The Joy of Reading Financial Regulation

by Chidem Kurdas

The financial regulation bill approved last week by the House of Representatives does not, of course, refer to James Madison. But it might as well be an exhibit specifically created to demonstrate, by contrast, the advantage of limited and transparent government.

“It will be of little avail to the people that the laws are made by men of their own choice,” wrote Madison in Federalist Paper no. 62. “if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood …”

The 1,279 page “Financial Stability Improvement Act of 2009” – to use its official short title – gives new meaning to the words “voluminous” and “incoherent”.   It is like the preceding 1,502 page healthcare legislation, which is virtually unreadable, as Mario Rizzo pointed out.

Because I wanted to know what’s coming and was intrigued by Jerry O’Driscoll’s post on the topic, I plowed through Subtitles A and B about establishing the Financial Services Oversight Council and mitigating systemic risk. By the time I got to Subtitle C, having taken several hours to read  less than one-tenth of the whole, my attention was wondering.

But on p. 151 there was something that seemed out of place—a heading that says dental, vision or life insurance. The next page is on long term care insurance. Had some of the medical entitlement legislation made its way into financial legislation? Have the two monstrous bills got crossed? Are they breeding?

No, those sections are about the employees of the Office of Thrift Supervision, which is being closed down. The employees are to be transferred to other offices. There are pages and pages on their medical insurance, retirement benefits, etc.

So, I am still not sure what “systemic risk” means, other than it will mean whatever the Council and its staff want it to mean. But I am pretty clear about the status and funding of said staff, as well as the Council’s activities – “The Council shall meet as frequently as the Chairman deems necessary, but not less than quarterly,” says the bill – and  the perquisites of certain employees.

I don’t see how the legislation can prevent financial crises but it will certainly organize and re-organize bureaucracies and make sure to cover their dental benefits. Indeed, that’s the down-to-earth and comprehensible part of the bill. That’s what it actually does. As for the stated objective, those bureaucracies will have the discretion to figure out what they want to do.

“A financial holding company subject to stricter standards shall at all times after it is subject to such standards be well capitalized and well managed as defined by the Board,” goes one directive. How will they decide a company is well managed? By earnings? By stock price? By those criteria most investment banks were well managed until the 2008 crisis erupted.

The criteria are left “to be defined”.  If citizens had to read such documents, they would get a more realistic idea of what regulation is—it consists of bureaucracies that impose arbitrary standards on the rest of the population. Even the law giving them authority is opaque; what they do behind doors will be impossible to observe, let alone check.

Maybe organizations concerned about good government should pay people to read  major Congressional bills, given that very few will subject themselves to the stultifying unpleasantness without being paid for it. Looking at all those subsections and amendments would remind Americans of the advantage of limited government with laws that are clear and obvious.

Anything else “will be of little avail to the people” to use the words from 222 years ago.

4 thoughts on “The Joy of Reading Financial Regulation

  1. Excellent post. However,I think one “reform” could make all the difference in the world. Let the schools require in civics or political science classes that students actually read a bill such as this one. That alone will show them what a sham our “democracy” has become.

    Ilya Somin has a brilliant Cato article on how complex government is at odds with meaningful democratic control.

  2. That’s a great idea. Reading a 1,000-plus page bill would give the students a real sense of what goes into the legislative sausages we are all compelled to ‘eat’ once they become law.

  3. Just looked at Ilya Somin’s article. At this time of furious government expansion, his point is particularly relevant: “a smaller government may actually be more democratic than that which we have now, in so far as voters would stand a greater chance of being able to influence government policy in an informed manner.”

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