It’s done.

The loophole that would have given the U.S. Securities and Exchange Commission a new exemption from the federal Freedom of Information Act under the just-passed financial overhaul law is closed. The loophole would have allowed the SEC to cloak data it collects while inspecting, or “policing,” securities firms.

According to The Associated Press, the head of the Securities and Exchange Commission said this week that “the public shouldn’t be able to see the details of the SEC’s policing of financial firms because such access could make the agency’s job more difficult.”

Say what?

The loophole was inadvertent, but SEC Chairwoman Mary Schapiro grabbed right onto it, arguing that the SEC needs that cloak because financial firms won’t voluntarily provide information if they know it could be viewed by anyone, including competitors.

Why not? They’ve done so in the past. Just because Congress missed a loophole in passing the overhaul bill one short month ago doesn’t suddenly and automatically change that willingness.

Louis Brandeis would, if he could, groan in protest that closing the loophole was even a debate instead of a swiftly done deal.

The former U.S. Supreme Court justice spent his professional life pushing for government transparency to protect Joe Citizen, keenly focused on the danger of inadequate disclosure in securities law.

In his famous quote, “Sunshine is the best disinfectant; electric light the best policeman,” Brandeis was backing strict disclosure of securities practices to protect investors.

Why would we ever remotely consider sacrificing the limited protections we now have and providing increased cover for scammers — like Bernie Madoff?

It would be madness, especially since the SEC has failed to recognize multiple fraud cases in recent years with disclosure laws intact, so lifting disclosure requirements is certainly not going to improve investor security.

And so what if it makes the SEC’s job more difficult? Policing the nation’s financial firms shouldn’t be an easy job, and it shouldn’t be done without oversight of the very investors who have the most to lose — ordinary American citizens.

It’s not like everyone at the SEC is working terribly hard, anyway. Remember, this is the agency at which senior employees were recently caught spending hours surfing porn sites at work, so it would be fair to suggest the SEC needs more oversight, not less.

Allowing the SEC an FOI exemption was not just a bad idea, it was a supremely bad idea, and anyone who has ever invested in the market, through a 401(k) or any other means, should have been quaking at the implied wink to Madoff, or worse, to manipulate this nation’s securities without investor oversight or public accountability.

Early in his career, in fighting off rampant corruption in Boston’s transit system, Brandeis announced he would keep a public record of “good and bad deeds” of city politicians so the people could decide who to support in office. It was a new notion of public access that he argued was voters’ basic right to know because “we want a good government, not because it is good business but because it is dishonorable to submit to a bad government.”

The SEC loophole was a piece of really bad government.

Which begs the question of why Congress was tackling this issue after already having passed the financial overhaul. Shouldn’t this concern, in a good government model, have been raised and hashed out before the law passed? At a time when the loophole would never have existed, instead of having to be eliminated after the fact?

Yes.

Congress spent precious time working to reverse something that it should have spotted earlier, but the horse it now back in the barn. It may not stay there, though.

According to the AP, House Financial Services Chairman Barney Frank, D-Mass, wants to revisit this issue with legislation to block competitors from using FOI requests to the SEC to gain proprietary information about their rivals.

Allowing the SEC to determine which records it will disclose to whom and for what purpose is bad government. Congress has an obligation to investors — large and small — to keep the loophole tightly closed and preserve financial accountability.

Anything less is an open invitation to Madoff and his ilk to defraud us all.

[email protected]