Frankel on Financial Regulation Funding and the Left

Jeff Frankel has a recent blog post, The Easy Question in Financial Regulation (h/t Mark Thoma).  There are two points I want to address in it, the first I agree with completely:

The question of funding the U.S. financial regulators, the Securities and Exchange Commission or the Commodity Futures Trading Commission, is easy to answer, however.  I do not see the argument for cutting funding  of the SEC and CFTC or for the other ways that Republicans in Congress are finding to make it difficult for these agencies to do their jobs.   They are also deliberately impeding two new agencies set up in response to the 2008 financial crisis — the Consumer Financial Protection Bureau, lodged at the Fed, and the Office of Financial Research at the Treasury — from doing their respective jobs.

The CFTC “requested a $308.0 million budget for fiscal year 2012, but the House approved $171.9 million — or 44% less than what the CFTC requested, and 15% below 2011 levels.” The SEC doesn’t get enough funding to implement Dodd-Frank.  “The SEC requested $1.407 billion for fiscal year 2012, but the House denied the 19% budget increase and allocated $1.185 billion — the 2011 funding level.”  Terrible, given the wreckage that we just went through and the serious reforms that need to be brought online.

The second from Frankel is problematic:

…But how anyone can think that regulation by the SEC was excessive during 2001-08 and that this contributed to the financial crisis?

That is the irrationality on the Right.   There is an equally irrational point of view on the Left.  It goes like this:  because the head of the CFTC is a former investment banker from Goldman Sachs, it must necessarily be that he is serving the interests of the financial community.  It happens that Gary Gensler is doing a great job, against great odds.   He has been trying to force derivatives trading into clearinghouses with lower counterparty risk, as required by the Dodd-Frank bill, to try to avoid repeats of September 2008.  I can see, when an investment banker is appointed to such a position, asking questions that one would not ask otherwise.  But he has been in office for 2 ½ years, pursuing regulation of derivatives with sufficient vigor to make most of Wall Street angry.  Reading the words “Goldman Sachs” on someone’s resume should not be a substitute for all other thought processes.

“Equally irrational.”  With all due respect to Frankel, I really don’t like the “the Left is the mirror image of the Right” framing in general, and especially here.

First of all, it’s not right.  As of Fall 2009, the financial reform people on the Left mostly were in favor of Gensler, especially once he got going with the job.  There were legitimate worries in early 2009 – here’s Bernie Sanders putting a hold on his nomination – but by the time financial reform really kicked off he was one of the most pro-reform agents in the administration and he’s well supported now.

I’m not sure what he’s referring to by “the Left”, but let’s give some examples.  Here’s Robert Kuttner of The American Prospect from November 2009, “Remarkably enough, Gensler’s conversion turned out to be the real deal…Gensler — who really is a born-again regulator…” From that article, after Gensler did the tour explaining what he wanted to do, “Public Citizen, the consumer group founded by Ralph Nader, put out a press release supporting his confirmation.”  Recently, David Dayen of firedoglake.com, after considering the evidence, wrote “Of all the regulators, Gensler perhaps deserves the least criticism,” which is as strongly worded recent thing as I could find.

Gensler’s real problems come from the center and Right, especially when he says things like “Wall Street’s interest is not always the same as the public’s interest…Wall Street thrives and makes money in inefficient markets, and I am creating efficiencies in the market.”  He’s been aggressive on the idea that “[t]he law must cover the entire marketplace without exception” while, for instance, Geithner is pushing to exempt foreign-exchange derivatives.

Second, there really isn’t a comparison.  Gingrich, Bachmann, Cain, Paul, Romney and Huntsman are all campaigning to repeal Dodd-Frank, and there’s no indication they aren’t serious – though they all think that regulatory uncertainty is the problem in the economy.  The GOP in the Senate won’t let the CFPB start-up unless it gets eviscerated.  Peter Wallison of the American Enterprise Institute was willing to sabotage the FCIC report, telling fellow Republicans that “It’s very important, I think, that what we say in our separate statements not undermine the ability of the new House GOP to modify or repeal Dodd-Frank.”  They are in full court press mode, fighting every step of financial reform with every tool available, if only to delay as much of it as possible until after next election.  There’s no counterpart on “the Left” for any of this.

(Also: to answer his question in that second blockquote, according to Treasury Secretary O’Neill, President George W. Bush believed the weak economy of the early 2000s was because of “SEC overreach.”)