Dems putting regulatory cart before legislative horse on FinReg

Back in January I argued that the Democrats' plans to formally investigate the financial crisis were a political ruse, the results of the investigation were pre-ordained, but that the resulting report from the Financial Crisis Inquiry Commission would likely find its way to a much more conservative Congress following the November elections.

As a follow-up we should note that by mid-April the FCIC had conducted seven days of hearings with witnesses ranging from industry executives (or in many cases former executives), and a few federal and state regulators. There have been a number of staff reports issued. At least one acknowledges the role of government sponsored enterprises such as Fannie and Freddie. Yet another argues the Community Reinvestment Act was not a significant contributory factor.

What you will not find so far is testimony from a single politician. After all, such financial crises are clearly the result of a weak regulatory environment overseeing an unethical or incompetent private sector. Politicians have nothing to do with it.

The Democrats now seem unwilling to wait for the FCIC to finish its business and issue its report in December 2010. Clearly it is too important to spend all that time investigating, studying and understanding the underlying causes. It is much more important that we fix this now.

No one should be surprised if their real motivation is political. Surely they realize they will not be able to get their way once the report is issued because the political landscape will undergo tectonic shifts in November. Even more importantly, there are political gains to be made now. No one likes Wall Street. Even the most conservative of voters acknowledge that bad business judgment prevailed and most will agree there was moral and ethical culpability on the part of many financial industry executives.

By pushing financial industry regulatory reform now the Democrats likely see only two possible outcomes. On the one hand any Republican resistance to reforms can be spun for political points. On the other hand, if they pass an ill informed set of regulatory changes they still get political points. Either way, Democrats must see this as improving their fortunes come November.

So far, Republican senators have said no. In the end we should not expect them to resist for long - just enough to convince themselves of their conservative credibility. Soon enough the time will come when they will accept a few changes, vote affirmative, and lay claim to improving the reforms for the good of Main Street.

Once again, professional politicians of all stripes will travel the road of personal and party political advantage.

On Sunday's edition of Meet the Press, retiring Senator Chris Dodd, Chairman and the Senate Finance Committee used the following analogy in arguing for immediate reform:

Here we are 17 months after someone broke into our house, in effect, and robbed us; and we still haven't even changed the locks on the doors, and we need to get it done.

But let's continue the analogy. The locksmith who installed the original locks, publicized the combination code, and encouraged Wall Street to break in, is the same locksmith that Senator Dodd wants to install the new locks. That locksmith is none other than our good old Uncle Sam.


David Butler

 

Back in January I argued that the Democrats' plans to formally investigate the financial crisis were a political ruse, the results of the investigation were pre-ordained, but that the resulting report from the Financial Crisis Inquiry Commission would likely find its way to a much more conservative Congress following the November elections.

As a follow-up we should note that by mid-April the FCIC had conducted seven days of hearings with witnesses ranging from industry executives (or in many cases former executives), and a few federal and state regulators. There have been a number of staff reports issued. At least one acknowledges the role of government sponsored enterprises such as Fannie and Freddie. Yet another argues the Community Reinvestment Act was not a significant contributory factor.

What you will not find so far is testimony from a single politician. After all, such financial crises are clearly the result of a weak regulatory environment overseeing an unethical or incompetent private sector. Politicians have nothing to do with it.

The Democrats now seem unwilling to wait for the FCIC to finish its business and issue its report in December 2010. Clearly it is too important to spend all that time investigating, studying and understanding the underlying causes. It is much more important that we fix this now.

No one should be surprised if their real motivation is political. Surely they realize they will not be able to get their way once the report is issued because the political landscape will undergo tectonic shifts in November. Even more importantly, there are political gains to be made now. No one likes Wall Street. Even the most conservative of voters acknowledge that bad business judgment prevailed and most will agree there was moral and ethical culpability on the part of many financial industry executives.

By pushing financial industry regulatory reform now the Democrats likely see only two possible outcomes. On the one hand any Republican resistance to reforms can be spun for political points. On the other hand, if they pass an ill informed set of regulatory changes they still get political points. Either way, Democrats must see this as improving their fortunes come November.

So far, Republican senators have said no. In the end we should not expect them to resist for long - just enough to convince themselves of their conservative credibility. Soon enough the time will come when they will accept a few changes, vote affirmative, and lay claim to improving the reforms for the good of Main Street.

Once again, professional politicians of all stripes will travel the road of personal and party political advantage.

On Sunday's edition of Meet the Press, retiring Senator Chris Dodd, Chairman and the Senate Finance Committee used the following analogy in arguing for immediate reform:

Here we are 17 months after someone broke into our house, in effect, and robbed us; and we still haven't even changed the locks on the doors, and we need to get it done.

But let's continue the analogy. The locksmith who installed the original locks, publicized the combination code, and encouraged Wall Street to break in, is the same locksmith that Senator Dodd wants to install the new locks. That locksmith is none other than our good old Uncle Sam.


David Butler

 

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