With a congressional battle brewing over what is being touted as the biggest attempt at financial regulatory reform since the Great Depression, most pundits are predicting that, despite token Republican opposition, some version of the bill that originated with Senator Chris Dodd's Finance Committee will soon pass. Senate Republicans blocked the first attempt to bring the matter to a vote on April 19, but Democrats and the Obama administration vowed to continue to press wavering Republicans to support the bill.
"Public sentiment was not working in favor of Republicans, as it did to some extent during the health care debate," wrote Jim Kuhnhenn of the Associated Press. "Public opinion is leaning toward more regulation of large financial institutions, and a Securities and Exchange Commission lawsuit alleging fraud by Goldman Sachs has added the cloud of scandal to Wall Street." Meanwhile, Republicans are working hard to ensure that the bill satisfies their own constituencies; any notion of opposing the bill on principle is not given serious consideration. According to Senator Mark Warner (D-Va.), speaking to the Christian Science Monitor, "I've never seen a bill that has had more bipartisan input than this legislation. We're getting closer and closer."
Public Opinion and Public Policy
Public opinion, ever the refuge of demagogues, is notoriously suspect in times of economic upheaval. Financial shocks like the great contraction of 2008-2009 produce more angst than any other political event besides war, stirring up powerful and often reflexive emotional responses rather than soberly reasoned opinions among the general public. And, just as took place during the depths of the Great Depression, Americans--who are expressing support to pollsters for financial reform--are allowing themselves to be emotionally exploited by politicians of both parties whose real agenda is to strengthen the control of the federal government over the market economy.
The finance reform bill, which has been under preparation in the Senate for months but is only now attracting attention as President Obama and his senatorial allies move it toward passage, differs not a whit in principle from previous attempts by Washington--dating as far back as Teddy Roosevelt's antitrust legislation, and including the likes of the Glass-Steagall Act of 1933 and the Sarbanes-Oxley Act of 2002--to vanquish various free-market hobgoblins by government regimentation. Although the advantages of the free market over a command economy have been demonstrated over and over, both in theory and in practice, the same pernicious falsehoods about capitalism persist: that it leads to large-scale misallocations of capital, especially the unjust accumulation of wealth in fewer and fewer hands; that it is inherently volatile, leading to periodic panics and recessions; and that it encourages dishonesty and secrecy among the wealthy and powerful. That it is in fact government intervention in the free market that is responsible for such things is not the sort of inconvenient truth that government itself, or its stable of kept journalists in the major news media, is likely to divulge. But the bill now taking shape on Capitol Hill will, as investor and Senate candidate Peter Schiff has recently pointed out, "not only ... do nothing to prevent the [next] crisis, it will more than likely increase its severity."
One of the aims of the new Senate legislation (already in excess of 1,300 pages) is to give the Treasury Department, FDIC, and Federal Reserve so-called "resolution authority" for dealing with the insolvency of mega-financial institutions. The purpose of such an authority is entirely unclear, since arbitration and winding down of the assets of insolvent institutions has traditionally been dealt with in bankruptcy courts. Giving these three government entities new authority to preside over bankruptcy …