The Regulators: Heads They Win, Tails You Lose

First, let’s take a quick read of an excerpt from Matt Welch at today on whether economic regulations were cut or strengthened over the past decade:

Expecting regulators to do their job well, let alone magically prevent whatever private-sector outcomes we do not like, is as fantastical as the assertion that George W. Bush was a deregulatory president.

Wait, what? Didn’t we just read in Time magazine that “From the start, Bush embraced a governing philosophy of deregulation”? That’s a comforting narrative for those trying to “restore” regulatory oversight of Wall Street. But it’s false.

According to Mercatus Center economist Veronique de Rugy, federal expenditure on regulatory enforcement in finance and banking, when adjusted for inflation, “rose 29 percent from 2001 to 2009, making it hard to argue that Bush deregulated the financial sector.” This was a sharp break from Bill Clinton, who actually cut financial regulation spending by 3 percent, de Rugy found.

The last major bit of financial market regulatory overhaul, which has already disappeared down the public memory hole, was the 2002 Sarbanes-Oxley Act, passed in the wake of the Enron debacle and other corporate scandals.

When signing it into law, Bush declared: “No more easy money for corporate criminals, just hard time. …The era of low standards and false profits is over.” I guess someone forgot to tell Bernie Madoff.

But does it matter?

To the mind of the pro-regulation, anti-free market set, all outcomes are evidence of the need for more government regulation of business.

If there’s a breakdown, loophole or Enron-scam, it’s a sign of the need for more regulation.

If things run smoothly, it’s a sign we need more of the regulation that keeps things running smoothly.


  1. Anonymous says:

    Politicians adore pontificating on how regulation will cure this ill or that. The regulatory legislation never does cure the ills it purports to cure. Inevitably the politicians create more problems than they cure.

  2. Nathan says:

    You’re painting with broad strokes. While I agree that some regulations are a fool’s errand (insider trading comes to mind) others could easily be implemented and enforced. Specifically, there should be a general prohibition on credit default swaps. The government enforces contracts. If a CDS is not enforceable due to public policy, then nobody will issue them.

    The potential harm caused by the reckless issuance of these instruments by far outweighs any benefit they have to society.

  3. Frank R says:

    The above post under “Anonymous” was actually mine. My apologies as I apparently did not enter my name.

    Yes, my comment was a rather broad stroke. I was thinking specifically about the proposed financial regulation legislation. It purports to mitigate risk, but the likelier case is that it will create more mess and actually encourage risky behavior in many cases.

    Credit default swaps could and should be addressed as a stand alone issue. Politicians seem loathe to do this as the legislation then gets greater scrutiny. Much better to propose a 1400 page byzantine bill in the hopes that no one will actually read what’s in it. Much easier to bury sweets for political favorites. CDSs do seem to serve a useful purpose in the market. Granted, they are inherently risky. But then so is the market in general. Investing in stock is essentially betting, whether we like to think so or not. CDOs could be regulated to increase transparency, but getting rid of them altogether seems to serve no purpose.

  4. Anonymous says:

    If only we could get those pesky regulators out of the off-shore oil drilling industry. How much better off would we be?



    Under the law that established the…Oil Spill Liability Trust Fund, the operators of the offshore rig face no more than $75 million in liability for the damages that might be claimed by individuals, companies or the government, although they are responsible for the cost of containing and cleaning up the spill.

    The fund was set up by Congress in 1986 but not financed until after the Exxon Valdez ran aground in Alaska in 1989. In exchange for the limits on liability, the Oil Pollution Act of 1990 imposed a tax on oil companies, currently 8 cents for every barrel they produce in this country or import.