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September 12, 2011


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Erik Gerding

Three questions, Brett:

1. What motivates your regulatory contrarians?

2. How do you make sure they don't interfere too much with the effective functioning of an agency?

3. Doesn't the various administrative mechanisms in the Dodd-Frank strike you as the administrative engineering equivalent of the financial engineering that precipitated the crisis? Is there something to be said for the fact that financial reform tends to be patterned not only after the dominant ideology of the time (ours might be the "Age of Engineering") but also after the industry it is designed to regulate?

Brett McDonnell

Those are hard questions.

1. Our regulatory contrarians are of course 100% motivated to pursue the public good.

OK then, a more real answer. It probably varies depending upon whether one is considering persons drawn from pro-consumer organizations or academics, but for both, I would think their personal vision of optimal policy plus a desire for the prestige that could come from visible advocacy within the federal government are likely to be the main drivers. It's hard to under-estimate the importance of status as a motivator. The main difference from professional regulators or private industry actors is the contrarians have different reference groups from whom they derive their status.

2. We deliberately want to give our contrarians little power, so they won't be tempted by it. They can suggest ideas, pester, take up time, and so forth, but in the end there's not much they can do if they can't convince the agency they are right. That is of course why they may often be ineffective.

3. Nice point. I was especially struck by that with Subtitle F of Title IX, various controls on the SEC. For instance, sect. 961 requires the Directors of the various divisions of the SEC to annualy certify as to the adequacy of internal supervisory controls. I can just imagine corporate lobbyists upset with the Sarbanes-Oxley internal controls certification requirement chortling at that one.

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