Financial regulation by Chris Dodd: The cronyism stimulus act

Today’s Wall Street Journal has an important and insighful op-ed on the Senate financial regulation, sponsored by Sen. Chris Dodd, D-Conn. Here’s the crux:

The Dodd bill is perfectly designed to create the largest and most powerful crony system in history. It’s not that the people, regulator or regulated, are personally corrupt. It’s that the system will itself select for, reward and enforce corruption.

No financial professional will be able to turn down a “request” for a campaign contribution, and all financial institutions will hire former staffers as advisers or directors. No regulator can afford to antagonize a potential future employer. Regulators themselves must kowtow to Congress, which can use them for under-the-table subsidies to favored groups. None of this is new to politics, of course, but the scale and lack of defined powers are.

The authors, Clifford Asness and Aaron Brown, call this process “two-way capture,” a beautiful term which I will now be using forever to describe the tawdry intertwining of business and government. The phrase captures how a bill — say lthe recent health-care bill — can simultaneously outrage the Left as an industry takeover of government and outrage the Right as a government takeover of industry.

Asness and Brown are also right about this regulation greasing the revolving door. We’ve already seen the health-care law’s authors begin to cash out to K Street firms representing the regulated businesses.

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