At ThinkMarkets, Chidem Kurdas ponders the the eventual impact of the Dodd-Frank financial regulation bill:
As Richard Epstein writes in National Affairs, the new financial law is notably vague and broad, granting vast discretion to government bureaucracies, giving them the wherewithal to waive or soften requirements for some parties while riding hard on others.
Thus the rulemaking to implement Dodd-Frank created immense opportunities for influence peddlers-they might celebrate the great contribution Mr. Dodd made to their bottom line before he joined their ranks.
The WSJ reports that Dodd-Frank rulemaking by various agencies has already resulted in more than three million words in the Federal Register, though most of the 387 mandated sets of rules have not even been put forth. Behind the mass of almost incomprehensible decrees are impenetrable deals that favor the politically connected and savvy.
A simple and transparent law to expeditiously shut down failing large organizations would have been useful. An international agreement to this effect with other financial hubs would have limited the damage in failures of global companies like Lehman Brothers, as would have reforming bankruptcy law. Instead, Congress and the Obama administration chose to fashion an elaborate bureaucratic straitjacket with unknown effects.
Professor Epstein points out that "intrigue always arises when the government is in a position to dole out or deny benefits" and this corrodes the rule of law and the legitimacy of the regulatory state. James Madison made a similar point-inevitable corruption accompanies the political giving out of goodies and indulgences.
Dodd-Frank is a dud because its benefits are mysterious and uncertain while the costs, in particular the damage to the rule of law from expanding bureaucratic arbitrariness, are predictable.
It's interesting that the Democratic health care bill provoked a massive backlash and a repeal movement, while Dodd-Frank did not. The financial regulation bill, arguably, will be just as damaging as Obamacare in its long-term effects. The difference is probably that Dodd-Frank is simply too confusing and complicated for people to understand what it will do.
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