The Manhattan Institute is putting out some great ideas for the incoming Donald Trump administration, which include a discussion of interest to the readers of the blog:
I STONGLY support both of these recommendations.
I don't think they can use reconciliation and I doubt they can get 60 votes, so what's the plan? Agency rulemaking?
Note that I assume Mitch McConnell will not let GOP nuke legislative filibuster.
There's a really quite interesting and provocative analysis of hedge fund regulation posted at the CLS blog by Jeremy Kidd of Mercer University’s Walter F. George School of Law:
In 1999, Bruce Yandle, emeritus dean and professor of economics at Clemson University, proposed a public-choice economics version of the old saying, “politics makes strange bedfellows.” It was called the Bootleggers and Baptists Theory. He argued that lasting regulations require the cooperation of two groups: the so-called Baptists, who provide vocal, morality-based policy arguments in favor of the regulations, and the bootleggers, who provide the money necessary to enact and defend the regulations. The name comes from the coalition that supported bans on the sale of alcohol on Sunday—Baptists because they believed it immoral to drink on the Sabbath, bootleggers because the bans limited competition and increased their profits—but the principle applies to a broad range of regulatory issues. In fact, once one grasps the principles of the theory, it becomes difficult to ignore evidence of bootleggers everywhere.
The formula is simple: government regulation that achieves its stated goals poorly, if at all, combined with benefits for competitors of the regulated entity. A good example could be the regulation of hedge funds under Dodd-Frank,
In the wake of the financial meltdown of 2008 to 2009, there was no shortage of Baptists arguing that something had to be done to minimize systemic risk, largely by reforming the market structures that were believed to have contributed to a dangerous accumulation of risk. ...
Who are the bootleggers ...? Two possibilities seem plausible. One is large, traditional financial institutions. The investment vehicles provided by traditional firms are rough substitutes for the services of hedge funds. They are likely to be less risky but also offer lower returns. If regulations lower hedge fund returns, traditional investments with their lower risk become attractive again. The other, related possibility is larger hedge funds that wish to limit competition from smaller rivals.
I am really looking forward to reading the underlying paper. On a quick glance, it seems like a potentially powerful extension and interstitial enhancement of Roberta Romano's analysis of SIX as quack corporate governance and my analysis of Dodd-Frank as the same. Indeed, I view it as highly complementary by providing an alternative explanation for why the rules Dodd-Frank developed were so badly designed and providing an elaboration on my argument that Dodd-Frank was motivated by interest groups with something other than the public interest in mind. RECOMMENDED
Bloomberg BNA Corporate Counsel Weekly reports that:
Shareholders might also put pressure on companies to keep the votes even if Dodd-Frank is repealed. Proxy advisory firms could propose that clients vote against directors at companies without say-on-pay, according to Jon Lukomnik, executive director of the Investor Responsibility Research Center Institute in New York.
“A company that withdraws it is going to make itself a target,” Lukomnik said. “That doesn't mean some won't withdraw it.” He said he expects many companies would keep an annual say-on-pay vote.
I suspect there may be an effort by institutional investors to keep governance provisions like say on pay via the proposal process, just as they used the proposal process to put through shareholder nomination powers via bylaw amendments.
Ideological diversity at state flagship universities. https://t.co/Oor20c4bMo— Julie A. Hill (@ProfJulieHill) November 15, 2016
This is at the University of Michigan, not a preschool. pic.twitter.com/E6hPd7Sg0F— Michael Krieger (@LibertyBlitz) November 10, 2016
Progressive activist group Common Dreams is worried:
The nation's consumer protection agency, a brainchild of Sen. Elizabeth Warren (D-Mass.), could be imperiled by Donald Trump's presidency, observers are warning.
The U.S. Consumer Financial Protection Bureau (CFPB), established under the 2010 Dodd-Frank Wall Street reform law that passed after the 2007-09 financial crisis, has cracked down on predatory payday lenders; set new standards for the mortgage market; recovered and sent back billions of dollars for consumers harmed by illegal practices of credit card companies, banks, and debt collectors; and generally "worked on behalf of working families," as Warren put it in a video marking the bureau's five-year anniversary in July. ...
