"In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers," he wrote. "But the SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances."

If Howard Beal were a judge, this is what he'd sound like. This decision was a big, cathartic swipe at a whole system that many have come to regard as corrupt. And progressives have celebrated it. Rolling Stone writer Matt Taibbi called the opinion "an incredible judicial buttkicking" during an interview with Keith Olberman.

But just because something feels good doesn't make it good for you. Already, some are wondering whether Rakoff's stand will inspire other judges to follow suit. If they do, the results will be tragic, because Wall Street might end up even more immune to punishment than it is today.



THE DOWNSIDE OF HEROISM



As Rakoff's opinion points out, defendants enter into deals with the SEC largely because they know their aggrieved investors will have a hard time suing them later on. If the bank never admits to any of the underlying facts in a settlement, a plaintiffs' lawyer can't use them later on as evidence in another case. That protects the banks from a lot of financial liability. If you take away that protection, as Reuters wrote, banks are more likely to fight a case all the way to trial. In a perfect world, that wouldn't be a problem. The SEC would just get ready for a knock-down, drag-out fight.

But we don't live in a perfect world. We live in a world where the SEC is horribly under-funded and often legally outgunned by the banks they're supposed to regulate. The commission's total budget in 2011 was $1.185 billion. That's how much revenue a single large Wall Street law firm earns during a year. Just one firm. With that budget, the SEC is charged with overseeing 35,000 public companies

Because it can't afford competitive salaries compared to private firms, the SEC suffers from enormous turnover among its attorneys. Staffers leave, taking years of know-how and experience with them. The most experienced ones usually end up leaving to represent the banks their old colleagues are tasked with monitoring.

But keeping talent is just one problem among many. The SEC's budget woes also make it hard to fund the basic ingredients that go into putting together a big securities enforcement case--elements like sophisticated data analysis and travel to take depositions. As The New York Times pointed out, there are already concerns that the commission may be avoiding certain kinds of suits because of cost.

So if the SEC has to go to court to prove its case every time, there's a good chance you'll simply see fewer cases overall. We'd have even more lax enforcement than we do now.