Obama-Backed Financial Reform Bill Would Create New Bureaucracy with Power to Subpoena ‘Any Data’ from ‘Any Financial Company’

By Matt Cover | April 5, 2010 | 7:17 PM EDT

Sen. Chris Dodd (D-Conn.) on Capitol Hill. (AP Photo)

(CNSNews.com) - The financial regulatory bill, which passed the Senate Banking Committee on March 22 with President Barack Obama’s backing and is now a top priority for congressional Democrats, would create a new Treasury Department bureaucracy authorized to collect any and all information from “any financial company” to analyze whether financial firms and their business practices might threaten financial stability.

The new bureaucracy would have subpoena power.
Called the Office of Financial Research, it would be the brains behind the proposed Financial Stability Oversight Council, a nine-member board that would be responsible for monitoring the entire “financial services marketplace” for threats to financial stability and for recommending to the appropriate federal financial agencies what new regulations they may need to write.
“The Council may request the submission of any data or information from the Office of Financial Research and member agencies, as necessary— (A) to monitor the financial services marketplace to identify potential risks to the financial stability of the United States,” the bill states.
In order to do this, the bill creates the Office of Financial Research to collect any and all data the Council thinks it needs to adequately monitor the entire financial services industry.
“The Office may, on behalf of the Council, require the submission of periodic and other reports from any financial company for the purpose of assessing the extent to which a financial activity or financial market in which the financial company participates, or the financial company itself, poses a threat to the financial stability of the United States,” says the bill.
If a financial company does not comply with an order from the Office of Financial Research, the office will be authorized to issue a subpoena to get information it believes it needs.
“The Director may require, by subpoena, the production of the data requested,” the bill says.
The Office of Financial Research also is empowered to “monitor, investigate, and report” on any changes in “system-wide” levels of financial risk, as well as to “investigate disruptions and failures in the financial markets” with the results of such investigations being used to recommend new government regulations.
All of these new powers do not amount to much, Heritage Foundation Senior Research Fellow James Gattuso told CNSNews.com, because while they will provide the government with mountains of new data, they won’t do anything to tell it when a threat exists and when it doesn’t.
“The big question has been how, exactly, this financial council will know when there’s a threat to financial stability, because no regulators have been able to successfully predict such things in the past,” he said.
“There haven’t been any new breakthroughs to give them that clairvoyance that they’ve lacked up till now.”
Gattuso said that the Office of Financial Research allows Congress to give the appearance of making federal regulators clairvoyant, without actually doing it.
“The Office of Financial Research--it seems to me--to be a way to look like they’ve addressed that problem by saying we’ll provide [regulators] more information, we’ll provide more facts and figures and numbers,” he said. “But that doesn’t seem to solve the ultimate problem [which] is what do you do with those numbers. What set of numbers equals an imminent threat to the financial system? No one’s filled in that blank yet.”
Gattuso said that the unpredictability of financial markets makes regulating them extremely difficult, adding that Dodd and fellow Democrats resorted to “policy theater” when they couldn’t figure out how to do it.
“They’re faced with a very tough problem--what do you do with huge interconnected companies that may be failing--which is a tough problem,” he said. “But seeing no substantive way of resolving the problem it looks like they resorted to process. If you put enough process and enough votes in that process maybe it’ll look like you’ve solved the problem.
“Policy theater--if you have enough hearings and enough interests represented it’ll look like you have a way of getting an answer, when really it’s all hiding the shell.”