Here's the thing: "You can't fix stupid."
That's a great line by the very funny comedian Ron White. Really, he is hilarious.
He strings out some funny lines about what stupid people do, and as you're laughing your head off, he tags you with his famous punch line to the punch line you're already laughing at, by explaining a sad but funny reality: "You can't fix stupid. Stupid is forever."
Here's another thing (it's my takeoff on you can't fix stupid): You can't fix fraud.
People do stupid things because, well, they're stupid. And people commit fraud, well, because they're crooks. Maybe they don't start out contemplating how to commit fraud. Maybe they do. But, in the end, they do it, it's done, and it can't be undone.
So, that's why we need regulations, stupid.
I'm not calling you stupid. That is, unless you are stupid enough to think that by simply expecting people to always do the right thing, they will, in fact, always do the right thing.
You see, here's the thing: That's stupid.
The reason I'm pro regulation is because, without regulations, people will do stupid things. They will also commit fraud.
Why? It's about the money, stupid. Some people will do anything for money.
When I say we need more regulation, not less, I don't mean we need more stupid regulations.
I mean we need fewer, more black-and-white regulations that make it easy for stupid people to understand what is right and wrong. And we need hard and fast enforcement of prudent, simple regulations. And, of course, we need more jails, stupid.
I read all your comments, always, and there were a lot on my last post about regulation. That's why I'm clarifying my position on regulations and addressing the fanciful, if not exactly stupid, notion that people should just have a north-facing moral compass and we wouldn't need all the burdensome regulations we have.
I wish it was that simple. I also wish there was a Tooth Fairy and a Santa Claus.
Here's My Case in Point
Actually, there are two obvious examples to point to.
First, in spite of all kinds of regulations, Russell Wasendorf Sr., the head of collapsed brokerage firm Peregrine Financial, committed fraud for something like 20 years, for the love of money.
Okay, maybe he didn't start out wanting to or thinking about committing fraud, but he did it. Maybe his business was in trouble and, by fudging a few regulations, he was able to keep it going (that's why he says he started). Maybe he liked the net result of committing his fraud, which included a jet, a handsome lifestyle, a sterling reputation as a stalwart, stand-up guy in his community and in business circles, and as a member of an advisory committee to one of the regulatory bodies that he was screwing over.
See, you can't fix fraud.
The other case in point is JPMorgan Chase's traders and management.
That little tempest in a teapot, that little $2 billion loss that's ballooned into over $5 billion and counting, that little hedge that was really a prop trade, that little thing is mired in fraud.
The traders on that gem and the managers who oversaw the gem polishers all decided to commit fraud. Maybe they didn't start out that way (that's what they'll say). Maybe their trade was in trouble and, by fudging a few regulations, they were able to keep it going by not admitting (okay, by fraudulently mispricing) how big the hole was that they dug for themselves while gem digging. Maybe.
But whatever, they did it. See, you can't fix fraud.
And remember, you can't fix stupid; stupid is forever.
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of 10X Trader, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade.
Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps.
Shah is a frequent guest on CNBC, Forbes, and Marketwatch, and you can catch him every week on Fox Business's "Varney & Co."
He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.