How could anyone oppose something called “financial reform”?

That some degree of regulatory reform is in order after the financial debacle of 2008 is incontestible. I do not know a conservative or a liberal who believes that every single part of the system is fine as is (or as was). However, the Senate and the House are currently in conference for the purpose of reconciling their two respective bills that are disingenuously called “financial reform”. These days, if one opposes the measures they are considering (or even a portion thereof), that opponent can expect to be lambasted. After all, who could possibly oppose something with as benign a label as “financial reform”? Perhaps a few reflections on why this atrocity should be opposed are in order …

First of all, I do think it is worth questioning why we are spending tens of millions of dollars right now on the Financial Crisis Inquiry Commission. Congress created this bad boy (led by the intolerable Phil Angelides) for the purpose of investigating the causes and lessons of the financial crisis. If we are rushing through corrective legislation way before they have completed their work, why are we wasting our time with this charade? But I digress …

The reality is that this financial reform package is the worst form of political showmanship, and it is guaranteed to do absolutely nothing (meaning, nothing of any societal good; it will do plenty to raise costs, stifle innovation, and leave us exposed to yet another crisis). This sham of a bill has a couple major ingredients that essentially come down to this: (1) Consumer Protection; (2) Re-structuring (i.e. limiting) the activities Wall Street can participate in (specifically as it pertains to derivatives). As Bob Eisenbeis of Cumberland Advisors pointed out this week, these things were simply not core causes of the crisis (and no serious person claims they were). What they are, though, are fodder for good soundbites for politicians.

It is offensive to the intellect of American society that we are addressing the one trillion dollar failure of government housing policy by tightening up rules on credit card companies. If you think your bank overdraft fee policy led to the bankruptcy of Lehman Brothers, I have some oceanfront land in Kansas to sell you. The financial crisis was a story of failed government social policy in the arena of housing. Yes, the narrative gets rather juicy when you factor in leveraged mortgage bonds, credit default swaps, and hedge funds. But the idea that we would write a massive “financial reform bill”, and never once say the word “Fannie” or “Freddie” is incredible (I am not exaggerating; their very words do not even appear in the bill). The catastrophe that was mark-to-market accounting is not addressed in the bill. And of course, there is no attempt to address the out-of-control monetary policy of the Federal Reserve which “eased” us into the biggest bubble in history.

So while we do not deal with the rating agencies, the Federal Reserve, mark-to-market accounting, or Fannie Mae and Freddie Mac, what this bill does do is create a “super-regulator”, which as best I can tell is the “same regulator who completely screwed up the last time”. If ten different agencies that each have their own small and specific jurisdiction can so eggregiously fail to perform, can someone explain to me how one massive bureaucracy is suddenly going to perform any better? How did the super-regulator SEC do with Bernie Madoff? Please. I can not believe anyone is taking this seriously.

So Congress gets to do what they do better than anything else: they get to “do something”, just so they can say that they “did something”. It is rank tokenism, and it is absolutely sure to cost the taxpayers money. Get ready to watch your bank pass on the costs of this montrosity to you in the form of higher fees. Get ready to see your credit card limits cut. Get ready to see a slew of junk mail disclosures come in the mail. And when all of those things happen, as yourself: “wow, did we just prevent a potential financial crisis?”