Professor Bainbridge...on law, politics, religion, culture & food

Barney Frank Riding to the Rescue?

The Hill reports:

House Financial Services Committee Chairman Barney Frank (D-Mass.) on Friday announced that he will hold hearings soon on financial regulatory reform amid gyrating markets and fears of a global recession.

Frank’s announcement that his panel will look at “broad regulatory and reform for the financial markets” was a shift from last week, when congressional Democrats — immediately after passing a $700 billion Wall Street rescue package — said they would wait until January to dig into their planned overhaul of the financial sector’s regulatory structure. ...

Frank, who led the House Democrats’ negotiating efforts on the massive bailout bill, said the actions Democrats have in mind would be “comparable to what Franklin Roosevelt did in the New Deal.”

Gawd help us.

I’ll remind you again of what my friend Larry Ribstein argued in his excellent article, Bubble Laws. The bursting of financial bubbles is almost always followed by new legislation, which typically has the following characteristics:

• Panic leads to populism which is captured by long-standing interest group pressures


• “SOMETHING MUST BE DONE RIGHT NOW”—No careful balancing of the costs and benefits of regulation.


• They fight the last war: Regulators more likely to react to past market mistakes than to prevent future mistakes


• Post-bust regulators ignore benefits of market flexibility and, therefore, impede risk-taking and innovation

Personally, I’d rather have almost any other Barney fixing Wall Street than Barney Frank, even if my only other choices can out of this group: