Tag: Sarbanes-Oxley Act

Doing Business in America

We all know that regulatory uncertainty is a conservative myth, right? The very idea that the tens of thousands of pages of federal regulations are inhibiting American business is just laughable, no?

Well, someone forgot to tell the Economist:

America is meant to be the home of laissez-faire. Unlike Europeans, whose lives have long been circumscribed by meddling governments and diktats from Brussels, Americans are supposed to be free to choose, for better or for worse. Yet for some time America has been straying from this ideal.

Consider the Dodd-Frank law of 2010. Its aim was noble: to prevent another financial crisis. Its strategy was sensible, too: improve transparency, stop banks from taking excessive risks, prevent abusive financial practices and end “too big to fail” by authorising regulators to seize any big, tottering financial firm and wind it down. This newspaper supported these goals at the time, and we still do. But Dodd-Frank is far too complex, and becoming more so. At 848 pages, it is 23 times longer than Glass-Steagall, the reform that followed the Wall Street crash of 1929. Worse, every other page demands that regulators fill in further detail. Some of these clarifications are hundreds of pages long. Just one bit, the “Volcker rule”, which aims to curb risky proprietary trading by banks, includes 383 questions that break down into 1,420 subquestions.

Hardly anyone has actually read Dodd-Frank, besides the Chinese government and our correspondent in New York (see article). Those who have struggle to make sense of it, not least because so much detail has yet to be filled in: of the 400 rules it mandates, only 93 have been finalised. So financial firms in America must prepare to comply with a law that is partly unintelligible and partly unknowable.

And that’s just Dodd-Frank. Remember Sarbanes-Oxley, the legislation that was supposed to prevent another financial crisis? Haha. Good times. Well, you combine Sarbanes-Oxley with Dodd-Frank and you’ve got a mess of regulation so dense that Facebook recently blasted the regulatory environment for making their IPO a nightmare. This is why more IPOs are occurring in markets away from our shores than within them.

It’s not just Obama, either. He’s done a lot of damage — the Economist notes that the number of diagnostic codes in our healthcare system will increase next year from 18,000 to 140,000. And last week he made a laughable proposal for “tax reform” that would end up with lower rate but more loopholes, credits and subsidies. But Republicans have played their part, too, pushing “anti-terrorism” regulation that has slathered immigration, finance and travel in paperwork. And SOX was signed by Bush.

Getting rid of regulations sounds good, but there are a lot of regulations that we need. As the financial crisis showed, we have a banking industry that will happily construct elaborate financial vehicles that even they don’t understand. We have whole industries that will pretend they’re not hurting the environment. They do this not because they are evil, but because they are human and it simply human nature to pretend a problem doesn’t exist when it involves our money, our power or our pride. The lead industry spent decades ignoring their own scientists and insisting that lead was harmless. That wasn’t because they liked the idea of children destroying their brains; it was simply a willing suspension of disbelief. Government is an imperfect and frustrating regulator. But it’s not something we can simply push off a cliff.

But attacking regulation piecemeal — the way Obama has kind-sorta proposed and the way the Republicans kinda-sorta do — isn’t going to work either. There are tens of thousands of regulations and we could spend weeks getting rid of just one. Each one has its advocates; each its pencil-pushers who depend on it. The inertia is simply enormous.

No, what we need — what the Economist notes and what Phillip Howard has been flogging for years — is a complete change in our approach to regulation. What we have designed is a system that tries to idiot-proof itself, that tries to anticipate every eventuality, ever possibility so that there is no possibility of error. But in doing so, we have made the perfect the enemy of the good. We have a system in which something as simple as finding out how much money a bank has can take years. We have a system is incapable of responding to new problems until new rules have been passed. This is like mapping out a mine field by stepping on all the mines.

What we need to do is strip down the regulations to the basics and empower bureaucrats to use their judgement. Hand in hand with that comes accountability — the ability to fine or fire bureaucrats who exceed their authority and make bad decisions.

That has a downside, too: bureaucrats with power and regulations that are necessarily not specific to every conceivable situation. It is this situation that Harvey Silverglate raged against in his book. But the alternative is a nation that can not move a pinkie without years of discussion and millions in legal fees. The alternative is that the Gulliver of American industry is tied down by a million Lilliputian strings of regulatory bullshit.

And the Left should be the biggest cheerleaders for regulatory reform. They keep telling us we need to remake our energy industry to fight global warming. How on Earth are we going to do that when it takes ten years to do the environmental impact study for a single power line? They keep telling us we need a better approach to immigration. We can’t do that when even getting a work visa involves three pounds of paper and half a pint of blood. They keep telling us our healthcare system is too expensive. How are we supposed to make it cheaper when every hour of patient care is matched by an hour (or two) of paperwork?

