Quite a few people sent me eMails asking my opinion on the financial reform legislation just passed by Congress, legislation that will undoubtedly be signed with much fanfare by President Obama.
This may surprise some people but I think the bill exceeded the wildest of expectations. Moreover, I can prove it.
To fully appreciate how amazingly good this piece of legislation was, we must look at the pluses (what the bill accomplished), the minuses (objectives the bill failed to meet along with any damages done), and the critical issue (reasonable expectations as to what the bill might have accomplished). Let’s start with the minuses.
Financial Reform Minuses
- Glass-Steagall: Paul Volcker supported provisions that were hopelessly watered down, so much so that they can accomplish nothing. This was a complete failure.
- Derivatives Reform: Banks successfully lobbied for derivative exceptions big enough to drive the planet Jupiter through. They succeeded. Derivatives reform is meaningless.
- Too Big To Fail: The reform bill did absolutely nothing to rein in the widely recognized “too big to fail” policies of the Fed. This was a complete failure.
- Preventing the Last Crisis: There is not a single thing in the bill that can possibly be construed to have prevented the last crisis. This was a complete failure.
- Preventing the Next Crisis: There is not a single thing in the bill that can possibly do anything to prevent the next crisis. This too was a complete failure.
Financial Reform Pluses
- None. The bill accomplished virtually nothing.
No doubt quite a few inquiring minds will be wondering how a financial reform bill that failed at 100% of its objectives while accomplishing virtually nothing can possibly be considered a “stunning success”.
This is where it pays to consider the crucial point: reasonable expectations.
The best way I can explain reasonable expectations is via an analysis of the Medical Reform bill, promoted, passed, and signed by President Obama even though a majority of US citizens were dead against it.
Medical reform did nothing to promote competition between states, nothing on tort reform, nothing to allow drug imports from Canada that would lower prescription costs and most importantly, nothing on reducing costs any step of the way.
That’s the positive side of medical reform.
The negative side of the balance sheet is that medical reform will cost a trillion dollars while increasing costs on small businesses at a time we can least afford to make that critical mistake. Furthermore, the bill panders to public unions and their luxury 100% paid for plans that put upward pressure on healthcare costs.
Medical Reform vs. Financial Reform
Medical reform not only accomplished nothing, it actually made matters substantially worse.
In sharp contrast to medical reform, I cannot come up with any financial reform provisions that make matters substantially worse.
Given the absolute best we could ever expect out of a major piece of legislation supported and promoted by Obama is nothing, and given that nothing was accomplished with no major detriments making matters much worse, the financial reform bill must be considered a stunning success.
Indeed, we should all be thrilled by it.
Importance of an Open Mind
However … I am always suspicious that major legislation like this contains provisions that will sow the seeds of the next crisis. Thus I am ready, willing, and able to admit that I was wrong if someone can show me how this bill makes matters substantially worse than before. If so, I will retract my statement that this bill was a “stunning success” and instead claim it was “stunning success compared to health care” or some other appropriate statement.
Moreover, if someone can convince me this bill actually does something that is net positive in a major way, I am ready willing and able to scream “Hallelujah! Praise be Obama” three times at the top of my lungs in downtown Chicago.
Some nitpickers will point out that the bill includes new transparency rules regarding the Fed. However, I doubt the new transparency rules accomplish much, if indeed anything. As a counterbalance, I strongly suspect there are some minor negatives I missed.
I need be convinced there are major net pluses or minuses to scream in downtown Chicago or to issue a retraction.
Otherwise, I sit comfortably with my opinion that “Financial Reform was a Stunning Success”, arguably the very best our wildest imaginations could ever have expected, given that it accomplished virtually nothing while doing no further major economic damage.
Mike “Mish” Shedlock
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