It would be nice to live in the fantasy-land world envisioned by the New York Times editorial board. They are sad that a year after the Dodd-Frank financial regulatory bill was passed that, the new regulatory body isn’t properly staffed. This shows two flaws in relying on regulations to control misbehavior.
First, if your regulations rely on getting the “right people” or “tough and experienced regulators” as the NY Times wants, then the regulations are destined to fail or fall short. The reason is simple. If you are a “tough and experienced” regulator, would you make $150,000 at most working as a federal bureaucrat, or would you many multiples of that working for big Wall Street firms figuring out how to game the regulations.
Second, your regulations are destined to fail if they can’t be implemented within a year. This means they are too complex and therefore possible to be gamed.
Rather that relying on getting the right people, the federal government should be in the business of transparency, information, and being the sheriff for disputes. Instead of rushing to save big banks and their investors from their bad decisions, banks need to fail as a result of their mistakes and misdeeds instead of being bailed out by the average Joe. Dodd-Frank was created because President Bush and Obama wanted to help their friends on Wall Street. It would have been far better to practice tough love.
There are many more problems with Dodd-Frank. If you want to know why here’s a primer on how its quack federal corporate governance.