What is a “systemically important” financial institution? 2300 pages of financial regulation do not specifically tell us. Instead,regulatory agencies will have to decide. One study indicated that implementing new Dodd-Frank financial legislation will require details for more than 243 new financial rules.
Already, firms have begun responding. Legions of lobbyists are trying to influence agency decisions. Concerned about liability for an inaccurate credit rating, Moody’s and other ratings agencies have asked financial firms not to use their data when filing with the SEC even if a mortgage related security, for example, is required by law to have a rating. Jamie Dimon, Chairman and CEO of JPMorgan Chase responded to regulatory changes with, “If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.” Email has also been affected with Goldman Sachs prohibiting all profanities.
The Economic Lesson
In a wonderful Teaching Company course of 36 half hour lectures, “Thinking About Capitalism”, from Professor Jerry Z. Muller, the never ending debate about the validity of profit seeking self-interested behavior consistently resurfaces. As I heard a chronological sequence of economic thought, starting with early Christianity and continuing with such thinkers as Edmund Burke, Voltaire, Henri Rousseau, Alexander Hamilton, and Karl Marx, back and forth the argument went between the costs and benefits of the market. With new financial regulation, isn’t the pendulum swinging toward constraining the market’s self-interest?