WSJ on regulation

The WSJ has an article on regulation that shows how little they understand regulation. It’s here, though it may be gated, so I’ll provide relevant excerpts.

It’s too boring for the press corps to notice, but a growing body of evidence suggests that the Obamanauts are undermining these basic due diligence practices that have been commonly accepted by whatever party happened to be in power.

Take the rule-making aftershocks of the Dodd-Frank overhaul of financial markets, which the Government Accountability Office reviewed in detail in a late November report. The GAO observes that the law "requires or authorizes various federal agencies to issue hundreds of regulations," some discretionary, others not. Among the 32 final rules the banking, futures and securities agencies have issued so far and GAO reviewed, the report dryly notes that "regulators may be missing an opportunity to enhance the rigor and improve the transparency of their analyses."

It goes on to say that the regulations are badly written, but the paragraphs above are the interesting part, since virtually every statement in them is wrong and/or weird.

A bit of background is in order. Your humble blogger is working on several "Dodd-Frank related" rule-makings. Interestingly, I was working on some of the same rule-makings before Dodd-Frank was passed and before Obama was President (so much for the term Obamanauts – we were here before him and we’ll be here after him).

Once Dodd-Frank passed, Republican law-makers began lobbying us bureaucrats (yes, Congressmen lobby us to actually write the law) to water down Dodd-Frank. Democrats on the other hand, lobbied us to strengthen the various portions of the law.

The WSJ’s second paragraph notes that bureaucrats have largely sided with Republicans. Why is the WSJ complaining about this? In this case, the bureaucracy is doing what they want.

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4 Responses to WSJ on regulation

  1. asdf says:

    Foseti,

    I’ve recentely become a regulator (Obamacare), though I’m new on the job and haven’t been in government that long. I recentely went through your posts on government employment and I wanted to give some perspective.

    I’ve worked at three distinct types of organizations.

    1) I was a derivatives quant for a major IB in NYC.
    2) I worked doing quant type work for a large insurance conglomerate.
    3) I currentely work on Obamacare related stuff as a civil servent.

    I mostly agreed with the stuff you wrote, with a few contentions. I thought I’d go through them. Your big points were accountability (firing, rewards), management efficiency and knowledge (guys at the top making smart choices), and feedback mechanisms (profit motive, etc). Here is my breakdown for each type of organization.

    Investment Bank

    Accountability: Fierce for both firing and rewards. A true meritocracy, or as close as one can get. The guys at the very top get their golden parachutes of course.

    Management Efficiency: The good news is the managers are generally high IQ so they can adapt, but the higher ups clearly have no clue how their more complicated operations are working. Some of them are from the era before it got so quanty, others don’t give a shit as long as the money comes in each quarter.

    Feedback: Good if your goal is profits. Bad if your goal is value to society. Most of my job, which generated lots of profits, was to take advantage of information asymetries and principal agent problems. Essentially you find fund managers in over their head and convince them to buy derivatives they don’t understand or need, then take a cut.

    Insurance Conglomerate

    Accountability: Low. Gross incompetence could get you fired. Extreme competence over many years might get you a salary 20% above those with the same credentials and experience. Maybe more if your good enough at office politics to climb the pyramid. Actually I’m not sure gross incompetence gets you fired, because I never saw people get fired for it. You’ve got to tell of your boss or do something that pisses someone off, I’ve seen people make mistakes that cost seven figures and nothing happens.

    Most people don’t get fired, but laid off. Layoffs are based on the economy and not job performance. Usually, decision making flows down from a level that doesn’t know anything about the individuals being fired, so your actual job performance won’t matter. In fact companies tend to like to retain mediocore employees in their 30s or 40s with families and mortgages.

    Management Efficiency: Understood quaterly results. If the economy is good you might even plan out two years ahead. Most ddecisions seemed to deal with using tax or accounting laws to make quarterly results better. Not much attention paid to core business. Management out of touch.

    Feedback: If your goal is to produce the same numbers every quarter, the feedback mechanism is good. If the goal is to change anything, its bad. When your in an industry with high barriers to entry and reasonably low profit margins things don’t change much.

    Government

    Accountability: From what I understand pre Obamacare there was zero accountability and people literally slept in their offices all day. I haven’t seen that since I got here. They brought in a new head honcho that fired a lot of people and used the Obamacare money to hire new people (like me). That said they still have practices that make me want to puke. And god their IT is a complete nightmere (who kicked back the most determines what programs we use).

    Management Efficiency: She is well meaning and I’m glad she cleaned house, but she’s a political appointee with no expertise in the industry at least for the stuff I work on. In over her head a bit.

    Feedback: Nothing for twenty years, then a lot of accountability, then nothing for another twenty years is my guess. Given that they don’t pay as much as private, most employees are either going to be slackers or people who really believe in the cause. You hope you end up with more of the former then the latter, cause your stuck with em.

    A final note on the question of your post. Having worked in IB, I think those guys are psychopaths. I still think the entire dertivatives market is a waste of human effort if not downright destructive. My advice is never to worry if passing a regulation will make it too difficult for wall street to do business. The less business they do the better for you and me.

    • Foseti says:

      I’d be curious to know the details of who was fired and what happened to them. Were they actually government employees or were they contractors? If they were actually government employees Were they “fired” – as in paid well to leave and take their pension early? Or were they “fired” – as in given other jobs in another part of the government? Or were they actually fired?

      • asdf says:

        All of this happened in the year or two before I got there, so I don’t know all the details. My friend and old co-worker is the head of the department I work in and I know he is very committed to the cause and was vocal about the housecleaning, but its not like I asked him these questions because they aren’t very important to me. They were actual government employees that’s all I know.

        One difference between what you wrote and my experience is that I’m not in a union. I’m on the salary table and all so those negotiations effect me but I and everyone in my department is at will and not protected by any union regs. Lower grade people that work in our agency are in the union, but I’m mostly talking about those AA hire admins making 40k a year or whatever.

        My general impression of government employment is that its a great deal for lower skilled people and a bad deal for hire skilled people. When people rage on government and lower wages it mostly drives out the good while the bad sticks around.

      • Foseti says:

        I definitely agree with your last point.

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