As Bloomberg explained on Friday, Trump
could sign legislation proposed by Republicans that would put the agency under Congress's thumb. Lawmakers could also overturn specific CFPB regulations, including one loathed by the industry that made it easier for consumers to sue their banks.
Most importantly, Republicans are poised to get the chance to replace the CFPB's aggressive leader, Democrat Richard Cordray. His term is up in 2018, but Trump may be able to replace him even sooner if a recent court ruling is upheld that gave the president more leeway to oust the agency's director. Trump would be expected to replace Cordray with someone far less interested in pursuing tough oversight.
Here at PB.com, we have been a reliable CFPB critic, so we'd be happy to see it reformed:
The WSJ is reporting that:
In a sign of Mr. Trump’s rightward tilt [on financial regulation], former SEC Commissioner Paul Atkins is heading up the president-elect’s transition team’s work concerning the SEC, the Commodity Futures Trading Commission and other financial regulators that historically operate independently of the White House ....
Mr. Atkins is an outspoken opponent of a range of postcrisis regulations, particularly the Dodd-Frank overhaul, as well as controversial reforms to money-market mutual funds. He is currently chief executive of consulting firm Patomak Global Partners LLC.
At the risk of being accused of buttering him up, I've long been a fan of Paul Atkins. In his time on the SEC, he was "the leading intellectual voice on the Commission." (Post from 2009) So the SEC, CFTC, etc are in good hands. Paul will make good decisions.
The GOP now controls the White House, the Senate, and the House of Representatives. There was talk during the election that, if that happened, the GOP would seek to repeal Dodd-Frank. Now that that seemingly unlikely political event has actually happened, the road to repeal is suddenly open (albeit lockable by Democrat obstructionism via the filibuster), as the WSJ observes:
Are the Dodd-Frank Act’s days numbered?
The Republican sweep of the White House and Congress means they could be. The financial overhaul legislation passed in the aftermath of the financial crisis has been a frequent repeal target of Republicans.
The pro-repeal folks tend to focus on aspects of Dodd-Frank outside my purview, such as bank regulation and so on. But there were elements of Dodd-Frank that were squarely within my wheelhouse and they were all quack remedies. See my article Dodd-Frank: Quack Federal Corporate Governance Round II (September 7, 2010). UCLA School of Law, Law-Econ Research Paper No. 10-12. Available at SSRN: https://ssrn.com/abstract=1673575.
In that article, I identified the following provisions as falling into the quackery category:
Section 951’s so-called “say on pay” mandate, requiring periodic shareholder advisory votes on executive compensation.
Section 952’s mandate that the compensation committees of reporting companies must be fully independent and that those committees be given certain specified oversight responsibilities.
Section 953’s direction that the SEC require companies to provide additional disclosures with respect to executive compensation.
Section 954’s expansion of SOX’s rules regarding clawbacks of executive compensation.
Section 971’s affirmation that the SEC has authority to promulgate a so-called “shareholder access” rule pursuant to which shareholders would be allowed to use the company’s proxy statement to nominate candidates to the board of directors.
Section 972’s requirement that companies disclose whether the same person holds both the CEO and Chairman of the Board positions and why they either do or do not do so.
I elaborated on the case against these provisions (and others) in my book Corporate Governance after the Financial Crisis. Although these provisions are probably low on Congress' list of priorities, I was pleased to see Congressman Jeb Hensarling included repeal of most of them in his Financial Choice Bill (section 449) in the outgoing Congress. Hopefully he'll keep those repeals in whatever bill he introduces in the next Congress.
