At Their Discretion

Signed, sealed, and delivered. There we have it: the most radical financial regulatory bill to pass Congress since the 1930s. Well, it's the biggest anyway. 2319 pages make a wide brush. And so, on a blog that has dedicated so much of its profanity-laced verbiage to the myriad depravities of modern finance, it seems only right that with this most recent effort to address (or avoid addressing) those same depravities, just bit more unnecessary verbosity is in order. As you can tell, I'm off to a good start.

Essentially, I've been trying to figure out what's actually in this bill and what it will all mean. Indirectly, of course. That is, I'm only assessing the assessments. It's not like I get paid for this. So anyway, here is my tremendously unsatisfying analysis: it is impossible to know what it will all mean.

If you've read any other commentaries on the bill so far, you've probably come across this same conclusion. By and large, what the bill sets about to do is to repair, tweak, and lubricate the American financial regulatory machine. Congress, it can be said, has given the bureaucracy a whole new set of fancy tools. What the bill does not really specify in most cases is how (or even whether) those tools get used.

So how does one interpret this? One could very easily don the rose-colored glasses and imagine a future in which this regulatory machine is manned (or in a particular news-grabby case, womaned) by those who both know and want to run it at full capacity. Or one can with, unfortunately, a much tamer imagination, don the glasses of recent history (which are certainly not rose, but beige, and flecked with the crystallized salt streaks of teary disappointment), and imagine a not so different future in which regulators ignore all the buttons upon their re-vamped console except for the one labeled "auto-pilot."

So here are some specifics (the sources I used are all at the bottom):

• First of all, and probably most consequentially, a new panel (the Financial Services Oversight Council) will be set up to figure out exactly which financial institutions fall under the new regulations and which do not (that is, which are "systematically important"). It will also review the overall stability of the global financial system. Presumably this crack team of top regulators will be able to identify problems as they arise and then act upon them in some such way. Kind of the like the Fed was always expected to.
• New regulations on capital levels (the quantity and quality of readily accessible "cash" banks have to hold on hand for a rainy, or panicky, day) are going to be implemented, the bill assures us. They will be drawn up by a panel of regulators who will presumably know what it is they're doing. No absolute numbers included, but current levels are set as a floor (and interestingly, the levels, the new law states, should expand and contract with economic activity.)
• Banks with government guarantees are restricted in the degree to which they can invest their own money for the financial return of the bank itself (this is the Volker rule); that is, acting like a hedge fund. The restriction is fairly liberal though (so I've read anyway), so the effect might be minimal.
  
• A new set of head-slappingly obvious but (maybe necessarily) vague restrictions are placed on the mortgage industry (e.g. you can't lend someone money if you aren't reasonably convinced he or she can pay you back).
  
• The ability of the government to seize, chop up, and liquidate problem institutions will be expanded to include non-banks. Which non-banks? Presumably companies like AIG and Lehman Brothers were in mind when this provision was put in, but I'm not sure. I've tried to figure it out. Either way, in the event that a "systematically important financial institution" has to get seized, the pool of money required to pay off their debts is not pre-funded, but may be borrowed from the Treasury, to be repaid subsequently by the financial industry as a whole with one-off, retroactive tax. Kablamo.
  
• A Consumer Financial Protection Agency is set-up. How much it does and how effectively it does it all depends on who the regulators are. It's potential authority seems broad, as far as I can tell though. A Tea Party's Czar to end all Tea Party Czars.
  
• Securitization is rationalized slightly. Any bank that tries to pawn off that hottest new pool of mortgages has to keep 5% of the thing on its books. This could potentially be a pretty big deal, though a major exemption exists for "qualified residential mortgages." Who makes the determination? The ever-watchful regulators, obviously.
  
• Rating Agencies, rather than being allowed to issue their ratings as opinions and thus under the protection of the 1st Amendment, are made liable. In other words, they might actually have to start doing their jobs. There are already some aftershocks on this one.
• Any firm that enters into a derivative contract will be forced to set aside some collateral and extra case, "just in case." Standard derivatives will be forced through clearinghouses (where an independent body makes sure both sides of each deal have their ducks in order) and then (as far as I can tell) onto an exchange of some sort (where the price of each standardized contract will be public to anyone. As for the riskier types of derivatives, regulated banks and non-banks will not be able to hold them directly. Instead, the interested party will have to set up a separate (isolated, funding, financial and legal liability wise) corporation, which it must nestle upon a pillow of "just in case" cash. All in all, this could be pretty good except for the fact that key terms such as "risky," "standard," "independent," and "appropriate collateral" will all be determined by...you guessed it...regulators.

Sources: (1) Lexology, summary, (2) Lexology, derivatives, (3) The Atlantic

So to re-articulate: the new regulatory order really has both the potential to surprise and to disappoint. And yet I worry. Finger-wagging ever impatient libs who seem only too eager to knit-pick Congress' latest Obama-approved watered-down compromise, Matthew Yglesias reminds us that "this regulatory setup, like all regulatory setups, only works if the regulators want it to work and that only happens if politicians want the regulators to want it to work."

