Wall Street is its own worst enemy. It should
have welcomed new financial regulation as a means of restoring public
trust. Instead, it's busily shredding new regulations and making the
public more distrustful than ever.
The Street's biggest lobbying groups have just filed a lawsuit
against the Commodities Futures Trading Commission, seeking to overturn
its new rule limiting speculative trading.
For years Wall Street has speculated like mad in futures markets --
food, oil, other commodities -- causing prices to fluctuate wildly. The
Street makes bundles from these gyrations, but they have raised costs
In other words, a small portion of what you and I pay for food and
energy has been going into the pockets of Wall Street. It's just another
hidden redistribution from the middle class and poor to the rich.
The new Dodd-Frank law authorizes the Commodity Futures Trading
Commission to limit such speculative trading. The commission considered
15,000 comments, largely from the Street. It did numerous economic and
policy analyses, carefully weighing the benefits to the public of the
new regulation against its costs to the Street. It even agreed to delay
enforcement of the new rule for at least a year.
But this wasn't enough for the Street. The new regulation would still put a crimp in Wall Street's profits.
So the Street is going to court. What's its argument? The commission's cost-benefit analysis wasn't adequate.
At first blush it's a clever ploy. There's no clear legal standard
for an "adequate" weighing of costs and benefits of financial
regulations, since both are so difficult to measure. And putting the
question into the laps of federal judges gives the Street a huge
tactical advantage because the Street has almost an infinite amount of
money to hire so-called "experts" (some academics are not exactly
prostitutes but they have their price) who will use elaborate
methodologies to show benefits have been exaggerated and costs
It's not the first time the Street has used this ploy. Last year,
when the Securities and Exchange Commission tried to implement a
Dodd-Frank policy making it easier for shareholders to nominate company
directors, Wall Street sued the SEC. It alleged the commission's
cost-benefit analysis for the new rule was inadequate.
Last July, a federal appeals court -- inundated by Wall Street lawyers
and hired-gun "experts" -- agreed with the Street. So much for
shareholders nominating company directors.
Obviously, government should weigh the costs against the benefits of
anything it does. But when it comes to the regulation of Wall Street,
one overriding cost doesn't make it into any individual weighing: The
public's mounting distrust of the entire economic system, generated by
the Street's repeated abuse of the public's trust.
Wall Street's shenanigans have convinced a large portion of America that the economic game is rigged.
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Yet capitalism depends on trust. Without trust, people avoid even
sensible economic risks. They also begin trading in gray markets and
black markets. They think that if the big guys cheat in big ways, they
might as well begin cheating in small ways. And when they think the game
is rigged, they're easy prey for political demagogues with fast tongues
and dumb ideas.
Tally up these costs and it's a whopper.
Wall Street has blanketed America in a miasma of cynicism. Most
Americans assume the reason the Street got its taxpayer-funded bailout
without strings in the first place was because of its political clout.
That must be why the banks didn't have to renegotiate the mortgages of
Americans -- many of whom, because of the economic collapse brought on by
the Street's excesses, are still under water. Some are drowning.