Congress: Too Big To Flail?

Sen. Shelby and Sen. Dodd are pressing forward to formulate a bi-partisan financial reform bill, and they discussed it this morning on ‘Meet the Press’. Together they are fighting the partisan tides propelled on both sides by the opportunistic brinksmanship that the political parties are creating. Whether they will be successful at finding sufficient common-ground for enough members of Congress to accept a compromise bill that will even be accepted for debate, let alone in reaching acceptability for enactment is still in play for being ‘shorted’. But that is their challenge and their political problem. And as we have seen in the media, and will continue to see, the parties will be punting this political football back and forth without any evidence of skill or understanding. Congress will demonstrate yet again, that they are not too big to flail.

The problem for the American public is whether their solution will be effective in achieving its intended objectives. Assuming that the reform bill makes it through the bi-partisan negotiations with the basic concepts that it currently contains; there will be an extension of regulatory oversight in all financial areas that represent substantive potential for impacting the national economy, there will be an expansion of consumer protection regulation, and there will be greater regulatory authority for the oversight Government agencies to intervene in companies that are judged to be failing in acting in fiscally responsible and rational ways. With these additional responsibilities and authority vested in the federal bureaucracies will the American public be safe and assured that the powers on Wall Street will be brought to serving the national and public interests?

No. The regulatory approach retains its “cops and robbers” mind-set. It places the interests and motivations of the regulatory bodies in the position of searching for violations and wrong-doing amongst the players in the financial industry; and it teaches the financial companies to seek out loopholes and ways around the regulatory constraints being imposed upon them. It is the old mind-set that the Government achieves through a ‘find and punish’ method; and put businesses in the ‘avoid and obscure’ role. I don’t object to have the oppositional relationship between the regulating and regulated parties; but I don’t think that that is either the only nor the most productive means to accomplish a sound foundation for the national economy and business environments to be secured for the benefit of everyone, including the Wall Street elite that failed everyone so spectacularly while being the ‘only people capable and qualified’ to run these institutions.

Besides these conflicting interests have a recurring historic failure record. Regulatory agencies are often ill-equipped to fulfill their assignment, evolve into cozy regulatory/industry relationships, and are prone to the political sensitivities of politicians and special interest groups who can thwart their efforts and influence their funding.

What needs to be added to the financial reform effort is the inclusion of the same capitalistic dynamic that energizes the financial industry and its sage leadership to excel at creating the profits that establish their successes and funds their excessive and unwarranted salaries, bonuses, benefits, perks, and their corporate-supported political/charity/social contributions and influences. Where in the bill is the power to incent corporate leadership to manage the risks that they are undertaking with their investors’ wealth and the national economy in direct and inviolate relationship to their own and the corporations’ wealth and profits? You will not find it.

Now I have no idea what would make financial executives and leaders either interested in or pay any attention to ensuring that neither they nor their regulatory counterparts were ignoring or acting in financially irresponsible ways; but surely the ‘best and brightest’ in both government and the financial industry could figure some things out. Perhaps they could make some connection between long-term economic outcomes and access to bonuses. Or maybe, the differences in returns to the average investors versus the top-ten percent of investors could serve as a metric in setting compensation levels; making disproportionate achievements an undesirable accomplishment at least for the executives. And perhaps making investments in unregulated areas a highly progressive leveraged tax responsibility might make the attractiveness of ‘shadow investments’ more problematic when they are based on information that is non-public but very self-serving.

But let’s get back to Congress. Will they succeed, fail or flail? They will succeed to fail and flail.