Ugh and Awe: Remarks before the IFC-Milken Institute’s Capital Markets Scholars Program

Washington D.C.

Welcome to the United States Securities and Exchange Commission. Thank you to the International Finance Corporation, the George Washington University School of Business, and the Milken Institute for your work in bringing together financial regulators and central bankers in this training program. Over the sessions here today and in the weeks to come, you will hear much about the capital markets in the United States and our approach to regulating them. The subject matter is fascinating because of the importance of the capital markets. I hope that you will find all of the sessions informative and thought-provoking.

Capital markets bring companies—large and small—together with investors in a mutually beneficial relationship. The companies want to serve their customers by providing them with products and services, and the investors want to build their wealth so they can pour it into improving their own lives and those of their families and communities. This relationship between providers and users of capital is not only mutually beneficial, but societally beneficial; healthy capital markets support economic growth, which helps societies flourish. Regulating the capital markets well is, therefore, a delicate and essential task.

Because getting regulation of the securities markets right is so important, I am glad to be able to share the job with four other Commissioners. I enjoy being able to draw upon their wisdom in the same kinds of wide-ranging conversations that I anticipate you will have during this program. We jointly make all of the Commission’s rulemaking and enforcement decisions, and none of us is able to speak for the Commission as a whole. Accordingly, although I know my colleagues would join me in wholeheartedly welcoming you, I must inform you that these remarks reflect my own views as a Commissioner and not necessarily those of the Commission or my fellow Commissioners.

It is such an honor to have all of you here. You are seasoned regulators and central bankers, but I hope you will nevertheless benefit from getting an in-depth view into how we at the Securities and Exchange Commission approach our mission. Before turning it over to the first substantive session, I would like to share with you today some of the things I think about as I approach my job as a capital markets regulator.

First, I try to approach my job with a keen realization of my limitations. Regulators cannot know everything. Even as collecting and analyzing data gets easier, faster, and cheaper, we cannot know the countless facts on the ground. No matter how fast and sophisticated our computers are and how complicated our economic models, we cannot capture the complexity of the human decision-making that drives our markets. Our sophisticated data analytics tools cannot see the hungry stomach, dreaming heart, inquisitive brain, or muscular arm that drives economic activity. Despite all its recent glamor, artificial intelligence is no match for humanity’s perplexing diversity of thought and action, which responds to cues that are invisible to even the most perceptive of machines. So we regulators need to stay humble. We should not attempt to impose our preferences on the market or plan economic activity; we should limit ourselves to setting up reasonable parameters within which people can make the decisions and take the actions that they deem best for themselves and their families. Restraint does not come naturally to regulators, but it is essential to our ultimate utility.

Second, the rule of law is the regulator’s friend. We cannot build the trust of the people we serve unless we behave lawfully. Developing and enforcing rules with care and integrity draws people to the markets we regulate. For an agency like mine, a key responsibility is not to stray outside the bounds of the mandate Congress gave us. Sometimes that is hard, especially when we see bad conduct outside of the securities markets or outside of the United States. We might like to jump in and punish the bad actors or write rules to curtail the activity, but we do not have the authority to do so.

In carrying out the responsibilities entrusted to us by Congress, the rule of law also comes into play. A key feature of our rulemaking process is to seek public input when proposing a new rule. This step in the process is designed to ensure that the public – the people a regulation will affect and protect – have a say in writing the regulation. With this input, it is more likely that our rules will benefit the capital markets and avoid unforeseen side effects. Regulatory forbearance also requires that we wait to bring enforcement actions until we have set forth the rules clearly and given people sufficient time to come into compliance with them. A commitment to the rule of law precludes arbitrary enforcement of the law. Everyone has to play by the same rules. That maxim does not mean that regulators never make exceptions. Congress, appreciating the diversity of facts and circumstances we would face over time, gave the Commission tremendous power to exempt transactions and entities from the securities laws or aspects of them when doing so would be in the public interest. But those exemptions should be made available to everyone who can meet the conditions.

Third, I approach my job with a sense of awe. An appreciation for the treasure that our capital markets drew me to the SEC, first as an employee and then as a Commissioner. A free economy is an amazing tool for fostering prosperity in our society. I never tire of watching that economy work. Sometimes the admiration of how well it functions just stops me in my tracks with a sense of wonder. Thinking about the company that produced the engines on the airplane I am flying in, the company that made the pretzels I am eating, or the company that made the cleaning agent that the flight attendants just used to get the gum off the seat in front of me—the economy somehow pulls it all together in such a seemingly effortless way. Companies, of course, are just collections of people. People are constantly watching to see what others want and need and are building the factories to produce those things or setting up companies to provide those services. These products and services miraculously transform to meet changing needs and wants. People on their own are amazing, but when people with diverse talents join together to form companies, their accomplishments are even more breathtaking. As regulators, we need to recognize the unparalleled ability of private industry to serve human needs. As capital markets regulators, we strive to make it easier for companies that are good at meeting society’s needs to obtain funding. As we play our important, but limited, role, we must once in a while stop and marvel at the ability of an unplanned economy to serve people and to empower people to serve other people.[1]

Free markets are not perfect, but they are better than the alternative. Bono of the band U2 explained it nicely recently. He observed that, much to his dismay, he had discovered that “The off-ramp out of extreme poverty is, ugh, commerce, it’s entrepreneurial capitalism.”[2] He went on to explain:

[G]lobalization has brought more people out of poverty than any other -ism. If somebody comes to me with a better idea, I’ll sign up. I didn’t grow up to like the idea that we’ve made heroes out of businesspeople, but if you’re bringing jobs to a community and treating people well, then you are a hero.[3]

I do not have the same aversion to lauding people in the private sector, but I share Bono’s belief that we all benefit when we tie our economies together and allow them to unleash people’s talent. You all are part of that story: by building the regulatory framework for well-functioning capital markets in your countries, you enable your fellow citizens to put their intelligence, expertise, and creativity to work for society.

We can all learn from one another as we approach this important, delicate task of regulating the capital markets. Together, we can build better global capital markets, which in turn will foster a thriving, integrated global economy. If we undertake this task with the appropriate humility, commitment to the rule of law, and wonder for the power of private human effort, we will be able to enjoy the fruits of our collective and collaborative efforts: more children getting well fed and educated, more families living healthy and safe lives, and more people finding fulfilling ways to contribute their talents to improve the lives of their brothers and sisters across the world.

[1] Many others far more eloquent than I have described this process. See, e.g., Leonard E. Read, “I, Pencil: My Family Tree as told to Leonard E. Read,” Foundation for Economic Education (1958).

[2] David Marchese, “Bono Is Still Trying to Figure Out U2 and Himself,” New York Times, October 24, 2022,'t%20grow%20up,where%20I've%20ended%20up.

[3] Id.

Last Reviewed or Updated: Sept. 12, 2023