Burgess COMMENTARY

Peter Burgess

Against the Rules: The Senate's New Attack on Regulation

As our economy limps along with continued high levels of unemployment, Republicans and some Democrats in Congress have become enchanted with deregulation. The supporters of deregulation believe that if only government with its “burdensome regulations” were to get out of the way of our nation’s courageous entrepreneurs, the “job creators,” our economy would come roaring back to life.

Even the Obama Administration all too often talks about wanting to “balance” the protections offered by regulations with the “costs” they impose on businesses.

This framing assumes that regulations are somehow a deterrent to growth. But as Dennis Kelleher’s piece in this series makes clear, exactly the opposite is the case. Strong regulations are a pre-requisite for a healthy economy. The meltdown of our economy in 2008, which led to $12.8 trillion in economic losses, was made possible by a failure of the federal government to adequately regulate the financial services industry.

Nevertheless, a bipartisan group of Senators are pursuing legislation, S. 3468, the Independent Regulatory Analysis Act, that would give the White House the authority to review new regulations from independent agencies, a power it currently exercised over cabinet agencies.

The premise of this legislation is that without the White House operating as a check on independent agencies, rogue bureaucrats will keep rushing to create more red tape that hobbles our economy.

Major rules from independent agencies, particularly those regulating the financial system, are actually behind schedule. One of the most significant, the Volcker Rule, would prohibit banks from engaging in the kind of risky speculation that led to the 2008 collapse. It was due out in July but still has not emerged from the independent agencies charged with crafting it.

When it comes to expanding into additional areas, independent agencies have been shy. The Securities and Exchange Commission has declined to regulate money market funds despite the risks they pose to the soundness of our economy. During the 2008 crisis, money market funds with trillions of dollars in assets teetered on the brink of insolvency until the federal government stepped in to prop them up.

The good news is that for the time being, action on this anti-regulatory legislation has been forestalled. It was originally scheduled for a vote in the Senate’s Homeland Security and Government Affairs Committee this week, putting it on a path to action by the full Senate.

The legislation brought howls of criticism from normally reticent regulators. Ben Bernanke, the Chairman of the Federal Reserve, and leaders of several other independent agencies penned a letter to Senator Lieberman, the Chair of the Homeland Security Committee opposing the legislation, saying “Beyond injecting the administration’s influence directly into our rule-making, the bill also would interfere with our ability to promulgate rules critical to our missions in a timely manner and would likely result in unnecessary and unwarranted litigation.

At this point it appears that a vote on this legislation will not occur before this Congress adjourns for the holidays. However, when Congress reconvenes in January, there is little doubt that the siren song of deregulation will be heard once again.

This entry is part of the series New Rules for Wall Street, where Demos analysts and members of the Coalition for Sensible Safeguards make the case for what should be on the financial-reform agenda in the next four years. Read all the entries here.