“The report is scathing about the financial incontinence of bankers and consumers but complacent about regulatory failures,” writes Posner. “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.”

 

Posner argues that adding “bureaucratic layers will not cure the pathologies of regulation,” which include timid civil servants, “contamination” by politics and interest groups, and the tendency to yearn for consensus at the expense of independent, creative ideas.

 

Instead of just increasing the current regulatory structure, Posner believes the federal government should rotate its finance regulators from one agency to the next to “reduce balkanization and make a regulatory career more interesting.” Also, Congress should fund the regulatory agencies rather than making them reliant on fees from the industries they’re overseeing. This change would turn regulators from “customers” of banks into true watchdogs by severing the financial ties that have disinclined agencies from cracking down on Wall Street.

-Noel Brinkerhoff

 

Our Crisis of Regulation (by Richard A. Posner, New York Times)