A what-ought problem? An is-ought problem.
Senator Chris Dodd’s gigantic financial reform bill is starting to attract a bit of nerd rage for giving regulators power to regulate — but not the requirement to use it.
Is, but not ought. At least, that’s FT Alphaville’s meta-ethical take.
It’s certainly something to keep an eye on as the bill rumbles on through Congress — with a presumed May timetable for passage, according to the NYT. As Mike Konczal argues:
What story of financial reform is told with this bill? It isn’t a story where the financial sector isn’t too far out of control, too top-heavy and concentrated and opaque and gigantic. And it isn’t a story of regulatory failure, where regulators were asleep at the wheel, corrupted and captured through assumptions of how the world works and a revolving door of influence with the biggest firms, or where they were simply outmatched in knowing what they needed to do.
It’s a story where the regulators just needed a bit more power, a little more legal scope, and a greater extension of what jurisdiction the Federal Reserve has in order to rush in and save the day.
This comes amid some reformist wobbling over the Volcker rule — the Obama administration’s separate bid to restrict proprietary trading by commercial banks, which some hope to see added to the bill (including Paul Volcker, oddly enough).
But the rule is looking doubtful on the merits, as discussed by — er, Paul Volcker, according to Reuters, and Senator Dodd’s reluctance over how to define proprietary trading.
That would suggest yet more regulatory discretion above clear, hard-and-fast restrictions on the systemic risks, Repo 105s, and mega leverage ratios of the future. Ezra Klein, seconding Konczal, sums it up:
Indeed, if you just told someone the basic facts of the case — “we had a huge financial crisis abetted by lax and captured regulators and we’re going to try to prevent the next one by giving those regulators way more power” — they’d think it pretty weird.
Sigh. And to think that we’ve all been here before (emphasis ours):
As all those have shown who have discussed civil institutions, and as every history is full of examples, it is necessary to whoever arranges to found a Republic and establish laws in it, to presuppose that all men are bad and that they will use their malignity of mind every time they have the opportunity…
…Men never do good unless necessity drives them to it; but when they are free to choose and can do just as they please, confusion and disorder become rampant.
- Machiavelli, Discourses on Livy, Bk. 1, Ch. 3 (1517)
Related links:
The current state of financial reform (PDF) – Mike Konczal
The background to the Volcker rule – FT Alphaville
Why Wall Street should have seen the Volcker rule coming – FT Alphaville