From the annals of Congressional irrationality: The recent conduct of the U.S. federal legislature respecting financial reform provides a choice example of that body’s reluctance to follow the dictates of reason.
Most ordinary citizens, by the time they reach age eleven or so, learn that in order to make a decision about an issue, one must:
- 1. identify the issue; then
- 2. gather information about the issue, then
- 3. analyze that information, then
- 4. if necessary, gather more information and analyze it, then
- 5. identify possible courses of action based on that information, and only then
- 6. make a decision to pursue one of those courses of action.
In the wake of the recent financial crisis, our federal legislators made a promising start on a policy response. Laudibly heeding the advice of their preteen offspring, they enacted a statute establishing a bipartisan commission — named the Financial Crisis Inquiry Commission (FCIC) — to undertake steps 1 through 5 of the process outlined above, and to submit their findings to the Congress. According to this logical plan, once Congress had received and analyzed the FCIC’s report, Congress, now adequately informed, could then craft financial reform legislation that had a basis in reason.
The commission is scheduled to complete its work as of December 15, 2010. My eleven-year old friends inform me that this suggests that our federal legislators — if they are to behave like Homo sapiens rather than, say, Equus africanus asinus — should refrain from drafting financial reform legislation until after they have had the opportunity to read and consider the commission’s report — so perhaps until February or March 2011.
But what do I hear from my preteen neighbors? That Senator Christopher Dodd has taken the liberty — nine months before he will receive from the commission a reliable account of the causes of the financial crisis and of measures likely to prevent such a crisis from recurring, and even before he received the report of the Examiner in the Lehman Brothers bankruptcy case, a document highly relevant to financial reform, since many believe Lehman’s failure triggered the global financial crisis — of writing financial reform legislation, which he plans to introduce on Monday.
Puzzled at this news, I turned to the 5th and 6th graders on my block, for an assessment of Mr. Dodd’s performance in this regard. Their views?:
- “That sounds stupid. He don’t even know what caused the crisis yet. How could he write a law that solves the problem, if he don’t know what caused it?”
- “My mom says somethin’ about puttin’ the cart before the horse. Isn’t that like this?”
- “If he makes a law before those other people finish their work, won’t they have wasted all that time?”
- “Doesn’t anybody see what’s wrong with this?”
- “Why would he do a thing like that? Isn’t anybody watching him?”
I’m afraid I had no answer for my wise colleagues. Why would a well-educated, experienced public servant engage in policymaking respecting an issue critical to the prosperity of the nation, without having anything close to sufficient information on which to base that policy?
Doesn’t this conduct recall that of certain financial executives who, not long ago, without an adequate understanding of the issues, allowed their firms to engage in certain complex, and eventually disastrous, financial transactions?
Oddly, Senator Dodd doesn’t seem concerned in the slightest that he is about to legislate without adequate information. Accordingly, I certainly hope his colleagues of sound mind in both parties quickly take counsel of their eleven year old constituents, and then do the right thing: block financial reform legislation until the members of the Senate Finance Committee and the House Financial Services Committee have received, read, and carefully considered both the Lehman Brothers examiner’s report and the FCIC report.
We and our children likely will have to live with the upcoming financial reforms for decades to come. If forbearing from legislating for twelve more months will substantially increase the likelihood that the resulting reforms will be based on sound information, then waiting is wisdom.
Tags: FCIC, Financial Crisis Inquiry Commission, Financial reform, Financial regulation, Irrationality of Congress, Lehman Brothers, Lehman Examiner's Report
March 17, 2010 at 12:33 am |
I’m happy to read in the New York Times of 16 March 2010, http://www.nytimes.com/2010/03/17/business/17regulate.html , that Congress may delay taking action on financial reform. However, I’m dismayed and baffled that the New York Times story appears to omit any mention of the FCIC. How could such an oversight have occurred?
May 3, 2010 at 1:29 am |
Professor Andrew Lo agrees that Congress should postpone financial reform until we know more about the causes of the crisis. See his comments in today’s NYT: http://j.mp/a1PxFO : “‘Until we understand what the causes were, we may be implementing ineffective and even counterproductive reforms,’ said Andrew W. Lo, a finance professor at the Massachusetts Institute of Technology. ‘I understand the need for action. I understand the need for something to be done. But what I expect from political leaders is for them to demonstrate leadership in telling the public that we need to proceed about this in a much more deliberate and rational and thoughtful way.’” “The most basic critique comes from Professor Lo and others who say that Congress is moving too quickly. The origins of the crisis remain a subject of intense controversy. Investigations continue to unearth surprising information. The Financial Crisis Inquiry Commission, a bipartisan panel created by Congress, is not scheduled to report until December. Why not wait, they ask, until the targets are clearer?”– Senate Financial Bill Misguided, Some Academics Say, by BINYAMIN APPELBAUM and SEWELL CHAN
May 3, 2010 at 1:36 am |
The Times mentions the FCIC in connection with calls to delay financial reform: http://j.mp/a1PxFO . Bravo, and thanks to Binyamin Appelbaum & Sewell Chan.