“We don’t want them to regulate capriciously, arbitrarily, without engaging in a cost-benefit analysis.”

- Representative Jeb Hensarling, a Texas Republican

>

The statement above is representative of a misguided economic cost/benefits analysis that was dominant during the three decades incorporating 1980s-2000s. Its fatal flaw is that it fails to include the expenses and impact of high cost events — like the 2007 recession, 2008 credit crisis, and 2009 market collapse. It is, in effect, a mathematical cheat — one that ignores probabilities with extremely expensive outcomes.

And who is pushing the ignore-the-risk cost/benefit analysis? Who stands to benefit from defanging Dodd-Frank? Look no further than Goldman Sachs, JPMorgan Chase & Co., and Bank of America Corp.

Here’s Bloomberg:

“Republicans will try to rein in regulators implementing a sweeping overhaul of financial rules and press for a smaller federal role in the mortgage market as they return to a majority in the House of Representatives and a stronger minority in the Senate.

Taking control of the House and bolstering their position in the Senate will increase Republicans’ sway over the direction and independence of the Consumer Financial Protection Bureau and over any technical fixes Congress makes in rules governing the trading of derivatives. Networks projected that Republicans won the seats needed to claim a majority of the House.

Republicans say they will use the House Financial Services Committee to ensure that regulators such as the Commodity Futures Trading Commission and the new consumer protection bureau do not write rules that lawmakers consider too restrictive on the banking industry.”

I have never been able to tell if the corporate apologists on the right are bought and paid for supplicants to big banks and investment houses — or if they are merely ideological sycophants unable to perform any form of analysis on their own. Its likely a little of each.

>

Source:
Firms That Fought Dodd-Frank May Profit Under Republican House
Clea Benson and Phil Mattingly
Bloomberg, Nov. 3 2010
http://noir.bloomberg.com/apps/news?pid=20601087&sid=aWpVtddDAnjc&

Category: Bailouts, Really, really bad calls, 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.

30 Responses to “Watering Down FinReg: Corrupt or Merely Misguided?”

  1. Frank-Dodd (frôd) is a misdirection.

    does nothing to confront any real issue, though, makes for a wonderfully divisive exercise..
    ~~

    note: even these Criminals are returning to the ‘Scene’..

    Back to the Scene of the Crime: A Return to Jekyll Island: The Origins, History, and Future of the Federal Reserve
    November 2nd, 2010

    See: The Creature from Jekyll Island by G. Edward Griffin.

    Via: Federal Reserve Bank of Atlanta:

    This special conference marks the centenary of the 1910 Jekyll Island meeting that resulted in draft legislation for the creation of a U.S. central bank. Parts of this draft (the Aldrich plan) were incorporated into the 1913 Federal Reserve Act. To commemorate the 100th anniversary of the drafting of the Aldrich plan, the conference will take place at the Jekyll Island Club Hotel on Jekyll Island, Georgia—the same building where the 1910 meeting occurred.

    The conference’s discussions focus on three themes: the origins of the Fed and lessons from the pre-1913 era, how closely the Fed’s actual performance has adhered to the original vision expressed by the framers of the Aldrich plan, and what the Fed’s almost 100-year track record teaches us about its role going forward…
    http://cryptogon.com/?p=18576
    ~~
    http://blacklistednews.com/Living-Beyond-Our-Means%3A-3-Charts-That-Prove-That-We-Are-In-The-Biggest-Debt-Bubble-In-The-History-Of-The-World-/11311/0/13/13/Y/M.html
    ~~
    http://www.thefreedictionary.com/fraud

    “Dodd-Frank”, yeah, right..I’ll guess, after “Operation Iraqi Liberation”, even the (D)s were willing to learn from the (R)s…

  2. Moss says:

    Any regulations will be couched as job killers. That will be the meme from now until 2012.

  3. tower says:

    “….bought and paid for”

    the congress was bought and the people paid!

  4. w says:

    I think that asking this question means you already know the answer :-)

    And it’s not the one you would hope for, sorry.

  5. Scott Frew says:

    Barry, you write,

    Its fatal flaw is that it fails to include the expenses and impact of high cost events — like the 2007 recession, 2008 credit crisis, and 2009 market collapse. It is, in effect, a mathematical cheat — one that ignores probabilities with extremely expensive outcomes.

    I think you’re not looking at this properly. Those are one-offs, and not indicative of the ongoing operations of the nation. Ergo, pro forma them out of existence. Haven’t you heard of operating earnings?

  6. Rescission says:

    BR, you were the most critical of the FinReg as I recall. You hated it. Why are you so in love with it now?

    The answer to your question is Neither. They are not bought and paid for. They just don’t agree with you.
    I guess that makes them stupid.

