Adding to Wall Street's Regulatory Glut
A country that finds it so difficult to abolish obsolete agencies should be careful of multiplying new ones.
I won't pretend to expertise on the financial regulation bill. I'm suspicious of the idea of a new agency to protect consumers from dubious financial products: why not just add that mission to the mandate of existing agencies?
If mortgage lenders or credit card companies are tricking unwary consumers, why not just add a line to the federal and state statutes regulating these entities enhancing the power of their regulators (and they are all regulated) to stop it?
A country that finds it so difficult to abolish obsolete agencies should be careful of multiplying new ones. In the aftermath of the crisis, there was talk of eliminating the Comptroller of the Currency, created during the Civil War to oversee the new national paper dollar. Yet it's still here, as are the Federal Reserve, the Office of Thrift Supervision, the SEC, the FDIC and the CFTC, all theoretically working with the Department of the Treasury. Wouldn't fewer agencies with broader remits be a better idea?
On the other hand:
Some conservatives and liberals alike are complaining that the bill won't prevent future bailouts. That's the wrong mission. Bank bailouts are necessary and inevitable, as we learned in 1933: that's why we have deposit insurance. What people most disliked about 2008, I'd hypothesize, is not that non-bank financial firms were "bailed out," but that the bailees profited so handsomely from their bailout. "Bailouts" would not be a dirty word today if shareholders and executives at Goldman Sachs, Morgan Stanley, etc. had shared in the kinds of losses that were suffered at Lehmann Brothers and AIG.
The "resolution authority" invented in the finreg bill purports to authorize the feds to do just that. It doesn't stop bailouts. It does * try * (key word) to do something better and more worthwhile: it tries to deter them by adding to their future potential painfulness to the parties who cause them.