Sure. A law only gets enforced if the cop wants it enforced. But why leave so much discretion to the cop?

America's Hat Also Has a Stupid Senate

Looks like you dirty Yankees aren't the only ones with a phenomenally screwy legislative process:

The Senate is working quickly through many of the bills that were passed by the House of Commons in recent weeks but one controversial piece of legislation seems to be stalled.

Bill C-311, drafted by NDP MP Bruce Hyer, would require the government to cut greenhouse gas emissions to 25 per cent below 1990 levels by 2020 and 80 per cent by 2050. It was supported in the Senate by Liberal Senator Grant Mitchell and has been read twice but has since been adjourned in the name of Conservative Senator Richard Neufeld. The legislation cannot move forward until he speaks to it.... Mr. Neufeld said on Wednesday that there has been no organized effort to keep the bill from being passed into law. If it is not addressed before the Senate rises, probably next week, it can always be raised in the fall, he said. “Our chamber has been pretty busy,” said Mr. Neufeld.

But the Liberals say they fear that the Conservatives are stalling until they obtain an absolute majority of Senate seats and can unilaterally kill the legislation - something that is likely to occur in November.

And Mr. Hyer said he has been told by Conservatives that the government has decreed that the bill cannot be passed into law.

“There are a number of Conservative senators who I have met with, who I am not going to identify, who are very sympathetic,” he said, “but they say they are getting tremendous pressure - they are being whipped.”

And guess what? It's been lazing around Ottawa since 2006!

The Climate Change Accountability Act was originally tabled in October 2006 in the Canadian House of Commons as Bill C-377 by Jack Layton, Leader of the New Democratic Party of Canada. It passed 3rd reading in that House with the support of caucuses of the Liberal Party of Canada, the Bloc Québécois and the NDP (the Conservative Party of Canada, led by Prime Minister Stephen Harper, voted against it). However, due to the 2008 Canadian federal election ending the parliamentary session prematurely, the bill did not achieve royal assent despite reaching the Senate. C-377 therefore died when the election was called.

The parallels here between the 110th Congress and our situation are obvious enough that I don't need to draw them out, but here's the kicker: we don't actually vote for our senators.

The Senate consists of 105 members appointed by the Governor General on the advice of the prime minister.[1] Seats are assigned on a regional basis, with each of the four major regions receiving 24 seats, and the remainder of the available seats being assigned to smaller regions. The four major regions are: Ontario, Quebec, the Maritime provinces, and the Western provinces. The seats for Newfoundland and Labrador, the Northwest Territories, Yukon, and Nunavut are assigned apart from these regional divisions. Senators may serve until they reach the age of 75.

I just want to make two little points towards the end of this quote-heavy post. One, when the Conservatives were out of power, all that I ever heard from my friends and their parents and, well, random dudes in restaurants wearing suits and cowboy hats, was that a Triple E Senate was a necessity to keep Canada from eventually breaking apart. The three Es stand for Elected, Equal, and Effective, as the Tories were weary of a senate stuffed full of liberals gumming up the works and, in their own little way, filibustering. Now that they're in power, and have been there long enough to have moved a number of people into the Senate, obviously they're not keen. Two, this bill is basically only demanding that Canada get to work on meeting the framework it has already agreed to in the United Nations. It isn't radical or overbearing or anything, it's had a series of readings, and it's already four years too late. Good god.

A New Direction for the Republican Party

A majority of Senate Republicans rallied earlier this week in a concerted effort to rebrand the G.O.P.. Based on an internal memo circulated amongst Capitol Hill staffers and interns, high-level Republican Senators were encouraged to distance themselves from those positions considered by a majority of the American public to be simply "Vile and Odious," and instead to embrace those more radical viewpoints typically reserved for "Comic Book Villainy."

The Daily Show Reports:

(U.S.)
Rape-Nuts

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
www.thedailyshow.com
Daily Show Full Episodes Political Humor Ron Paul Interview

For Canadians. Dave, you may be on your own on this one.

Here are a list of those Senators who may now be said to be members of the pro-rape camp of the Republican Party:

Alexander (R-TN) Barrasso (R-WY) Bond (R-MO) Brownback (R-KS) Bunning (R-KY) Burr (R-NC) Chambliss (R-GA) Coburn (R-OK) Cochran (R-MS) Corker (R-TN)	Cornyn (R-TX) Crapo (R-ID) DeMint (R-SC) Ensign (R-NV) Enzi (R-WY) Graham (R-SC) Gregg (R-NH) Inhofe (R-OK) Isakson (R-GA) Johanns (R-NE)	Kyl (R-AZ) McCain (R-AZ) McConnell (R-KY) Risch (R-ID) Roberts (R-KS) Sessions (R-AL) Shelby (R-AL) Thune (R-SD) Vitter (R-LA) Wicker (R-MS)