The entire regulatory system is compromised.

Patrick Byrne: Well my view has evolved in the last few years, and that is there’s a . . . there’s a concept that economics calls a “regulatory capture”. A regulatory capture is . . . is when you . . . When an industry gets . . . gets regulated by somebody, but . . . For example, this happened famously with the Interstate Commerce Commission. And the ICC folks found out that if they regulated the railroads – this is in the 1870s and ‘80s – that if they regulated the railroads by restricting new entrants, and setting prices artificially high so all the people in the industry made a lot of money, then after you spent 10, 20 years at the regulator, you could leave, and there would be very high paying consultantships or directorships waiting for you. And so the regulator gets captured. They’re supposed to be protecting the society from this industry, and it becomes a tool of that industry. Well the SCC is a captured regulator. That . . . but and you know you start seeing a lot of things in terms of regulatory capture. And by the way, I think there are some good people at the SCC. I’ve fortunately met a couple of them. But I . . . In general, you know, I don’t think it’s monolithic. I think the guys at the top are pretty good. And I think the guys at the grassroots level are good. But in between there’s a lot of captured regulators. Well there’s a law professor at Harvard named John Hansen who has written a paper a few years ago and uses the concept of deep capture. And it says what if our system . . . What if it isn’t just this regulator who’s captured, or that regulator, or this congressman; but maybe it’s the whole thing. It’s . . . Maybe it’s the regulators, it’s the congressional oversight, it’s the press, it’s the university system. If the whole thing were captured by some malevolent force or group, how would we know? Well I think . . . In fact my blog is now called “Deep Capture”. I think that we have been captured. I think that it starts with the . . . I think a group of powerful, super wealthy hedge fund folks have captured the SCC and Wall Street in General; have captured the SCC; have captured the senators who were supposed to be overseeing the SCC; have captured the hedge fund beat, the financial reporters. Bertrand Russell was once famously in a discussion with a Hindu philosopher who was talking about the . . . the you know . . . who took the position that the world rides on the back of a turtle. And Russell said, “What’s the turtle ride on?” And the Hindu said, “Well the back of another turtle.” And Russell said, “Well what’s that turtle ride on?” And the Hindu guy said, “Sorry professor. It’s turtles all the way down.” Well this experiment of mine in the last two and a half years was really ________ the bottom. I thought that I was gonna come forward and make these charges, and the SCC was gonna intervene and look into it. No. SCC is just turned out to be . . . And I was warned these people are extraordinarily vindictive. “They’ll come after you,” which they did. The senators who oversee the SCC, same thing. They refused, and refused, and refused to look into this issue, lied . . . There’s thousands of letters that have been written to a Senator Shelby. Shelby’s on TV saying, “Oh, I never heard about this. It’s a flat lie.” In fact somebody posted a thousand of these letters on . . . on the Internet. The financial press . . . Again, it’s just like in the Watergate era, or right before the Watergate era, the D.C. press came to the White House. For the 1960s, the press were really poker playing buddies and such of Johnson, and Kennedy, and so forth. So they . . . It really . . . it took a couple of cub reporters to actually come along and report on what everybody knew. Well I think the same thing is happening with the Wall Street beat and the financial press. You have a group of reporters who were very, very chummy with these folks they’re reporting on, and they’re not even reporters. _____ is basically marketing literature for about five hedge funds. And they’re hedge funds that barely get named. They hardly ever get named, but they’re supplying the stories that Baron’s reports on. So the whole system has been captured, and I guess my contribution, if there be one, is going to be you know . . . It’s funny. When I started this off I wasn’t a Republican; but I was a pretty square conventional guy. And now I’m a radical. Now I’m just burn it all down. Maybe it gets replaced by something better. This whole system is captured.

Recorded on: 10/29/07