Sometimes, members of Congress rely on logic so stunningly harebrained that if the consequences weren't so serious, it would be worth a good laugh.

Take for example, a bill in the U.S. House of Representatives co-sponsored by Reps. Spencer Bachus (R-Ala.) and Carolyn McCarthy (D-N.Y.) that would essentially allow investment advisers to regulate themselves.

Even a fifth-grader could tell you how bad this idea is. Everyone knows: You don't let the fox guard the henhouse.

Bachus, chairman of the House Financial Services Committee, and McCarthy say their Investment Adviser Oversight Act of 2012 (H.R. 4624) tightens up needed supervision of large investment advisers -- the people you trust to handle your retirement nest egg.

It's true that oversight of investment advisers on the federal level is sorely lacking. The Securities and Exchange Commission (SEC) regulates investment advisers who handle more than $25 million in assets, while the states oversee the smaller advisers.

The problem is the SEC is so understaffed it has never even examined 40 percent of the investment advisers under its jurisdiction. In 2011, the SEC examined only 8 percent of the more than 12,600 investment advisers it oversees.

And while new rules will shift about 2,000 mid-size advisers (those who oversee up to $100 million in assets) to state jurisdiction at the end of this month, some industry analysts say the move will have little effect on the SEC's workload.

Here's where the logic of the Bachus-McCarthy bill takes a turn toward the absurd. Rather than address shortcomings at the SEC by providing additional resources, the bill shifts responsibility for the investment advisers under SEC jurisdiction to an industry-financed and controlled regulatory organization, which in this case will likely be the Financial Industry Regulatory Authority or FINRA.

The Project On Government Oversight (POGO) has pointed out how FINRA's inherent conflicts of interest -- it collects membership fees from the very securities firms it oversees -- undermines its ability to regulate Wall Street.

That is actually a nice way of saying that FINRA has little credibility.

Compounding its conflicts of interests is FINRA's troubling lack of transparency and accountability. Even industry groups such as the U.S. Chamber of Commerce have complained that unlike the SEC, FINRA isn't required to comply with the Freedom of Information Act, which allows it to keep many of its records hidden from journalists and watchdog groups, such as POGO.

Even when it does produce documents, there can be problems. An SEC administrative order issued last year found that FINRA had altered minutes of its staff meetings before turning the documents over to the SEC. The SEC found that it was the third time in eight years that FINRA had tried to mislead the SEC with altered documents.

Just a few weeks ago, the Government Accountability Office issued a report that focused on the SEC's spotty oversight of FINRA. For instance, the SEC has never reviewed FINRA's lavish executive pay. The current head of the SEC received a nearly $9 million golden parachute when she left FINRA in 2008.

In a letter that POGO sent to the House Financial Services Committee last month, we pointed out that there are plenty of recent examples of ties between current and former FINRA officials and firms that were later investigated or charged with fraud involving major investor losses.

The list includes Bernie Madoff, who ripped off investors of at least $64 billion in the largest Ponzi scheme in history. Not only had Madoff served as chairman of the NASDAQ stock exchange in the early 1990s but his brother, son and niece all had ties to either FINRA, or its predecessor, the National Association of Securities Dealers (NASD).

While there was no indication that family members helped Madoff avoid scrutiny, it's clear that FINRA and the SEC ignored tips that would have ended Madoff's scheme years earlier.

Harry Markopolos, the private financial fraud investigator who is credited with discovering Madoff's scheme and reporting it to the SEC, was asked by a Congressional committee if he ever considered taking his findings to NASD or FINRA.

Not a chance, Markopolos said.

"What I found them to be was a very corrupt, self-regulatory organization, that if you took a fraud to them, they would ignore it as soon as they received it," Markopolos testified. "They were there to assist industry by avoiding stricter regulation from the SEC."

While the Madoff scam was not a major factor in our near economic collapse in the fall of 2008, it really wasn't that far of a departure from the risky, questionable behavior by Wall Street traders that did bring us to the brink.

Incredibly, even while we're still clawing our way out of the hole that Wall Street's greed put us in, there are some in Congress who are trying to rig the system in the financial industry's favor.

Congress should reject the Bachus-McCarthy Investment Adviser Oversight bill. This is no time to loosen Wall Street oversight.

This post was co-authored by Michael Smallberg, an investigator with the Project On Government Oversight. A version of this post appeared on Otherwords.com.

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