Saturday, December 13, 2008
Bush's Regulatory Kiss-Off
...Since Bush took office in 2001, there has been a 13 percent decrease in the annual number of new rules. But the new regulations' cost to the economy will be much higher than it was before 2001. Of the new rules, 159 are "economically significant," meaning they will cost at least $100 million a year. That's a 10 percent increase in the number of high-cost rules since 2006, and a 70 percent increase since 2001. And at the end of 2007, another 3,882 rules were already at different stages of implementation, 757 of them targeting small businesses.
Overall, the final outcome of this Republican regulation has been a significant increase in regulatory activity and cost since 2001. The number of pages added to the Federal Register, which lists all new regulations, reached an all-time high of 78,090 in 2007, up from 64,438 in 2001....
...President Bush deserves most of the blame for this regulatory expansion. While the president does not have to sign new rules before they're implemented, he does implicitly approve them. In addition, he signed hundreds of laws commanding federal agencies to produce new regulations. One is the Sarbanes-Oxley Act of 2002, which established new or enhanced standards for all publicly held companies and accounting firms in the United States....
...The Bush team has spent more taxpayer money on issuing and enforcing regulations than any previous administration in U.S. history. Between fiscal year 2001 and fiscal year 2009, outlays on regulatory activities, adjusted for inflation, increased from $26.4 billion to an estimated $42.7 billion, or 62 percent. By contrast, President Clinton increased real spending on regulatory activities by 31 percent, from $20.1 billion in 1993 to $26.4 billion in 2001....
...The data also show that, adjusted for inflation, expenditures for the category of finance and banking were cut by 3 percent during the Clinton years and rose 29 percent from 2001 to 2009, making it hard to argue that Bush deregulated the financial sector....
Is Deregulation to Blame?
...The Glass-Steagall Act of 1933 prohibited investment banks from acting as commercial banks, and vice versa. Signed by Bill Clinton (who continues to defend the legislation), the Gramm-Leach-Bliley Act of 1999 repealed those aspects of the law. Many on the left blame at least part of our current woes on that move. With the repeal, Barack Obama said in a March economic address, “we have deregulated the financial services sector, and we face another crisis.”
In fact, multiple exemptions to Glass-Steagall had been granted for years before Gramm-Leach-Bliley was signed into law. Most European financial markets, not normally known as more “deregulated” than the U.S., never separated commercial and investment banks in the first place. And there is no correspondence between institutions that benefited from the repeal and those that recently collapsed. Institutions that didn’t take advantage of the Glass-Steagall repeal, such as Lehman Brothers and Bear Stearns, were the ones that failed most spectacularly, in part because they lacked the stability provided by commercial banking deposits.
If anything, Gramm-Leach-Bliley may have softened the blow. The George Mason economist Tyler Cowen argues that Gramm-Leach-Bliley made way for more diversity in the financial sector, and “so far in the crisis times the diversification has done considerably more good than harm.” Under the Glass-Steagall rules, Bank of America and J.P. Morgan Chase would not have been able to acquire Merrill Lynch and Bear Stearns. Nor would Goldman Sachs and Citibank have their current unified form, which may have helped them survive.
There is a significant body of academic work supporting this idea. The Rutgers economist Eugene Nelson White, for example, has found that national banks with security affiliates—the sort of institutions Glass-Steagall was designed to prevent—were much less likely to fail than banks without affiliates....
...Unlike the banks and other market institutions that went down in the crisis, the government-sponsored enterprises Fannie and Freddie were always creatures of the federal government. As such, they were regulated less than their fully private counterparts when it came to such crisis-impacting phenomena as derivatives trading and capital requirements. Because of their size and politicized culture, they were able to fend off periodic attempts at reform. And because of the government’s implicit (and eventually explicit) guarantees of their multi-trillion-dollar portfolios, they lacked the discipline of worrying about failure.
Letting Freddie and Fannie get away with murder wasn’t deregulation. It was bad governance. And letting deregulation take the primary blame for a credit-fueled housing bubble and its aftermath isn’t an argument. It’s misdirection.
