Investors Beware: The High Cost of Government Incompetence

The U.S. Securities and Exchange Commission (SEC) is charged with protecting investors.

The SEC is funded by a tiny transaction on every trade made. This was as high as four cents on every $1,000 trade, or 0.00004% “stock tax.”

Amid the recent market meltdown and the ensuing investigations, the headlines haven’t been too favorable to the regulators at the SEC. Don’t worry though, Congress is here to “help.”

Schumer: Change SEC Funding After Madoff Failure:

Sen. Charles Schumer, D-N.Y., a member of the Senate Banking Committee, plans to propose legislation next week that would dedicate all the annual revenue collected by the SEC to its budget. Now a large portion of the fees paid by public companies and other entities that register stock with the agency go to the Treasury Department for the government's coffers.

Schumer's proposal would give the SEC a similar funding structure to the Federal Reserve and the Federal Deposit Insurance Corp., which are able to use all the revenue they collect from banks to fund their operations.

The Obama administration has proposed $1.03 billion for the agency for the fiscal year starting Oct. 1, the first time it would top $1 billion, up from $960 million in the current year. The House approved a $1.04 billion budget and a Senate panel approved $1.1 billion; the full Senate hasn't yet voted on it.

What else did you expect?

When a private company fails, it goes bankrupt (at least, not a politically favored one). Owners and investors lose their capital, management and employees lose their jobs, and lenders get what’s left.

That’s not true when a government agency fails. When they fail, they get more money.

I saw this firsthand when I was in the military. There are two solutions to every problem: more troops and more money. If those two couldn’t solve the problem, they’d throw more troops and more money at the problem.

This is not a new concept, but as investors we can certainly see how this rationale will lead to another stimulus bill likely to be signed after the 2010 mid-term elections.

The end result will be more debt, greater inflation, and an economy that still feels like a recession to the majority.

As we’ve been recommending in our free investment newsletter, buy gold and silver now, buy gold and silver a few months from now, and buy gold and silver year from now…it’s going to get very ugly.