Adventure is worthwhile - Aesop

Finding Out What’s In the Dodd-Frank Bill

by Hal_10000

It’s become routine.  A several thousand page bill gets passed by the Democrats and we spend weeks unravelling it finding out what goodies are in it.  I should really just put up a weekly post on this subject, call it the Nancy Pelosi Dispatch, after her famous and tragically accurate statement that we needed to pass the healthcare bill to find out what was in it.  She was right: we do need to pass bills to find out what’s in them since they are (1) long and complicated; (2) in a constant state of flux as the Democrats pander to various special interests; and (3) not covered in depth by our lazy media until after the house has burned down.

Anyway…

First, the Washington Examiner talks about my favorite subject, Congress punting on any responsibility:

The only thing Dodd-Frank has changed on bailouts is this: Before the bill was passed, bailouts had to be approved by Congress, as with the $700 billion Troubled Asset Relief Program first proposed by President Bush and then extended by Obama. But in the future, thanks to Dodd-Frank, instead of congressional votes, Treasury Department bureaucrats will unilaterally decide under the bill’s “orderly liquidation process” how much of the taxpayers’ money to hand out to troubled firms.

Congress passed TARP in the midst of the crisis.  I’m on record as being somewhat ambivalent on this.  I didn’t like it, but there was a very real danger of a financial meltdown.  In any event, the bailout was wildly unpopular and did and could still cost some Congressmen their jobs.

The solution?  Fall on their swords for doing the right thing?  Promise not to do it again?  Nope.  Pass off the responsibility to someone else so that they can claim, next time, they had nothing to do with it.

Oh, but it gets better.  Stephen Bainbridge, who is an absolute must-read on this stuff, linked up two articles that go in depth into the bill.  What they find is both scary:

The hedge funds that did catch those risks and that largely avoided the meltdown will be subject to new registration and disclosure requirements.

...

The law requires end-users of derivatives to post collateral – a little provision that the International Swaps and Derivatives Association famously estimated will cost the economy up to a trillion dollars will reducing the beneficial use of derivatives. At the same time it will do little to prevent another financial crisis.

and self-righteous:

In every Congressional session in recent memory, legislation has been proposed to somehow curb executive compensation.  Two narratives are commonly used:  (1) executives should not receive pay without performance and (2) the difference between employee compensation and executive compensation should not be as large as it is.  Both of these arguments are hard to counter.  It’s hard to argue that anyone should be paid more than they deserve, and falling back on traditional concepts of enforcing arms-length bargains just isn’t that catchy.  And who wants to argue for income disparity?  That doesn’t win you a lot of friends, either.  However, most of these proposals just languished until the 2008 Financial Crisis, when bill writers dusted off old executive compensation legislation and inserted the words “systematic risk” a few times.  Now we have a third narrative:  incentive-based compensation created a system that rewarded excessive risk-taking.  This isn’t just bad for the individual companies, so we can’t just leave it to them to rework their bonus structures.  This type of excessive risk-taking is bad for the system, so we must regulate it.

Strongly recommend reading both of those links.

The more we look at this bill, the worse it gets.  The financial crisis seemed to have a fairly straight-forward approach—jail those who committed crimes, re-inject moral hazard and possibly, if you can stomach it, break up banks that are “too big to fail”.  Enforce the rules and clear up the maze of regulations that allow scumbags to get rich through loopholes.  I could even see regulating derivatives so that banks that are backed up by the US government do not expose themselves to absurd amount of risks.

But this bill is simply a grab-bag of things liberals have wanted for a long time mated with things the financial industry has wanted since about last year.  Look over the articles I link up and tell me—do you feel safer?  Are you going to take your wallet out from underneath your pillow now?

(Addendum:  Although this isn’t quite “finding out what’s in the bill” territory, check out the industry lobbyist Obama has appointed to help administer healthcare reform.  And also check out the cracks appearing in the notion that Canadians pay less for prescription drugs.  It’s true for name brands, not for generics.  Seems like this would have been good information to have before we fucking passed the bill.)

Comments

Posted by on 07/22/10 at 08:47 AM from

Wow - the commies really come out when executive pay is on the table.  “Income disparity” and “getting paid more than you’re worth” are central themes of marxist theory when they get around to bashing the evil rich.

Did they bother to mention that due to their own short-sighted legislation in which executives can go to jail for the actions of others that executives insist on much higher salaries to compensate for the risk of prison time?

Posted by AlexinCT on 07/22/10 at 11:01 AM from

Nice “Hope & Change” regulations. Nobody dislikes that success be tied to effort, ingenuity, and hard work more than collectivists, and amongst them the ones that hate it the most are the politicians.

This bill was just more of the rule fixing that the big collectivist government lovers so like, because it enhances government’s role and ability to choose the winners in these industries. Have no doubt that the real effect of this bill will be to provide cover for the very corporations that ended costing the tax payers the most in the recent rounds of wealth transfers, by squashing any and all of their competitors that were not stupid enough to take the idiotic risks they did.

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