Republicans make a lot of noise about regulation but I’m not sure how serious they are since heavy regulation favors powerful businesses (see the CPSIA). They seem happy to rant about it on TV but show little inclination to do anything besides fight a rule or two that have gotten some attention in the media. They are unable or unwilling to admit that any progress on regulatory reform is going to mean giving some power to government agents to interpret and enforce the law.

I don’t like the idea of empowering bureaucrats any more than you do. But as long as it comes with accountability — the ability to punish those who exceed or abuse their power — it’s the least worst alternative.

And what’s the worst alternative? What we’re enduring now. A regulatory state that is massively complex, hideously expensive and doesn’t accomplish anything.

The Real Scandal in Washington

As I said in the comments on Alex’s post, I’m not too opposed to the double standard that gets applied to sex scandals. Republicans get hit harder because of the hypocrisy of dictating moral values to the nation when it comes to homosexuality and abortion while they schtupp lobbyists on the side.

But I do object to the failure to call out Democrats when they engage in hypocrisy that makes David Vitter look like Pope Benedict. The Democrats bombard us with an endless stream of propaganda about how they stand up for the little guy, they stand up to special interests, they oppose big money. And they do this while selling the country down the river to those exact interests. One week they are standing up to big insurance companies by pushing healthcare reform the insurance companies love. The next, they’re standing up to energy interests by lavishing money on “green” technology pushed by powerful energy interests. You can read Alex’s post below on the debacle unfolding at Fannie and Freddie, the liberal creation that was tangled up with every monied interest around and zealously defended against re-regulation by Democrats.

And then there’s Dodd-Frank, the bill that was supposed to stick it to the big banks in favor of the little guy. This is the bill that’s going to make Elizabeth Warren everyone’s second wife, constantly nagging us about our financial choices. This is the bill that was named after two men so covered in bank lobby money, their shit comes out in coin sleeves.

So how’s that bill working out? We’ve passed it, so now we can find out what’s in it.

Behold, the sudden realization:

Dodd-Frank is so sprawling — the legislation runs to more than 2,000 pages — that the law firm Morrison & Foerster dubbed the tracker it created to monitor the implementation process “FrankNDodd.”

The law laid out principles but often left it to regulators to write the actual rules. Those would be the same regulatory agencies that failed to prevent the financial crisis and that, in some cases, view the banks they oversee, not taxpayers, as their primary constituents.

Dodd-Frank requires 387 different rules from 20 different regulatory agencies. The Byzantine, tedious rulemaking process has occasionally pitted regulator against regulator and proved a bonanza for lobbyists.

Congress set aggressive deadlines for regulators to make rules to enforce the law, and, unsurprisingly, they are failing to meet them. The agencies missed each of the 26 deadlines they were supposed to meet for April. So far, regulators have finalized 24 rules and missed deadlines on 28, according to the law firm Davis Polk.

This is not an accident. This is not the creation of evil Republican deregulators. That the rule-making is coming to be controlled by special interests is exactly what we fucking predicted would happen.

What did we expect? Between Dodd-Frank and Sarbanes-Oxley, we are getting to the point here he only way to make money is to control the politicians and the regulators. Anyone else gets screwed. They only other choice is to take your business to less stupid countries.

Well, we all know this is the fault of the evil Republicans. Certainly the Democrats don’t … oh.

Every morning, a Wall Street trade group called SIFMA sends out an email with the day’s news. SIFMA is the Securities Industry and Financial Markets Association. It represents banks and trading firms. So it’s no surprise that the email is usually heavy with critical news stories about financial reform laws, like the Dodd-Frank Act.

But tonight, SIFMA will be hosting a fundraising dinner for Democratic Congressman Barney Frank: yes, he’s the Frank in Dodd-Frank. SIFMA members will pay $1,000 or more for a seat at the table.

The Wall Street interests are also big Obama contributors.

This needs to be drilled into people’s heads: the rich and the powerful love hyper-regulation. They love it. They love it because they have the money and the influence to successfully navigate a politically-controlled landscape. All that over-regulation accomplishes is the screwing over of newcomers — those who don’t have influence yet and haven’t stuffed political war chests with their hard-earned money. The guys who brought down our financial system love Barney Frank and they love Dodd-Frank because they are protected; they have the keys to the vault (literally, in the case of bailouts).

And the politicians love it too. How else would a turd like Barney Frank get his bloated ass kissed by rich bankers? How else would Obama roll up $35,000 donations? They love having people come to Washington and genuflect before them. They love having the success of businesses and the fate of hundreds of billions of dollars turn on their whims and whimsies. This is what they live for.

The only people who lose are the average citizen, the honest businesses, the economy and the sucker lefties who continues to mindlessly support these weasels and their weasely reforms.