Yesterday, I mentioned my fears of a dangerous shift towards enshrining deregulation in law.

Today, I am wondering if the bank fellatrix (is that plural?) might take a subtler approach.

Recall that throughout the 1990s and 2000s, the SEC budget was essentially flat. (Attempts to raise their enforcement budget were beaten back). As far back as 1994, Phil Gramm was arguing that the SEC was making too expensive to raise money in the Stock and Bond markets.

Consider this statement from future House majority John A. Boehner of Ohio:

“When it comes to the financial services bill and the 358 regulatory filings required under that bill,” Mr. Boehner said, “it’s going to require a significant amount of oversight — so that not only will the Congress understand, but the American people will understand, just what this bill will do to our financial services industry.” The Republicans will also most likely seek changes to the Consumer Financial Protection Bureau, which they believe was given too much power.”

Thus, rather than try to outright repeal the milquetoast Finreg laws, we are gong to see a 1000 small pushbacks, clipped wings, challenges. We should expect the new “oversight” to include new hearings, new subpoenas, and general harassment of regulators by the House of Representatives.

This was what I was referring to in part in The Tragedy of the Obama Administration. A better leader, one who understood the crisis and responded vigorously to it during early 2009, could have preempted this sort of push back.

I expect this will not be pretty . . .

>

Previously:

1994: SEC Budget Debate (August 15 1994)

Congress cuts S.E.C. budget (November 24th, 2003)

SEC: Defective by Design? (March 18th, 2010)

The Tragedy of the Obama Administration (November 2nd, 2010)

Category: Bailouts, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

31 Responses to “Defanging the Regulators”

  1. wally says:

    I think Boehner already over-reached… on day 1. He talks as though one house of Congress, with the opposition holding both the other house and the executiveship, is going to repeal things, turn things back. They cannot.
    I’d like to see him get a lot more exposure in the coming years.

  2. darian says:

    I’d go with fellatrice. But that’s just me.

  3. Petey Wheatstraw says:

    BR: Boner’s comment also dovetails precisely with your observations of people voting against their own interests.

    darian:

    I’d probably go with her, too (as long as she’s good lookin’ and only does me).

  4. rip says:

    Yes. BSO wussed out. But we are still left with a 2,000? page bill that creates more bureaucracy that accomplishes almost nothing.

    Boner is dead on about that. 358 more filings????? But it was the BSO cave-in that forced a bill with no teeth. Lots of empty pages left for rulemaking.

    Nothing with any teeth that fixes the core problems.

    Everyone makes out except the taxpayer. MSM talking points.

  5. dad29 says:

    fellatrix

    Singular, (F).

    The plural will be fellatrices. Still (F).

  6. Drew2 says:

    We should just set the SEC and other regulators up as private enterprises – funded solely by publicly traded stock prices and investors.

    If the government provided the seed money, a few statutory limits, and the enforcement rules – they would never be understaffed or under-financed.

    In addition they would always be under heavy scrutiny from market participants (who would point out new “profit” opportunities at every turn), and be REALLY profitable in this corrupt environment.

  7. DM RTA says:

    The election isn’t even 48 hours in the books and the message was set aside in exchange for more bs as usual. The only interests that people voted for was the hope that someone, anyone, can make things feel better. The Repubs are selling it as some half-assed mandate when it is nothing more than an overt threat that they too will be thrown out next time if they do not make it feel better for average people, and no amount of blaming the muslim president President who might not really be a citizen will be able to shift attention away from these plain faced facts of life.

    The subject of this post is almost crazy as an estimate 3 days ago for MBS losses to US banks were for $26 Billion and today that was upped to $43 billion by reputable sources. The old stuff isn’t even sorted out and they want to pull the governors off the engine? Wanna bet these loss estimates spiral higher before the put-back era even peaks a few years from now. Everyone wants to pretend that business as usual and some mix of partisan ideals will solve our problems. The hard truth is that the vested interests are ok with muddling through for decade+ so long as they are not thrown in jail for being greedy. The rest are willing to reset and start over if that is what it takes to weed out the poisonous remnants. Think that’s wrong? Wait for the next election to set more records throwing out career politicians. The Tea Party is almost a joke now in terms of focus. I bet that if anyone with vision comes along it will begin to suffocate the largely bought and paid for republican party.

  8. constantnormal says:

    “De-fanging” the regulators? That’s gonna be difficult, as the regulators are still just as de-fanged as they were at the end of the Bush circus … hell, Bernie Madoff had to turn himself in, fer crissake.

  9. franklin411 says:

    Barry,
    Nobody knew that the GOP would take a scorched earth approach to politics in January 2009 and block literally everything, in the hope of destroying America. Everyone thought that the Democratic center and the Republican center would come together and fix the problems. But that’s not what happened, as we now know. The Republicans held a meeting before Obama was even inaugurated and determined that the more Americans the GOP could kill and starve, the better the party’s chances in November. It’s all in today’s NY Times.

