When Cynicism is Rational

On July 26, 2010, thus five days after its passage, Fox News ran this headline: As Finance Bill Passes, GOP Calls for Repeal. The finance bill in question was the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law as published (here) is divided into sixteen titles and runs 849 pages in length. Some of the more thoughtful summaries of it run more than a hundred pages. Herewith a summary of summaries, thus just a list of hoped-for results. The act…

• Creates a consumer protection watchdog agency (Consumer Financial Protection Bureau); CFPB has some regulatory powers.

• Ends to big to fail, by requiring higher capital requirements, prohibiting tax-payer bailouts, establishing rules for orderly liquidation, and more.

• Creates a council to look ahead and to warn of impending repeats of the last fiasco (Financial Stability Oversight Council); FSOC can, by 2/3 votes, cause the Federal Reserve to act in some instances.

• Makes exotic instruments (derivatives, hedge-funds) more visible to the public, the hope being that that will have a positive effect.

• Regulates compensation of executives by giving stockholders more powers.

• Regulates credit rating agencies by creating an Office of Credit Ratings within the Securities and Exchange Commission

• Strengthens already available oversight and enhances enforcement powers.

According to DavisPolk, a law firm and leading tracker of this legislation (see here), the act requires 387 different rulemakings by 20 different agencies. Of these 275 have deadlines, 112 do not. Of those that do, 129 must be made by the third quarter of 2012, 46 after 2012. As of May 1, 2012, 148 rulemakings were supposed to have been completed. Only 21 were finalized, another 97 had been proposed, and 30 deadlines had been altogether missed. I’ve reproduced a pie chart DavisPolk provides. What it says is that, essentially, we’re not even near.

I’ve spent multiple years of my life in the EPA with initially 300 and later 150 people trying to implement a law that was about 25 pages in length—and one agency, alone, responsible for it. Here we have 20 agencies and 849 pages. To that now famed phrase, Too Big To Fail, we can rationally join another: Too Big To Regulate. Senator Dodd and Representative Frank, bless them, gave it the college try. To another old phrase—The mountain labored and brought forth a mouse—I now propose to join another: The planet labored and brought forth a bacterium; alas it was dead. The GOP’s strategy of defeating Dodd-Frank is centered on delay. Maybe they can also gain the Senate and then repeal the package as a whole.

Alas and alack, only draconian measures would have worked. Let me spell them out. Outright bans of exotic instruments like hedge-funds, futures trading, and all derivates should have been the first paragraph of Title I. Legislatively required and numerically stated reserve requirements by banks should have come next. Then in titles III, IV, and V (say), the bill might have established commissions and boards and such to study the subject more, perhaps to ease these drastic measures, always by two-thirds vote, with mandatory deadlines stating, “Not sooner than 2055.”

Draconian measures? Well, there was a guy called Draco once, an Athenian. He put out a code of laws in 621 BC that mandated the death sentence for minor crimes. My own suggestion may therefore not be draconian enough.