Who's Afraid of the Big, Bad Regulation?

The United States has always had a history of strong financial regulation.

I would now like to challenge you to say that last sentence with a straight face.

That is not to say that the U.S. is lacking in regulatory agencies and bodies, we are absolutely not. In fact, we lead the rest of the world with eight financial regulatory authorities (second place is Canada with three). For a complete listing, go here: http://en.wikipedia.org/wiki/List_of_financial_regulatory_authorities_by_country. Clearly, I don’t want to have to type them all out.

As the reactionary country we tend to be (or maybe it’s just Congress that freaks out over everything and the rest of us are perfectly rational), when things are going badly we regulate. Take the Sarbanes-Oxley Act of 2002: a classic case of someone (named Congress) overreacting to the shock and scandal that was Enron, and lots and lots of people losing their pensions. On the other hand, when things are going fine and dandy we (again Congress) have a tendency to deregulate.

Anybody remember the ‘90s, and how great they were? So just when they thought nobody was looking (because we weren’t, we were too busy spending money while we had it), Congress passed the Gramm-Leach-Bliley Act, (http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act ) sometimes known as GLBA. Yes, you read that correctly. To make a long story short GLBA made it ok for Citibank to merge with Travelers Group, which previously would have been illegal, to become Citigroup. Now if you don’t know what happened to Citigroup, I suggest you move out from under your rock.

Of course in the wake of the credit crisis, what do we come full circle back to? More regulation! Let’s add another agency to the list shall we? Let’s call this one the Consumer Financial Protection Agency. The name certain does make me feel all warm and fuzzy inside.

The legislation to form the new agency will be reviewed by the House Financial Services Committee in July and will take “many of the consumer protection powers over mortgages and credit cards that now are spread across as many as 10 federal regulators.” (http://news.yahoo.com/s/mcclatchy/20090624/pl_mcclatchy/3259529.) Wait, 10? I thought we only had eight. Does anybody actually know how many we have?

Also included in the upcoming legislation: the possibility of giving the Federal Reserve the responsibility of oversight over any institution that is deemed “too big to fail.” Yes folks, this is the same Federal Reserve that either, 1. Somehow didn’t see this whole thing coming, or 2. Just decided to not do anything about it.

Gosh, I feel so much better now.