need. The capital markets invite people to cooperate for the improvement of society.
The Role of Government
The United States has the best capital markets in the world. People come here from all over the world to raise money and to invest. Our markets have helped build the globe’s companies and economies. Other countries look longingly to the U.S. capital markets and hope to emulate them. Representatives of foreign governments, whose economies are in thrall to bank finance, routinely ask us what they can do to replicate our dynamic capital markets.
Why is the United States blessed with such powerful capital markets? As a regulator, perhaps I should credit government as the reason our markets are so strong. But one of the reasons our capital markets work so well is that government generally does not meddle with them. It does not attempt to override the decisions of market participants to direct capital to politically favored places. It is a referee, not a player, on the capital markets field.
Foundational Principles
Less than a month from now we will celebrate the 250th anniversary of the signing of the Declaration of Independence, which so powerfully proclaimed the “self-evident” truths “that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” We do not always abide by these truths, but we hold one another accountable when we fail and eventually correct course.
In declaring independence, the nation repudiated the bonds of consanguinity in favor of bonds forged through a common commitment to principles of freedom. These principles continue to be the unifying thread of this nation, which is composed wonderfully of people with roots reaching every corner of the world. We are, as the Declaration reflected, a nation of risk-taking liberty lovers who are well-suited for the rough-and-tumble of the capital markets.
Regulatory Challenges
The SEC, as part of the government, must limit itself to the exercise of powers given to it by the people. The SEC celebrated its 92nd birthday on Saturday; on June 6, 1934, the Securities Exchange Act, which created the SEC, became law. This law and other statutes give the agency its powers. We do not have the consent of the American people to exercise powers not conferred upon us by those statutes.
Applying these principles day-to-day can be challenging. Complicating the task is that the markets are vast and complex, many of the statutes are old and drafted during times when the markets operated with fewer participants and less complicated technology. The endless creativity of market participants raises continuing interpretive challenges when dealing with the SEC’s numerous and often technical regulations, especially when other regulators’ jurisdictions overlap with ours.
Conclusion
Well-intentioned people can disagree about how to regulate capital markets. We must remember, however, our shared interest in ensuring that our capital markets continue to flourish and grow to serve more investors and companies. Healthy capital markets are essential to generate the economic growth we need to increase the standard of living and decrease the national debt. Properly functioning capital markets are key to increasing the employment and investment prospects of the next generation of Americans.
Thank you for indulging the meandering reminiscences of a soon-to-be former regulator. I am sad to be leaving a place that has allowed me to engage in the important work of regulating the finest capital markets in the world alongside fellow Commissioners and a wonderful staff who are committed to doing that task well. Yet I am delighted to be leaving a seat that should not be occupied by the same person for too many years. Ours is a government grounded in timeless principles, not fleeting personalities. The SEC will benefit from energetic new voices with fresh ideas about how to protect our precious and powerful capital markets. Happy 250th anniversary to the nation I have been so honored to serve.
