Williamson vs. Hewitt, Round 2

About our discussion yesterday, during which he criticized my “Repo Men” article as akin to conspiracy kookery, Hugh Hewitt  writes: “Whenever someone starts talking about ‘they,’ ask for names, numbers and addresses.”

Names, numbers, and addresses, you say? A great many of them may be found here. Happy as always to be of service. 

My fellow conspiracy nut Prof. John Cochrane, writing for some mass-fax conspiracy newsletter from the 1980s today’s Wall Street Journal, smells what’s cooking:

Will this new round of rules, and greater discretionary supervision, finally stop too big to fail?

The depressing scenario is that the six big banks will use this massive regulation as an anticompetitive fortress. We will have the same six big banks 30 years from now, spurred to even greater size with continuing subsidies, cheap Fed-provided financing, the government guarantee, and occasional bailouts. And a financial system as innovative as the phone company, circa 1965.

The only hope I see is that nimble, new small-enough-to-fail competitors will spring up and rebuild the financial system. But this is faint hope in the face of the vast discretionary powers in last year’s Dodd-Frank financial legislation and the Fed’s rules, which allow the government to step in whenever they decide that a financial risk is “systemically important.”

It’s those “vast discretionary powers” that get to me, too. Simple regulation based on specific rules — such as stronger capital requirements and relatively straightforward accounting reforms to minimize off-balance-sheet shenanigans — feels like the rule of law to me, whereas “vast discretionary powers” feels like adhocracy, and that’s what we’ve got. By way of comparison: I do not support minimum-wage laws, but a law that says “The minimum wage shall be $x/hour” is to my mind entirely preferable to a law that confers vast discretionary powers on a political bureaucracy to set wages in any given circumstance. 

Many readers have suggested that Sarbanes-Oxley and Frank-Dodd either do too much or do not enough in the way of reforming our financial system, but I think the question isn’t one of sufficient or insufficient regulation, but one of what specific kinds of reforms are needed. Frank-Dodd does 999 dumb things but neglects to do the one or two useful things that can and should be done to reduce the chances of another 2008-style meltdown. And if it’s conspiracy kookery to suggest that Wall Street likes having access to easy money at concessionary rates, bailouts, and the privilege of being too big too fail, then the grassy knolls are going to get awfully crowded.

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