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March 22, 2013

Congress Must Stop Helping Wall Street Kill Financial Reform


“Wall Street’s Congressional allies are renewing their assault on financial reform with a fresh wave of proposals that would cripple the ability of the Securities and Exchange Commission (SEC) and other regulators to protect the public.  These latest attacks are in the form of amendments to the Budget bill in the Senate, which is being voted on this afternoon,” said Dennis Kelleher, President of Better Markets, Inc., an independent nonprofit organization that promotes the public interest in the financial markets.

”The most common and most dangerous tactic is forcing independent agencies to conduct what the opponents of financial reform misleadingly call ‘cost-benefit analysis,’  which really only counts industry costs and disregards the costs and benefits to the public.  The last financial crisis was caused by de-regulation and non-regulation of the financial industry, which is what will happen if these proposals are passed.  The last financial crisis will cost this country more than $12.8 trillion dollars and financial reform is trying to prevent that from happening again.  But, these needless and burdensome proposals will make another crisis and more Wall Street bailouts more likely,” said Mr. Kelleher.  

The amendments take various forms, ranging from requiring Congressional approval for all regulations (Risch Amendment #367), restricting access to the courts for those seeking to enforce their rights (Sessions Amendment #205), narrowing the duty of care that advisers owe under ERISA (Ayotte Amendment #165) and imposing so-called cost-benefit analysis on the SEC (Collins Amendment #145). 

The effect of these amendments will not be to improve the quality of regulation for the benefit of the American people.  Instead, they will slow and weaken regulation and benefit  Wall Street along with every other regulated industry. 

Although they may sound harmless, or even sensible, these amendments are dangerous and should not be supported:

·         Cost-benefit analysis is a one-sided and grossly inaccurate methodology, since it ignores huge benefits that can’t be easily quantified—such as preventing another $13 trillion dollar financial crisis—but exaggerates costs to industry.   For example, the Inhofe amendment (#174) would require federal agencies to consider the “full cost of regulations, including indirect job losses” prior to adopting a rule.  Such a calculation is not only impossible, but completely one-sided: it focuses entirely on costs, not on benefits to the public.  What the Wall Street lobbyists really mean by “cost-benefit analysis” is “industry-cost-only analysis.”

·         Cost-benefit analysis drains scarce agency resources and slows rulemaking to a crawl.  We’ve seen it happen already at the SEC, where rulemaking is at a virtual standstill after several of its rules were invalidated on cost-benefit grounds.

·         Imposing cost-benefit analysis on the independent financial regulators overturns decades of public policy that these agencies must not be saddled with such burdens precisely because the public interest, not industry costs, should come first.

The end result of this campaign, if allowed to succeed, is plain: The SEC, the CFTC and the other financial regulators will be unable to implement the reforms desperately needed to prevent another financial crisis and economic meltdown, like the one we’ve been suffering through since 2007.  These proposals should be opposed.  Doing so will protect taxpayers, the financial system and the economy. 

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