    Obama and the Dems certainly ought to have taken a more aggressive posture once this became obvious in the summer of 2009, but their caucus was more diverse and less disciplined than the GOP.

    http://www.nytimes.com/2010/11/04/us/politics/04campaign.html?src=mv

  10. constantnormal says:

    The way that Elizabeth Warren was appointed rather than confirmed makes a lot more sense now.

    Unless BO hands her over to the cloud of winged monkeys demanding her head on a platter, she should be a bit better protected from the monkeys. Although the odds against her being able to accomplish anything are still just as strong as if she had been made head of an agency that the Congress obliterates.

    I expect that she is working her network, looking for her next career position, about now. Nobody in DC whose fate depends on the backing of BO sleeps very soundly these days.

  11. call me ahab says:

    a little hyperbole there franklin?

    BR- its all just a big show of stupidity- everyone in Congress and the White House obviously unaware of why people are upset (and it’s not health care- and its not that the banks are too regulated)- the GOP now coming in with there usual answers- as clueless as ever-

    and all the fools believing the Obama dream- and being hoodwinked by the elocution of text streaming through a teleprompter-

    and then we have BB monetizing the debt- enabling a bubble in stock prices- so . . .we have to ask ourselves- where should the level of stock prices be?

    obviously- the Fed thinks it needs to be substantially higher- to give folks the illusion of wealth-

    and you buy into it- even though you castigated the housing boom- when if you were true to your beliefs you would have been telling people to get in on the action- flip the houses- make the money while it lasts-

    because that’s how you sound now- your “Don’t Fight The Fed” mantra- when what is occuring now is no different than the phony housing boom you railed against.

    delete at your leisure

  12. NotQuiteSo says:

    BR: The SEC’s budget was flat in real terms in the 1990s, as you say. But as I’ve pointed out several times in this forum, the SEC’s budget tripled in the 2000s, yet you persist in saying it was flat.

    No one can fairly expect you to read and remember every comment or fact, but let’s try it again. The SEC’s budget TRIPLED in the 2000s.

    http://www.sec.gov/foia/docs/budgetact.htm

  13. Rescission says:

    Regulations are over rated.
    The way the government regulates is by requiring more paperwork and “forms” and “disclosures”. This just costs more money in compliance, squeezes out the small businesses who can’t afford expensive compliance departments which do nothing but file all the forms. We think government “regulation” fixes things, but it only empowers the big companies vs. the small companies. The answer isn’t more regulation. The answer is more competition. The sad truth is that neither political party seems to get this. Democrats just create more bureaucracies and make it more expensive to do business, adding no value, while pretending to protect the consumer. They enhance crony capitalism. Republicans understand that government regulations strangle the free market, but they do nothing to fix the real problems caused by not enough competition and allowing the large corporations get out of control. Oh, if we could only have a return to Classical Liberalism and real free market.

    ~~~

    BR: Well, given the choice between trusting banks to exercise their own good judgment — How did that work out? — or requiring them to hew to a regulators rules of leverage, capital base, risk, compensation,etc., I think I know what most informed non-idealogues would choose.

  14. Petey Wheatstraw says:

    NotQuiteSo:

    So the SEC got more money and instructions from their superiors to do nothing. If you are splitting hairs to make a point, what good does that do? If you can’t see that the SEC is fiddling while Rome burns, you are beyond blind.

  15. NotQuiteSo says:

    Petey Wheatstraw:

    I think you missed my point, or I wasn’t clear. I *completely* agree with you that the SEC fiddled while Rome burned. From Madoff, to the Consolidated Supervised Entities program that allowed Wall Street to leverage to 30 or 40x, to giving the ratings agencies the wholly unsupervised power to spin gold out of straw – via the mechanism of a simple no-action letter, no less – the SEC was an abject failure in the 2000s. But it wasn’t because of money, which is my point, and the SEC fiddles to this day.

  16. Petey Wheatstraw says:

    NotQuiteSo:

    Got it. Sorry for the knee jerk.

  17. NotQuiteSo says:

    No problem. I didn’t say it out loud and I should have so my point was clear. Months back on here I wrote the SEC is a failed agency, and in light of these numbers it’s difficult for me to believe it’s only the budget. Its budget nearly tripled from 2000 to 2008 (as above), and that was the period of the tech bubble collapse, the inflation of the credit bubble and its collapse, Madoff, etc. etc. Reg capture, over-lawyered, or simply poorly managed and complacent might be better explanations. As the simplest example, budget doesn’t explain why one senior SEC official, when told Madoff might be a Ponzi scheme, launched an examination of Madoff but didn’t actually *look* for a Ponzi scheme. Unfortunately, those are much more difficult problems to solve than a budget problem.

  18. wally says:

    “everyone in Congress and the White House obviously unaware of why people are upset”

    call me ahab,
    I’m afraid that you are correct. They all run in with their agendas, and if there are no jobs 2 years from now we will have another massive turnover of Congress. There is simply too much separation now beween them and the people.

  19. Rescission says:

    It wasn’t all the banks, just the Big Ones. Thus my point.
    Break them up, let them fail. Don’t prop them up. Regulations prop them up.

