A Laboratory Experiment of the Law of Unintended Consequences
Here's a good piece you may have missed by Sheldon Richman about everything that's wrong with the Dodd-Frank Wall Street Reform and Consumer Protection Act. And that's a lot.
Most generally, the new law exhibits the standard governmental hubris. Who truly believes that an army of necessarily myopic bureaucrats can ever know enough to 1) anticipate a systemic crisis and 2) do something intelligent about it in a timely way? The more centralized the power the more vulnerable we average taxpayers are. Mistakes are system-wide. The virtue of a freed market is not that it’s unregulated (it’s not) but that its radically decentralized.
So anyone who thinks this 2,300-plus page monstrosity has a chance to prevent another large-scale financial failure has been watching too much network news. Two pieces of information are pretty much all you need to see through the hype. First, in all those pages you will not find the words “Fannie Mae” or “Freddie Mac” (or their official names), the two government-sponsored enterprises (that’s a term of art) that had so much to do with encouraging the hollow mortgages that underlay the flimsy securities and credit default swaps that made the financial system so fragile these last several years. When Fannie and Freddie couldn’t pay their bills a couple of years ago, the government took them over, proving that the widely assumed implicit government guarantee of their obligations was real after all. They are still in business buying up mortgages though they need regular infusions of the Treasury’s borrowed money. Before it’s over the bailout cost is expected to at least hit the $400 billion cap, though Obama has unilaterally promised unlimited financial aid.
The second important fact is that the chief movers of this law, Sen. Chris Dodd and Rep. Barney Frank, are the two biggest congressional champions of Fannie and Freddie. Whenever anyone expressed concern about the poor condition of the GSEs’ books, Dodd and Frank could always be counted on to fend off the threat of scrutiny. They would insist it was all part of an altruistic cheap-home-ownership program, but too much money was being made from government intervention to take that seriously. Dodd and Frank were aided by Fannie’s and Freddie’s well-connected lobbyists and campaign contributions. All told, they spent $200 million from 1998 to 2008. Fannie and Freddie are the ultimate Washington insiders. “They’ve stacked their payrolls with top Washington power brokers of all political stripes,” the Politico reported. Altruism, indeed.
It’s Dodd, by the way, who said of his bill, “No one will know until this is actually in place how it works.” And Frank is ready to submit new legislation to fix any mistakes in the law.
As the author notes, "We’re about to have a laboratory experiment of the law of unintended consequences." Indeed we are.
There's an interesting reader comment beneath the piece. A gentleman by the name of Jim Strawhorn writes:
The new law is more evidence of the fact that it’s too easy to legislate. If the House, like the Senate, required a three-fifths vote to cut off debate, we’d be much less encumbered by stupid laws. Thomas Paine said in Common Sense that in order to keep foolish ideas from becoming laws, nothing less than three-fifths should be considered a majority by a legislative body. Too bad his admonition wasn’t fully heeded.
I'm not sure how I feel about that, but I have to say, as I contemplate this legislation -- I'm tempted.
- Comment (4)
- · Quote
- · UnfollowFollow (1)
Comments :
May '10
Re: A Laboratory Experiment of the Law of Unintended Consequences
Oh, noble QOTC, I beg leave to offer a better analysis:
http://www.becker-posner-blog.com/2010/07/five-major-defects-of-the-financial-reform-bill-becker.html
Re: A Laboratory Experiment of the Law of Unintended Consequences
Yep, that too. (They're making many of the same points.)
May '10
Re: A Laboratory Experiment of the Law of Unintended Consequences
The Texas legislature meets for a maximum of 140 days every 2 years. Our economy is one of the strongest in the nation. Sometimes, I think the national legislature works too much.
May '10
Re: A Laboratory Experiment of the Law of Unintended Consequences
Sometimes?