New Financial Regulations Will Expand Bureaucracy

D.C., April 10, 2008—In a new study released this week, Competitive
Enterprise Institute scholars size up the Treasury Department’s recent proposal
to restructure the way financial institutions are regulated, finding that the
plan has serious flaws and would effect a massive, and unnecessary, expansion
of federal power.

The authors, CEI Senior Fellow Eli Lehrer and Center for
Entrepreneurship Director John Berlau,
evaluate the 220-page Treasury document Blueprint
for a Modernized Financial Regulatory Structure on a point by point basis,
praising its sensible elements and taking the planners to task for missteps in
their policy brief “A Flawed Blueprint:
A Free Market Analysis of the Treasury Department’s Financial Regulation

“In some cases the Blueprint
does ask important questions about what government should do. In fields as
diverse as insurance and mortgage lending, it asks fundamental questions and
comes to sensible solutions,” write Lehrer and Berlau. “However, in far too
many other places, it proposes creating new bureaucratic structures with new
powers and new missions as if these will automatically result in a better
financial system for the United
States. They will not.”

Motivated in part by widespread unease over dislocations in
the subprime mortgage market, the Blueprint
includes an array of proposals, many of which had previously been under
consideration independent of problems in the housing sector. Thus, the report
takes something of a “kitchen sink” approach to financial regulation, including
provisions relating to insurance chartering, credit unions, payment systems, deposit
insurance and more. It is not clear what, other than a poorly defined desire
for “stability,” the long term goals of the Blueprint
actually are.

“America needs a fundamental rethinking of its system of
financial regulation that asks questions about what activities properly fall
under governmental regulation, which ones might be dealt with through
semi-private means, and which ones belong entirely in the hands of the free
market,” write Lehrer and Berlau. “The Blueprint
fails on this fundamental count.”

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