Populist Regulatory Rhetoric? Ugh.

I feared this day would come. And it’s here. No, not just the sabre-rattling and moaning about how hedge fund and private equity-types are too rich, how hedge funds are increasing investor risks and debt buyers are accepting overly-liberal terms fueling the private equity juggernaut and the like. But a newly-energized Democratic Congress starting the process of shaping the SEC dialogue around these and a host of other issues to flex their muscles. I’m trying to wake up and enjoy my coffee (jet lag, you know) and I have to click on a Wall Street Journal story titled (Entire) SEC Makes House Call - not the way to start a day:

WASHINGTON — In the latest sign Congress is turning a skeptical eye
toward Wall Street, an influential House committee is set to hear
testimony from all five commissioners of the Securities and Exchange
Commission today — the first time that has happened in at least 10
years.

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With the Democrats in control of both houses of
Congress, it is an opportunity for Democratic lawmakers to frame such
issues as the rise of hedge funds, chief-executive pay and shareholder
rights through their own prism and to sharpen the debate heading into
the 2008 election.

“It’s signaling power,” said James Angel, associate
professor of finance at Georgetown University’s McDonough School of
Business in Washington, of the invitation to all five commissioners.

Among the topics to be discussed at today’s hearing of
the House Financial Services Committee: corporate governance, the SEC’s
enforcement policy, shareholder lawsuits, hedge funds and a provision
of the Sarbanes-Oxley Act dealing with reporting corporate earnings,
according to an internal committee memo.

Congress is focusing on areas that have “populist
appeal as we go into the 2008 election cycle,” Mr. Angel said. He added
that when populist lawmakers are looking to win votes, “when all else
fails, blame the rich.” One House Democratic aide said the committee
will likely conduct many more examinations of the financial sector.

The last thing in the world the U.S. economy - or global economies, for that matter - need at this juncture is a bunch of politically-driven, vote-gathering rhetoric impacting investment decisions and global capital flows. One sure way to hurt the stock markets (which, by the way, impact the hot populist topics of public pensions and middle class wealth) - go after the hedge fund and private equity industries. As readers know, I am not an anti-regulation guy; I am an intelligent regulation guy. If the market is willing to reward a certain segment of society for generating a certain kind of value which benefits them, is that really a bad thing? I don’t think so. But it sure makes for great political posturing. And if those in power lose sight of the unintended consequences of their actions (say, like damaging the climate for investment and innovation), that would be a bad, bad thing. And I hope this won’t happen. But today’s WSJ story and the upcoming SEC testimony does not give me great comfort that the next twelve months won’t be full of politically-driven rhetoric at the expense of economic growth and vitality. Ugh.

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COMMENT:

AUTHOR: Drew Robertson

EMAIL: acr@phoneranger.com

URL: http://www.localbroadcast.tv

DATE: 06/26/2007 11:41:00 AM

“If the market is willing to reward a certain segment of society for generating a certain kind of value which benefits them, is that really a bad thing?”

Of course it’s not.  But it’s not always the market doling out the benefits.  You’d have to be a simp not to recognize the increased role of Washington lobbyists and politicians.  And you’re no simp.

Read the Cheney piece in WaPo.  That’s not the market talking.  It’s power.

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COMMENT:

AUTHOR: Byrne

EMAIL: sometimesfunnyalwaysright@gmail.com

URL: http://byrneseyeview.com

DATE: 06/26/2007 11:45:53 AM

“I am not an anti-regulation guy; I am an intelligent regulation guy.”

The problem is almost never intelligent versus unintelligent regulation — the problem is that regulations are always stillborn: they’re rules that only affect the future, using data only from the past. The antitrust laws of today are based on the misapprehensions of populists a century ago; our monetary policy is a misshaped agglomeration of compromises over long-forgotten disputes; and our social security mess is the happy result of extrapolating demographic trends that had ended before the first draft of social security legislation was written.

Regulation — intelligent or not, populist or elitist — is still and always will be a stiffening, pungent economic zombie.

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3 years ago | view comments |  Hedge Funds