libertarian party logoWith the view that there is a strong Libertarian streak across this web site, I pose these questions:

Should investment professionals, brokers, etc be registered and regulated by the government?

Should the government be able todetermine who should or should not be in the investment business or should the free market determine this?

Is it the government's duty to attempt to preemptively protect investors from potential fraud?

Should the government have strong laws against fraud yet have few laws determining who should be in the investment business?

A discussion delving into both sides of this would be very interesting.

Stefan Jovanovich replies:

Jeff's question deserves a proper answer. Common law fraud was the strongest possible law, and it did not involve the government (as opposed to the civil court) at all. Under common law, three elements were required to prove fraud: (1) a material false statement made with an intent to deceive (scienter), (2) a victim's reliance on the statement and (3) damages. This was the legal/regulatory world that the authors of the American Constitution were familiar with. They had all - both civilians and lawyers– read Black's definition of fraud: "All multifarious means which human ingenuity can devise, and which are resorted to by one individual to get an advantage over another by false suggestions or suppression of the truth. It includes all surprises, tricks, cunning or dissembling, and any unfair way which another is cheated."

Having such a broad and general definition might seem an invitation for perpetual litigation; but it had, in fact, the opposite effect since both parties- plaintiff and defendant– had at risk the cost of their own attorneys AND those of the opposing party, if that party won the case. Nick may have a more benign view of regulation precisely because Australia follows the old American and current British tradition of requiring the loser to pay the winner's costs and attorneys fees. But, I doubt that, even in the Commonwealth countries, the sovereign has surrendered its immunity from having to pay the other party's costs and fees when the government is the loser. That immunity is really at the heart of Scott's and other's anger. The government is never required to pay its share of the burden of the regulatory system. The government can, with ease, tyrannize the citizens by bringing a criminal or regulatory action; the citizens may successfully defend themselves but they are ruined by the expense of maintaining their innocence. Under our system of sovereign immunities (the last holdover from the theocratic idea that the government is God's instrument) being the government means never having to pay any tithes for your civil servants' mistakes or, heaven forbid, requiring the civil servants themselves to have any personal stake in the outcome of their decisions. 

Easan Katir writes:

There was the famous case in old England where a father on his deathbed bequeathed his interest in a brewery equally to his six daughters, thinking he was giving them a wonderful gift.

After his death, it turned out the partners in the brewery had burdened the enterprise with mountains of debt. The creditors exercised their legal right to collect from all partners. This was before the corporate shield, so all six families of the daughters were bankrupted.

Some gift.

Gibbons Burke writes:

Small businesses, farms, individual traders and some professionals still operate in a mostly free market where the rules of accountability and the mechanism of creative destruction still obtain.

Big corporations are just as much the enemy of a free market as big gummint. I am starting to think that the world would be a better place if corporations had never been allowed to exist. The idea that the owners of an enterprise should not be held responsible for it's debts or its crimes, beyond their investment in the enterprise, seems to be an immoral one with bad consequences.

Salomon Brothers was a better organization than Salomon, Inc., as Michael Lewis has observed in many of his writings. When the partners were absolved of the risk of their investment schemes, the tenor of the schemes turned malignant and metastasized. Same idea applies to ….





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