Our Crisis of Regulation
In an op-ed in The New York Times today, Richard Posner calls the administration’s financial overhaul plan "premature, overambitious, obsessed with reorganization, [and] afflicted by Roosevelt envy." He says regulators failed to prevent the financial collapse not because they lacked adequate powers but because they lacked information, a culture of inquiry, and a contingency plan.
The report is premature because there hasn’t been time to study causes of the current crisis in depth — and until these causes are determined we won’t know how to prevent a recurrence...
The report is scathing about the financial incontinence of bankers and consumers but complacent about regulatory failures. It suggests that these failures can be cured bureaucratically by creating a consumer financial protection agency, a national bank supervisor and a council of regulators, and by giving the Federal Reserve discretionary authority over the entire financial sector.
Politicians are instinctively drawn to plans for government reorganization, because such plans are cheap and visible and dramatic. But planning is the easy part; execution is where the American government falls down. Adding bureaucratic layers will not cure the pathologies of regulation, which are rooted in our regulatory culture — the timidity of civil servants, the contamination of public administration by politics and interest groups, and the power of the “office consensus” to marginalize independent thinkers for not being team players.
Regulatory structure is not the problem; Britain’s central bank resembles what the report would like the Federal Reserve to be, yet it did no better in the crisis. The issue is indeed performance, and that is where the focus of reform should be.
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