Thaya Brook Knight
A decade after the start of the 2007-2008 financial crisis, and seven years after the passage of the Dodd-Frank Act, it seems both the legislative and executive branches may be making small steps toward financial regulatory reform. Earlier this month, the Treasury Department released the second in a series of reports on the U.S. financial sector, this one focused on the capital markets. And last week, the House Financial Services Committee passed a suite of bills aimed at reforming many areas of financial regulation.
While passing legislation out of committee is only the first of many steps toward enactment, it is encouraging that several of the House bills passed with either unanimous or bi-partisan support. Although the House notably passed the Financial Choice Act earlier this year, a bill that would serve effectively as a repeal-and-replace template for Dodd-Frank, that bill passed on a strict party-line vote, with only Republicans voting in favor. Therefore, the fact that many of the most recent bills had some support from Democrats may bode well. Of course, any action will require Senate approval as well. There has not yet been a Senate answer to the House version of the Choice Act, although there is still time in the year.
But even though this recent regulatory reform activity is a step in the right direction, much more needs to be done. And in terms of the reforms envisioned in the Treasury report and the recent suite of House bills, they’re a mixed bag. To be sure, some proposed reform follow recommendations that many of us have been pushing for a while now. For example, the Treasury report recommends that all companies considering an initial public offering (IPO) be permitted to file confidentially and “test the waters,” that is, sound out potential investment interest before pulling the trigger on a costly IPO. Right now, only companies below a certain size are permitted to do this. There has been widespread concern about how few IPOs have taken place in recent years, and how few public companies now exist. Given the fact that investment in privately-held companies is tightly restricted, if companies eschew the public capital markets, average investors lose out. This change is one that may entice more companies to go public, with little risk to either investors or the markets.
But other changes would be half-measures, better than the status quo but still short of the mark. For example, both the Treasury report and one of the House bills address the restrictions on investment in private companies. Under current securities laws, investment in private offerings is effectively limited to institutions and wealthy individuals, defined as those who either earn at least $200,000 per year or have at least $1 million in assets excluding their primary residences. Both the Treasury report and the House bill would expand the definition, including individuals who can show financial sophistication through licensure or other means.
Expanding the definition is certainly a start. As it stands, existing regulation has absurd results. For example, an investment advisor who advises wealthy clients can recommend investments she herself cannot make since current law deems her insufficiently sophisticated if she is not also wealthy. Expanding the definition to remedy this would at least make the results less ridiculous. But this change doesn’t go far enough. Why should there be any restriction on how a person can spend money he has actually in hand? After all, anyone can spend money on all kinds of silly purchases, thankfully, without government interference. But if a person would prefer to make an investment with that money, current regulation is patently paternalistic: If the person is not wealthy, he, for the most part, cannot use that money to invest in private companies.
Another half-measure concerns a bill that would repeal the controversial Department of Labor rule governing broker advice for the sale of retirement investments. This rule, which would require those providing advice while selling certain investments to adhere to the very stringent “fiduciary duty” standard, has been criticized on two grounds. First, that the Department exceeded its authority, shoe-horning the rule into its limited jurisdiction over employer-sponsored retirement accounts. Second, that the rule itself would result not in better advice for moderate-income Americans, but no advice as brokers are likely to abandon low-value accounts due to the increase in compliance costs the rule would impose.
Repealing the rule is a good place to start. However, the bill passed by the House committee would only remove the rule from the Department of Labor’s (DOL) jurisdiction. While the legislation does not expressly impose a fiduciary standard, as the DOL’s rule does, it still uses language suggesting a heightened duty of care. Brokers are, in reality, salespeople who give recommendations incidental to that role. There may be some argument for requiring that such brokers disclose the fact that they may be paid based on a commission structure, to ensure that investors are not confused about their role. But any rule must ensure that the compliance costs of a higher duty of care do not outweigh the benefits, or place inappropriate requirements on those in a sales role. Otherwise the result is likely to be reduced access to information for the people who need it most. In fact, some initial reports show that this has already begun to happen in some firms under the current DOL rule.
The efforts by Treasury and the House Financial Services Committee are welcome. It is encouraging that some of the House bills passed with considerable support from both political parties. Given the breathtaking scope of Dodd-Frank’s changes, and the harmful effects it has had on the economy, any change is welcome. But there is still much, much more that can and should be done.Thaya Brook Knight is associate director of financial regulation studies at the Cato Institute.
Beware the rape allegation bandwagon
by Michelle Malkin
“#MeToo” is the social media meme of the moment. In a 24-hour period, the phrase was tweeted nearly a half million times and posted on Facebook 12 million times. Spearheaded by actress Alyssa Milano in the wake of Hollyweird’s Harvey Weinstein sexual harassment scandal, women have flooded social media with their own long-buried accounts of being pestered, groped or assaulted by rapacious male predators in the workplace.
Count me out.
It’s one thing to break down cultural stigmas constructively, but the #MeToo movement is collectivist virtue signaling of a very perilous sort. The New York Times heralded the phenomenon with multiple articles “to show how commonplace sexual assault and harassment are.”
— The New York Times (@nytimes) October 16, 2017
The Washington Post credited #MeToo with making “the scale of sexual abuse go viral.” And actress Emily Ratajkowski declared at a Marie Claire magazine’s women’s conference on Monday:
“The most important response to #metoo is ‘I believe you.'”
