Dodd-Frank is a Monster
Not that this hasn’t been noted elsewhere in these pages, but it is nice to see even a default pro-regulation publication like The Economist take on the monster (monstrosity?) that is Dodd-Frank. When even the Economist, which has hardly met a regulation it didn’t like, calls your law “too big not to fail,” you know you’re in for some seriously scary stuff.
I will briefly excerpt the article here, but the whole piece is worth reading.
The law that set up America’s banking system in 1864 ran to 29 pages; the Federal Reserve Act of 1913 went to 32 pages; the Banking Act that transformed American finance after the Wall Street Crash, commonly known as the Glass-Steagall act, spread out to 37 pages. Dodd-Frank is 848 pages long. Voracious Chinese officials, who pay close attention to regulatory developments elsewhere, have remarked that the mammoth law, let alone its appended rules, seems to have been fully read by no one outside Beijing (your correspondent is a tired-eyed exception to this rule). And the size is only the beginning. The scope and structure of Dodd-Frank are fundamentally different to those of its precursor laws, notes Jonathan Macey of Yale Law School: “Laws classically provide people with rules. Dodd-Frank is not directed at people. It is an outline directed at bureaucrats and it instructs them to make still more regulations and to create more bureaucracies.” Like the Hydra of Greek myth, Dodd-Frank can grow new heads as needed.
…Another product of Dodd-Frank is a plethora of new government powers and agencies (see chart 2) with authority over areas of the American financial system and economy affecting veterans, students, the elderly, minorities, investor advocacy and education, whistle-blowers, credit-rating agencies, municipal securities, the entire commodity supply chain of industrial companies, and more. Quite a lot have tasks already done by others—frustrating the act’s worthwhile objective of consolidating fragmented pre-crisis supervision. A new office within the Treasury department is intended to forecast and head off disasters—already a goal of research groups at the 12 regional Federal Reserve Banks, the Federal Reserve Board, the president’s Council of Economic Advisers and numerous federal agencies, not to mention universities, think-tanks and private firms.
The problem, of course, is not that we have too few agencies, bureaucrats, and “experts” working on the issue. The problem is that the issue is fundamentally unsolvable without a crystal ball. Tasking people with heading off crises before they happen is not only the height of hubris, it more often than not exacerbates the crisis that ultimately happens anyway.
And then the cycle starts over.