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Experts at work

The WSJ reports:

But the work on the far-reaching rewrite of the nation’s financial rules will hardly be over when Mr. Obama signs it into law. The legislation gives financial regulators significant discretion to shape the rules implementing the legislation. That rulemaking process will determine how the new law affects those ranging from traders of complicated derivatives to consumers shopping for a mortgage or a credit card.

All told, the bill directs regulators to write 533 rules, according to an analysis by the U.S. Chamber of Commerce. By contrast, the 2002 Sarbanes-Oxley accounting law mandated 16 rule-makings.

Great. I’m sure we’ll all be paying as much attention to those new rules as they get made as the people whose livelihood is affected. A field day for the bootleggers, no doubt, done in the name of protecting consumers and creating financial stability. As I wrote about the tobacco settlement:

In the worst cases of the bootlegger and Baptist alliance, the good intentions don’t just get sidetracked or achieved at a higher cost by the bootleggers—they get thwarted.

The attorneys general in a number of states threatened the tobacco companies with legal action on the grounds that tobacco companies were imposing costs on state budgets by getting people sick. Eventually, the tobacco companies settled, a complex legal structure called the master settlement. The master settlement, applauded by anti-tobacco activists and everyday citizens concerned about their taxes and the health of their fellow citizens, imposed large tax increases on tobacco companies to fund children’s health programs. It was a proud day all around. Who could be against such a result? Oh, a few people griped that the whole process was unconstitutional and reduced freedom. But look at the benefits, the defenders would answer—Big Tobacco punished, smoking discouraged, and more health for the children.

But it didn’t turn out that way. There was more to the story. But who noticed? How many citizens who cared about smoking actually looked to see how the settlement really worked? It seemed enough to know the broad outlines—tobacco companies punished, children protected. But the bootleggers were very interested in not just the broad outline, but in the details. Yes, tobacco companies were “punished” by high taxes. But they passed the tax on in the form of higher prices to smokers. Yes, higher prices means fewer sales, but profit margins for tobacco companies and tobacco profits actually increased because of the way the settlement was structured. It made it prohibitively costly for generic cigarettes and new entrants to expand their market share. That allowed the tobacco companies to raise prices more than they would normally have been able because their competitors were handicapped.


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