“The most important response to #metoo is ‘I believe you’
Former Trump consiglieri Steve Bannon believes that the president has less than a one in three chance of making it through his full term, according to a report last week in Vanity Fair. The story is that Bannon told Trump that “the risk to his presidency wasn’t impeachment, but the 25th Amendment” — to which Trump allegedly replied, “What’s that?”
They say there’s no such thing as a stupid question, so: the 25th Amendment, drafted in the wake of the Kennedy assassination and ratified in 1967, allows the vice president to take over when the president is deemed “unable to discharge the powers and duties of his office.” Section 3 allows the president to make the call himself, and several presidents have used it to stand aside temporarily while undergoing surgical procedures. Section 4 provides for the president’s involuntary removal when vice president and a majority of Cabinet heads or “such other body as Congress may by law provide” declare him incapacitated.
The 25th Amendment wasn’t designed for ejecting “merely” erratic or untrustworthy presidents. It aimed at situations of total, or near-total disability.
In the five decades since the amendment’s ratification, section 4 has featured in multiple TV thriller plots, but never been used in real life. Lately, though, growing numbers of public intellectuals and elected officials have decided it’s the best way to repeal and replace the Trump presidency. Sorry: It’s not going to happen.
Leave aside Steve Bannon, it’s mystifying that smart people — like The New York Times’ Ross Douthat, the University of Chicago’s Eric Posner, and former law professor U.S. Rep. Jamie Raskin (D-Md.) — have convinced themselves that the “25th Amendment Solution” is viable. In a Washington Post column this week, The American Prospect’s Paul Waldman argues that while Trump’s impeachment is “only a remote possibility,” his removal is “far more likely to happen via the 25th Amendment.”
It’s hard to see how. For one thing, unless Vice President Mike Pence is much less servile and more Machiavellian than he seems, the “25th Amendment Solution” never gets off the ground. Perhaps Pence is trying to lull “45” into a false sense of security before pulling the section 4 trigger, but right now he sure doesn’t look like a guy plotting to overthrow his boss.
Even if Pence proves a willing co-conspirator, for the switch to last, you’d need two-thirds of both houses of Congress to ratify it. If you have that, you already have more than enough votes for Trump’s impeachment and removal. The 25th Amendment’s framers deliberately set the bar higher for removal via section 4 because, as one of its principal architects, U.S. Sen. Birch Bayh (D.-Ind.) explained: “We were concerned about the politics of the palace coup.”
If you don’t have a supermajority in both Houses, then within three weeks, Trump would return to the Oval Office hell-bent for vengeance. And, short of the president actually standing in the middle of Fifth Avenue and shooting someone, it’s hard to imagine nearly 100 GOP congressmen crossing the aisle to declare him mentally unfit for office.
The 25th Amendment wasn’t designed for ejecting “merely” erratic or untrustworthy presidents. It aimed at situations of total, or near-total disability. Fordham University law professor John Feerick, who helped draft the amendment, summarizes the congressional debates on section 4: “It was made clear that unpopularity, incompetence, impeachable conduct, poor judgment, and laziness do not constitute an inability within the meaning of the Amendment.”
The only real advantage the disability amendment has over the old-fashioned method is speed: the president can be displaced — temporarily, at least — as soon as the vice president and a majority of the Cabinet send notification to Congress. There’s one scenario where that speed would be absolutely necessary and the “25th Amendment Solution” might work: If the president were to order an unprovoked nuclear first strike, it’s possible that the secretary of defense could, instead of transmitting the launch order, get on the phone with the veep instead. They could then decide to trigger section 4, putting the president into a “time-out” until Congress votes. And Congress, presumably, would go into that vote knowing that, unless they ratify the switch, they’re voting for nuclear war.
That scenario is, I hope, unlikely. But if it happens, you won’t hear me complain about the constitutional impropriety of invoking section 4. It’s crazy that it’s not entirely crazy to think about this kind of thing.Gene Healy is a vice president at the Cato Institute and author of “The Cult of the Presidency.”
**Written by Doug Powers
With the mainstream media being what it is, the Trump era means that even good news is bad news. Below is one such example featuring the two top economic stories from a Google search. How’s this for a shot & chaser?
The Dow hit another record high this week and there are other signs of economic turnaround, but don’t get too excited about any of it. According to an article in the NY Times, an improved economy could kill you:
But a surging economy does more than generate greater income. An industrial economy also pumps out more air pollution as more goods are produced. Polluted air, it turns out, is a major contributor to the mortality-increasing effect of an economic boom. In their analysis of how economic growth increases mortality, David Cutler and Wei Huang, of Harvard University, and Adriana Lleras-Muney, of U.C.L.A., found that two-thirds of the effect can be attributed to air pollution alone.
Other factors contribute to rising mortality during expansions. Occupational hazards and stress can directly harm health through work. Some studies find that alcohol and tobacco consumption increases during booms, too. Both are associated with higher death rates. Also, employed people drive more, increasing mortality from auto accidents.
During recessions, people without jobs may have more time to sleep and exercise and may eat more healthfully. One study found that higher unemployment is associated with lower rates of obesity, increased physical activity and a better diet.
We’d better have a good old fashioned economic depression fast or we’re all gonna die of heart & lung disease along with a lack of sleep.
**Written by Doug Powers