Video from markup of the Views and Estimates of the Committee on Financial Services on Matters to be Set Forth in the Concurrent Resolution on the Budget for Fiscal year 2012. Republican Congressman Scott Garrett (NJ-5th District) falsely claims that a study by the SEC requesting more funding is requesting... less funding.

Transcript: The solution to most any problem, it seems over the last four years while you were in power, is to not hold people accountable, not to make them more efficient, not to live up to the standards that Congress set for them through statute, but instead simply to do basically what the ranking member is doing today, let's give them more money. Well what the report is saying is just the opposite of that. They're saying that has been the tried and failed policies of the past: If you keep on funding the agency and not holding them accountable, that they will fail again. And that's why they failed in 2008. We on the other hand are taking the report to heart. We are reading the report and recognizing that they are setting out a whole list of parameters that must be met, a whole series of initiatives that must be taken in order to become more efficient and optimized in their operations, but before we give them more [inaudible], before we allow them to have more money to spend to their various programs, we are going to hold them accountable.

The study being referred to is the U.S. Securities and Exchange Commission Organizational Study and Reform from March 10, 2011.

What Rep. Garrett is implying is that this study states that the SEC not only wants less funding (something so patently untrue as to make your head spin), but can get the job done without more funding by optimizing their operations. He then states that we should hold off on more funding until they do just that, because that is what the SEC says to do in the study.

In reality, the study suggests that if the SEC is not adequately meeting expectations for the agency's efficiency and effectiveness (something few people, if anyone, would argue with), there are two options for rectifying that:

• "Relax funding constraints to allow the SEC to better fulfill its current role" (in other words: more money, and they've requested an increase of $264 million for FY2012, something you can read all about in their FY2012 Congressional Justification) or
• "Change the SEC's role to fit available funding"

What does changing the SEC's role mean? Is it, as described by Rep. Garret, optimizing operations and greater efficiency? Not really. On page 150 of the study, it says:

In the event that the funding environment does not change, an alternative option is for the SEC's role to be changed to fit the available budget. The SEC would then need to rethink what activities it should perform and delegate greater authority to SRO's [Self-Regulatory Organizations] than it does today. It would also need to rethink its operating model: This "new SEC" would change from being an "actor" that actively regulates markets and market participants to an "overseer" that primarily monitors the regulatory actions of others to whom it has delegated regulatory activities.

It further describes what "greater authority to SRO's" would look like on pages 151 and 152:

Broadly, there are two ways for the SEC to think about how to increase its reliance on SRO's. First, the SEC could "functionally outsource"-that is, rely on SRO's more heavily (if not completely) for specific steps in the regulatory value chain. Second, the SEC could extend its reliance on SRO's with respect to select regulated entities (e.g., broker-dealers, investment advisers)...

No matter the constraints, however, the SEC should only approach this option incrementally, as the consequences of insufficient oversight are sever...

We do not opine on whether it is appropriate to give more or less regulatory responsibility to the SRO's, nor do we assess whether SRO's are conceptually good for the regulatory framework.

Rep. Garrett was wrong to suggest that this study lays out a framework for how to improve effectiveness without more funding. Rep Garret was remarkably wrong to suggest that the study says more funding should be withheld until certain efficiency parameters are met. And Rep. Garrett was inexplicably wrong to suggest that the study was calling for less funding (or "the opposite" of more money). In reality, the study clearly states the the only alternative to increased funding is to reduce the role of the SEC and rely more heavily on self-regulatory organizations. Because we all know that if we had only relied more heavily on SRO's, Madoff would have totally turned himself in and Wall St wouldn't have destroyed our economy!

Yes, the SEC can get by without more funding, but we should not confuse ourselves into thinking that it would mean anything but a weaker SEC that relies more heavily on companies to regulate themselves.