    ~~~

    BR: I rated it a C Minus (Grading Financial Regulatory Reform) — better than nothing, but with not as good as it could have /should have been, with a few aspects of a good bill.

    But why would you think that an “F” os better than a “C minus” ? Watering down even that would be disastrous . . .

  7. rktbrkr says:

    Barry, how about an “Open Thread” on the benefits/risks of quantitative easing? How will the Fed ever unwind their huge holdings without unintended consequences?

    I heard someone from Cumberland advisors on Bloomberg yesterday talking about the near impossiblity of what they have to do.

  8. scottsabol says:

    Pivital election years like this one only verified my long standing thoughts on the voting public: Most people have no idea what REALLY drives the economy and this go-around, what REALLY caused the financial crisis. No one realizes that the systematic failure of the financial sector and eventually the global economy is beyond any individual person or political party. We so easily overly simplify the economic issues in 2010 to one or two areas: taxes and government. Television and radio ads beat these ideas in our heads. Yet the seeds of economic destruction that lead us to where we are now reside in deregulation and–at the time, clever–financial engineering.

    The environment existed in the 2000s and still exists to this day. It wasn’t illegalbut it was hazardous and full of great risk. As long as Congress is lobbied by the banking industry regardless of who is in power, PROPER and SMART regulation will never be established. The Consumer Protection Bill was a good start but won’t have a huge effect on the overall economy and unemployment. It might not be next year or 5 years from now but the same problems that got us in this mess will resurface sometime in the future.

    We fail to remember that after the smaller recession in 2000-2001, employment took several years to recover to pre-recession levels. We want unemployment to fall NOW yet our economic reality dictates otherwise.

    I guarantee that in two years, if the economy is still struggling, the balance of power will shift once again. The blame in 2008: The GOP. The blame now: The Dems and Obama The blame in 2012 will shift back to the GOP if unemployment stays high (which it probably will).

  9. rktbrkr says:

    Celtic Tiger choking on financial fur balls…
    Wouldn’t it be amazing if little Ireland led to the Euro denouement
    http://www.bloomberg.com/news/2010-11-02/ireland-may-have-just-one-month-to-stave-off-bailout-danger-euro-credit.html

  10. AHodge says:

    its an f..ing freight train of each
    its 30 years of carefully constructed theology
    and an unimagineable avalanche of wall street money.
    the theology had some useful points… but just went through 2 years of the most violent decisive refutation conceivable.
    heres where the partizans close ranks. we should all reread your posts on partizan groupthink poisoning your mind? the party can deliver anything
    from a pat on the back to a hooker. or a big bag of currency.

    So their answer must be. it was all the guv’mints fault. it must be true. all my friends say so.

  11. Mysticdog says:

    Too many make big bucks off of non-sustainability. Sustainability is their enemy, in fact. This is slash and burn economics. I would love to know if they have an end game in mind, or if they just figure that no matter what the endgame looks like, they will be prepared to deal with it as they have all the wealth.

  12. beaufou says:

    rktbrkr,
    No matter how much liquidity you inject, with no dynamic job creating policies it will fail and we’ll end up with hyper-inflation, then go to St Bart with BR.
    So if yesterday’s results mean two years of status quo, it is very bad news indeed.
    I hope those guys realize that they cannot afford to play their little games anymore, we are out of time.

    PS: and with corporations sitting on tremendous piles of cash, is it a liquidity issue?

  13. Mean Mister Mustard says:

    “if the corporate apologists on the right are bought and paid for supplicants to big banks and investment houses — or if they are merely ideological sycophants unable to perform any form of analysis on their own.”

    The more recent era actually features much more of the latter. My Republican friends on The Hill tend to be very poor at Mathematics, Economics, and Analysis, but they love the idea of hiding behind authority.

    I think the apologists for Big Finance on the left are almost universally bought and paid for supplicants, though.

  14. Mannwich says:

    @beaufou: Those corps that are “sitting on piles of cash” meme is misleading. Most are also sitting on piles of debt too. There some exceptions, however.

  15. Morgan says:

    We just went through the process of bailing out these firms (Goldman Sachs, JPMorgan Chase & Co., and Bank of America Corp) from the consequences of their actions. As long as that’s the plan, we have a responsibilitu to regulate away as much risk as possible, in my view.

    For the Financial Services industry, it’s the price you pay for being too big to fail.

  16. Petey Wheatstraw says:

    OT:

    Big moves in precious metals seem to happen primarily in the US markets, and counter to the policy statements of the Fed (QEII followed by an attempt to strengthen the dollar by selling gold). This can’t work both ways. On the positive side for PMs, precipitous drops are, lately, followed by small but steady incremental gains — showing strength on the global scale. I wonder if TPTB are selling physical, or trading ETFs or the like.