  20. Big E says:

    C’mon, everyone knows the increase in the SEC’s budget was just for faster computers, bigger monitors and better connectivity for an increased porn viewing experience…

  21. Julia Chestnut says:

    There was at least a two-pronged approach: people were put in the plum positions at the top of regulators whose mission was to make certain that nothing occurred. The budgets were also slashed, and/or a hiring freeze was instituted, which amounts to the exact same thing. You have money, but you can’t buy any people with it. There are some agencies of the federal government that operate almost entirely through contractors, because certain people in control thought that the private sector could do anything better than the public. . . .fraud and waste are rampant, and the contracts are written so badly that there are no performance requirements for the contractors.

    But I digress. Again, the people at the top went about hiring workers, when workers were allowed, who agreed with them completely that the core job of the regulator was obsolete. The rot goes pretty deep after a couple of decades of this. It’s almost necessary to kick out the whole structure and start again — which is why the new consumer agency was such a good idea. It could start fresh with some true believers.

    I am of two minds. On the one hand, I find assistant US attorneys crawling down people’s throats for all manner of minutiae, but not a peep to a single bank. Laws are only as good as their enforcement, and I’m starting to feel like they are becoming strictly a weapon against those who are not in the cabal. Remember that federal crimes, as we used to say, are the little mistakes we all make every day – state crimes, like murder and armed robbery, you typically have to do on purpose. You wouldn’t believe how many strict liability felonies there are at the federal level — and yet. . . . .rampant fraud, complete undermining of the rule of law and our faith in the fundamental fairness of critical markets — no problem.

    I worry a tad. And I believe in the law.

  22. Sechel says:

    The failure and short sightedness of Congress was not to make the SEC self-funding
    The other failure and short sightedness of Congress was to do the opposite with the FED.

  23. obsvr-1 says:

    Another Nobel Economist Says We Have to Prosecute Fraud Or Else the Economy Won’t Recover

    http://www.washingtonsblog.com/2010/11/another-nobel-economist-says-we-have-to.html

    Right On — Restore the Rule of Law, Punishment to deter crime and equal justice to restore the confidence of the American people that our system is worth a damn and not tipped to the plutocracy.

  24. obsvr-1 says:

    What’s dysfunctional is that the Executive Branch (enforcement divisions) can not bring themselves to prosecute folks for breaking the law …. Without a restoration of the rule of law by prosecuting and punishing the miscreants to deter crime then the systematic dysfunctionality continues .

    Another example of the SEC hand slapping the criminals for WIDESPREAD BRIBERY

    SEC Charges Seven Oil Services and Freight Forwarding Companies for Widespread Bribery of Customs Officials
    http://www.sec.gov/news/press/2010/2010-214.htm

    … “Bribing customs officials is not only illegal but also bad for business, as the coordinated efforts of law enforcement increase the risk of detection every day,” said Robert Khuzami

    BUT THEN HE ACCEPTS A SETTLEMENT with the all too often used:

    Without admitting or denying the allegations, the companies agreed to settle the SEC’s charges against them by paying approximately $80 million in disgorgement, interest, and penalties. The companies agreed to pay fines of $156.5 million to settle the criminal proceedings with DOJ.

    THE AMERICAN PEOPLE WANT TO SEE CRIMINALS IN JAIL not just fines being paid (the fines come from the excess and illgotten profits, or passed on to the shareholders or consumers …. PUT THE CRIMINALS IN JAIL PLEASE !!!!!!

  25. formerlawyer says:

    @obsvr-1:

    Of course the United States has the highest documented incarceration rates (thank you prison industry lobbyists) – it is just the wrong people: black, latino, low income and low social status, mostly for drug related offences.

    Even the extraordinary prisoners eg. Skilling, Milken, Black, Koslowski, Madoff etc. are housed differently and treated differently.

    The criminal system needs to be shaken up.

  26. FrancoisT says:

    Yes Barry, but some on this board will worry about Canadian smugness toward the US if we talk about that so…we should be discreet and careful, huh?

    Kidding aside, GOPers have a lot of debts toward all the secret cash that helped them win back the House. So, they’ll be hard at work screwing the average American and coddling the ultra-wealthy.

  27. FrancoisT says:

    obsvr-1,

    We can all thank the Reichpubliscums for this sorry state of affairs. The truth is that the SEC does not have the expertise, nor the budget to successfully prosecute this kind of crimes. Furthermore, the GOP (and a non-negligible number of Democrass — The repugnant Joe Biden and Diane Feinstein come to mind) has seen to it that corporate behavior be decriminalized as much as possible while very harsh sentencing be handed down to the “little people.”

    We have become a fascist police-state, pure and simple. It hurts like hell to admit it, but the more I read this:

    http://www.nakedcapitalism.com/2010/06/gonzalo-lira-is-the-u-s-a-fascist-police-state.html

    The more I have to agree with the thesis.

  28. boveri says:

    Have I been missing something here or is Rithholz calling some female regulator a cock sucker (fellatrix)? I hope I’m wrong because only some asswipe would do that.

  29. NotQuiteSo says:

    boveri: I think you did miss something. That reference is pretty obviously to government. And thanks for elevating the discussion.

  30. gerry t says:

    Fellati?