When President Obama returns to his office from Maine, he will sign an 800-page financial reform bill, which will be proclaimed (by him) as the most far-reaching and beneficial financial legislation in at least 50 years. You have to give the man credit. He has tackled some of the most pressing issues of our times, boldly and full of self-confidence, without much help from the Republicans. They are his bills.
But 800 pages is a lot to read – bigger by far than Gone With the Wind – so we have to assume that the President hasn’t read it, but has left that to staff, and therein lies the rub. It would be nice to believe that the economic gurus have vetted the document and were satisfied that at least it would do no harm. But, grading the bill for the Wall Street Journal, Henry Paulson says “there are too many unknowns as to how the regulations will be applied.” Harvey Pitt, an accounting heavyweight and a former SEC chief, grades it an F. Pimco’s Bill Gross, who manages more money than almost anyone, gives the bill a D+. Nouriel Roubini, an economics superstar these days, gives it a C+. A few are more generous, but among experts who may be assumed to have read all or most the bill, the reviews are poor. If it were a Broadway play, the closing notices would have been posted.
Okay, so whom did the President rely on to go through the 800 pages, subparagraph by subparagraph? Let me guess. Not Rahm Emmanuel, certainly. And probably not Tim Geithner, whose plate is full. How about Barney Frank and Chris Dodd, or rather their staffs? Frank and Dodd are hard workers, and we assume their staffs work even harder. It’s a political deal, after all, sewed up (barely) with the help of Scott Brown and the two senators from Maine (now we know why Obama flew to Bar Harbor rather than the Gulf Coast for a quick vacation). Let’s acknowledge that the President knows how to pull the right political levers. But does that guarantee that the legislation is sound? No.
To begin with, who told the President about the possible unintended consequences of this bill? Who laid out a scenario under which the legislation would not prevent another financial collapse but would in fact precipitate one? President George W. Bush relied on the neocons surrounding him to draw up a plan to invade Iraq. The case for invasion was a “slam dunk,” they said, but where was the voice telling him all the things that might go wrong – no WMD, Abu Ghraib, Gitmo, civil war – and the far-reaching consequences. (One assumes that Colin Powell was such a voice, before he was sacked.)
The finreg bill is not as bloody as Iraq, but Afghanistan is getting there, and one can see a coming collision between the President’s deep desire to pull out and the militarists’ demands for victory. Whichever way he leans, there will be unintended consequences, and they won’t be pretty.
Nor will the unintended consequences of financial regulation. The hordes of new committees and their lawyers and a tidal wave of new regulations could strangle the economy just when the first faint flickers of a recovery are on the horizon. I hope that President Obama has put his new bill through a stress test, but I doubt it.
