Some Final Words On The Doomed Financial Regulatory Reform Legislation - No Better Than Kindergarten Artwork

Earlier this week we reviewed some opinions from news sources from around the country, as summarized in the The Week magazine, regarding the recently passed financial regulatory reform legislation. The purpose of this new law is to ensure that the devastating economic conditions that led up to the "Great Recession" never happen again. As you may recall, most of the opinions on the new law were quite negative, with many people writing that the bill really accomplished or mandated nothing much worthwhile, leaving the difficult work to nameless and faceless government bureaucrats and regulators who never saw the latest economic coming until it smacked them in the face.

Today, for the last time, we will review the bill and its worthiness, this time using Becky Quick's column in the August 16, 2010 issue of Fortune magazine. She follows a similar format to what The Week article did, looking for reaction from various experts in the field:

• Randall Kroszner, who is an economics professor at the University of Chicago and a former Federal Reserve governor, felt that the law left too many specifics undefined and that the "legislation mostly kicks the can down the road." In other words, the law has very little substance.
• John Taft, who is the next president of the Securities Industry and Financial Markets Association, stated that the law requires that over 250 new regulatory rules be written by a dozen or so government regulatory agencies, some of which do not even exists yet. He felt that "it's the largest delegation of rulemaking authority by Congress to regulators in modern history." In other words, the politicians took no bold or courageous actions relative to this bill, they just passed a hollow bill which forces unelected government employees to do the difficult work.
• Danny Blanchflower, who once sat on the Bank of England's interest rate setting committee, thinks that this bill fights the last war and leaves the economy still unprotected from the next economic bubble or economic disaster. He likened the bill to the historically useless Maginot Line that the French built to stop the Germans from invading prior to World War II. The Germans simply went around the line and easily marched through western Europe. Mr. Blanchard's exact quote from the article is: "I Think FinReg is broadly irrelevant. What we do every time is protect ourselves from the last financial crisis."

Ms. Quick, who is an anchor person on CNBC's Squawk Box, also voiced her own concerns:

• Although the law is 848 pages long, it provides little clarity as to what should be done, will be done, and who will do the heavy lifting for reform.
• She feels that the 800 plus page bill creates more questions than it answers.
• Critical to the bill is the definition of "risky" bank behavior but it never defines the parameters of risk.
• It also fails to define when a bank or financial institution is too big to fail, which was the justification of bailing out many of the banks with taxpayer money.
• She also concludes that the law and the politicians that wrote it and approved it, basically punted the necessary decisions and guidelines to some future point in time.

Note that none of these people quoted, or the ones quoted in The Week article, worked for a bank or financial institution. If they did, then you could make a case that the complaints were just sour grapes over more regulations of the industry. But the people in both articles were not working for a bank or a financial institution. They worked for newspapers or were familiar with the entire industry. And just about all of them saw this legislation as a failure.

To me it sounds more like a kindergarten class where the kids present their work to their classroom visiting parents, proud of what they did but not really that good from an artistic perspective at that age. The same could be said about this law, politicians proud of what they did relative to financial regulatory reform but us, the parents, now know that it was just like kindergarten artwork, not that good.

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