  17. obsvr-1 says:

    To water down a toothless tiger is both misguided and facilitates continued corruption.

    The republican wave was a result of throw the bums out and should not be regarded as a referendum for returning to those who pervert republican ideals into some sort of uncontrolled and unregulated business (capitalism), transfer wealth to the elitist who are the only ones who know how create jobs (wtf?) … if the republicans were in power they would have been the bums to go.

    FinReg is a response to the biggest financial meltdown since the Great Depression and should be given a chance to see the light of day. Knowing that FinReg is not perfect and will need to be iterated to become better is a framework to reform wall street, but to throw it out or water it down before it even gets out of the gate is outrageous.

    If reforming wall street becomes the re-forming of the wall street that created the problem in the first place then BR will need to write a new book — How lobbying and politics legalized corruption on wall street.

  18. wally says:

    Headline today: “Republicans promise an era of limited government (AP) ”

    How’d that last era of limited government work out?????

  19. IS_LM says:

    This will be a reprise of 2004, when Bush ran to save us from gay married terrorists and, upon a barebones re-election, proclaimed that he had a mandate to begin the privitization of Social Security.

    In truth, the newly-elected R’s have taken everything substantial off the table with respect to revenue or spending. Their investigations into TARP, AIG, Fred/Fan, and the auto bailouts, however, will attempt to solidify the idea that the credit crisis was the responsibility of the CRA and Barney Frank, but not Wall Street, which merely did as “it” was told. That will be the payoff to the FIRE industry: markets are informationally efficient, and regulatory intervention was the cause of the crisis. We need to leave those folks alone to get on with their job-creating investments.

    And by this time next year, look for half of the R caucus to support impeachment proceedings for 2012.

  20. The Tea Party/Republicans just guaranteed Obama a second term. There’s nothing like having someone else around to redirect the blame for bad stuff that happens (and would anyway, no matter who is in charge).

  21. willid3 says:

    curmudgeon you are so right!
    neither party really wants or can solve the mess that their masters created!
    and nothing they will do will actually solve what they they claim they want to solve.

  22. zitidiamond says:

    Ask anyone who’s anybody: market failure, like evolution and climate change, is a myth.

  23. Sechel says:

    combination of Ayn Rand philosphy, and the potential to appeal to banking money.

  24. Mannwich says:

    I tend to agree, Curmudgeon, although A LOT can happen between now and then. However, me-thinks the Tea Party will find just how hard it is to throw stones at Washington when one is INSIDE the beltway.

  25. Thatguy says:

    If the dateline on this post was 6 months earlier, I would’ve thought that Barry was referring to the Democrats in the title: “Corrupt or Merely Misguided?”

    But as we all should know by now, its the peeps versus the corps. Doesn’t matter whether its D or R.
    http://www.ritholtz.com/blog/2010/09/you-vs-corporations/

  26. Rescission says:

    BR,

    I am saying let’s look at it in pieces, as you did, rather than just looking at the C-minus grade.
    If we break it down in parts (as you did) rather than simply generalizing any changes as “watering it down”, it depends on what gets changed.
    For instance, Too Big To Fail (F grade). If the new crowd addresses this portion, it could do more good than perhaps any of the other areas. It was of first importance in your post and you gave it an F. Some of the “new faces” coming in ran against bail outs and against TBTF. These guys may push for more competition and less TBTF. Another example could be breaking up Fannie and Freddie into a million pieces.
    I like the way you broke out the FinReg into the important parts, and I think we should keep looking at those same parts in the future if changes are made. You have set up a nice template for watching this unfold.

  27. formerlawyer says:

    Depressing prognostication as to the consequences of a Republican Congress:

    http://online.wsj.com/article/SB10001424052748704462704575591171988213264.html

  28. willid3 says:

    recession without stronger better regulation we are doomed to have to keeping the TBTF alive. cause if we don’t the results will make the great depression look like a booing economy. and so far they appear to want to go back to what created the debacle to begin with. and while we might like to lessen the impact F&F have on housing, at the moment the private version of this is nothing but toxic waste and will be for decades and nothing can be done to resolve that any time soon. unless private investors have Alzheimer’s. really really really bad!

  29. JimRino says:

    Rescission:
    “For instance, Too Big To Fail (F grade). If the new crowd addresses this portion, it could do more good than perhaps any of the other areas. ”

    You somehow think the Tea Party [ "Free Trade" ] is going to address Wall Street or Business Fraud in any meaningful way? They can’t even say the word “Fraud”, there’s no such thing as Business Fraud in their minds.

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