Congress Wants Your Suggestions for Cutting Regulations

Market Failure by Regulation

Steve Connor in the NZHerald.co.nz reports on a bit of American regulation that is destroying the market for helium:

It is the second-lightest element in the Universe, has the lowest boiling-point of any gas and is commonly used through the world to inflate party balloons.

But helium is also a non-renewable resource and the world's reserves of the precious gas are about to run out, a shortage that is likely to have far-reaching repercussions.

Scientists have warned that the world's most commonly used inert gas is being depleted at an astonishing rate because of a law passed in the United States in 1996 which has effectively made helium too cheap to recycle.

We're all familiar with helium balloons; however, this noble gas has less frivolous applications in medicine and science. For instance, it's used to cool MRI machines. The reason that helium has become scarce is government regulation:

"In 1996, the US Congress decided to sell off the strategic reserve and the consequence was that the market was swelled with cheap helium because its price was not determined by the market. The motivation was to sell it all by 2015," Professor Richardson said.

But this is not the only regulation induced market failure in the news today. The Wall Street Journal's Dennis Berman examines the regulatory underpinnings of the recent stock market:

The May 6 "flash crash" was the culmination of 35 years of relentless stock-market reform, much of it rightly making the markets cheaper and faster, largely free from the 20th-century market makers who feasted on huge trading spreads and occasional chicanery.

Yet somehow we have wound up right where we began: with a market that many perceive as tainted and prone to gaming by a cadre of insiders. Only this time, instead of wielding the biggest, baddest berth on the New York Stock Exchange floor, they are wielding the biggest, baddest computers.

When BlackRock Inc. surveyed 380 financial advisers earlier this summer about the flash crash, their perceptions said it all: The mayhem had been primarily caused by an "overreliance on computer systems and some types of high frequency trading" strategies that roam the market en masse, looking to pick off pennies of profit.

...

Behind these changes, beginning in 1975, was a zeal to liberate the individual investor from the clutches of the archaic market makers who made a good living taking "eighths"—12.5 cents—for every share bought and sold.

The government later found Nasdaq dealers were even more gluttonous than first imagined. And by the time the last big market reforms were issued in 2005, the intent was to "give investors, particularly retail investors, greater confidence that they will be treated fairly," the SEC said at the time.

As spreads squeezed from eighths to pennies, a new batch of electronic-trading networks blinked into action. Volume trading was the only way to make money.

Americans Worry about More Government Regulation

Gallup reports that Americans are leery of too much government regulation:

At a time when the debate over the optimal role of government involvement in regulating business is a prominent policy debate, new Gallup polling shows that 57% of Americans are worried that there will be too much government regulation of business...

Barney Frank Endorses Financial Deregulation

Reuters is reporting that Barney Frank (D-MA) wants to deregulate Freddie Mac and Fannie Mae, two financial institutions that failed last summer because of his earlier opposition to financial oversight:

Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery, the Wall Street Journal said.

Apparently, Rep. Barney Frank (D-MA) wants to deregulate Fannie and Freddie because the existing regulation "may be too onerous" (emphasis added). What better way to add certainty to that "onerousness" than to take another run at insolvency at the GSAs!

I'm sure I was told that the problem was that these institutions were "unsupervised." Has Barney Frank (D-MA) tired of the oversight role that his position as chairman of the House Financial Services Committee affords him that he now embraces deregulation?

Oversight at the Fed

This is a clip of Rep. Alan Grayson (D-FL) talking to Federal Reserve Inspector General about the trillions of dollars lent or spent by the Federal Reserve and where it went, and the trillions of off balance sheet obligation. To my mind, the financial mess is largely a function of over regulation. That was what I implied in an earlier post. At about 2:10, the Fed IG explains to Rep. Grayson that the scope of her oversight is limited to:

direct oversight over [Federal Reserve] Board programs and operations. And are also able to look at Board delegated functions at reserve banks.... We do not have oversight to directly go out and audit reserve bank activity specifically.

She's arguing that the scope of her authority is limited to the loftier echeleons of the Fed, so she doesn't have any clue about the filthe lucre the Representative inquires about. Rep. Grayson comes right back at her at 3:00 and directly asks who does know about the trillions. She helpful reiterates the scope of her responsiblity which does not extend to trillions of dollars in aggregate lending and spending.

Going back to one of my favorite links, The Practical Rules of Bureaucracy, I've been trying to figure out which rule we're seeing here. My initial thought was #6, Pass the Buck, but she never does identify who is responsible—the buck is never passed. Therefore, I'm going with #9, Jerk People Around. Please, leave your analysis in the comments!

How about Reducing Subsidies

WSJ has reported on a lefty proposal to tax soft drinks in an effort to fund health-care:

Senate leaders are considering new federal taxes on soda and other sugary drinks to help pay for an overhaul of the nation's health-care system.

Instead of taxing soft drinks, why not reduce the corn subsidies and apply that savings to health-care? In so far as those subsidies reduce the cost of the corn syrup used in soft drinks, they underwrite the poor health decisions of soda-drinking Americans. Typical of our federal government, they want to both subsidize corn syrup and tax sodas because a bloated government always prefers two regulations to none.

Obama Wants More John Galts

The New York Times is reporting that Obama will call for increased oversight of "executive pay at all banks, Wall Street firms and possibly other companies." Similarly, Reuters is reporting that Barney Frank wants to "rescind the retention bonus programs" at Fannie Mae and Freddie Mac. To the extent that their efforts are successful, tax revenue will fall.

We are in the very best of hands.

See also: Lax Regulation Identified!, Frank, Obama Galt AIG