Labor Department’s Fiduciary Rule Tests First Amendment Limits
By Donald M. Falk│ Mayer Brown LLP
and Eugene Volokh │ UCLA School of Law
A proposal that mandates a fiduciary relationship between Individual Retirement Account holders and their investment advisors unconstitutionally restricts truthful and nonmisleading commercial speech…PDF
CFPB’s Proposed Arbitration Rule Benefits Class-Action Lawyers at the Expense of Consumers
By Alan S. Kaplinsky and Mark J. Levin │ Ballard Spahr LLP
A proposed Consumer Financial Protection Bureau rule aimed at chilling financial services providers’ use of arbitration neither serves the public interest nor protects consumers, as required by the federal Dodd-Frank Act…PDF
Eighth Circuit Affirms Strict Pleading Standard for Shareholder Derivative Lawsuits
By Amy Deen Westbrook │ Washburn University School of Law
One collateral consequence often facing targets of Foreign Corrupt Practices Act enforcement actions is shareholder derivative litigation, though a recent federal appellate court decision may help diminish that threat…PDF
Donald Falk and my colleague Eugene Volokh have done a backgrounder for WLF on Labor Department’s Fiduciary Rule Tests First Amendment Limits
As compared to a single-Director structure, a multi-member independent agency also helps to avoid arbitrary decisionmaking and to protect individual liberty because the multi-member structure – and its inherent requirement for compromise and consensus – will tend to lead to decisions that are not as extreme, idiosyncratic, or otherwise off the rails. Cf. Stephen M. Bainbridge, Why a Board? Group Decisionmaking in Corporate Governance, 55 Vand. L. Rev. 1, 12-19 (2002) (summarizing experimental evidence finding group decisionmaking to be superior to individual decisionmaking).
Here. Plus he notes these links:
I recommend Aaron Nielson’s summary at Notice & Comment. See also my co-blogger Stuart Benjamin’s post from yesterday on Kavanaugh’s treatment of relevant precedent, Morrison v. Olson (the decision upholding the constitutionality of the independent prosecutor) in particular.
Our friends at the Washington Legal Foundation reported back in July 2011 that:
Answer: This government agency has undefined and vast powers placed in the hands of an unelected and unaccountable bureaucrat.
Question: What is the Consumer Financial Protection Bureau? ...
The bureau is an unelected, unaccountable government agency operating within the Federal Reserve. In fact, its funds are not even appropriated by Congress; instead, they receive their funding from the Federal Reserve itself drawn from its “excess” earned on assets that previously was returned directly to the Treasury. The law explicitly bars the Congress from reviewing the funding of the bureau under Section 1017 of Dodd-Frank.
There’s also the fact that unlike the SEC, FTC, Consumer Product Safety Commission, and most other government agencies with broad powers, the CFPB is not run by a commission. The director is incredibly powerful, with the ability to implement and enforce all consumer-related laws that relate to the financial industry and credit. The bureau has exclusive rule-making authority to which courts must defer in the interpretation of its own rules, which can only be overturned by a supermajority of the Financial Stability Oversight Council (FSOC, another unelected board, but at least composed of the heads of an alphabet soup of other agencies such as the SEC, CFTC, FHTA, OCC, FDIC, Federal Reserve, and NCIU, as well as the Treasury Secretary). So unless the FSOC (they love acronyms in D.C.) gets around to overturning the CFPB’s decision, it will likely stand because Dodd-Frank took away the power of judicial review from the courts. Article III of the Constitution is repeatedly violated throughout the financial reform bill.
Well, it turns out somebody in Washington still cares about the Constitution, because as the WSJ reports today:
A federal appeals court delivered a strong rebuke to the government’s new consumer-finance watchdog, declaring the agency’s unusual independence to be unconstitutional, and ordering its powers be curbed. ...
If it stands, the decision from the U.S. Court of Appeals for the District of Columbia would reduce the agency’s independence, empowering the White House to supervise the agency and remove its director, in contrast to the current arrangement where the director’s five-year term is intended to outlast a president’s. ...
In Tuesday’s ruling by a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit, Judge Brett Kavanaugh, a George W. Bush appointee, wrote that Congress gave the CFPB director “more unilateral authority than any other officer in any of the three branches of the U.S. government, other than the president.” He said the problem of checks and balances was particularly acute because the CFPB “possesses enormous power over American business, American consumers and the overall U.S. economy.”
The appeals court allowed the CFPB to continue operating as an agency but ordered a restructuring of how it operates in the executive branch.
Of course, as usual, the Obama administration plans a campaign of massive resistance:
“The bureau is considering options for seeking further review of the court’s decision,” a CFPB spokeswoman said, adding the ruling “will not dampen our efforts or affect our focus on the mission of the agency.”
In an op-ed that must have been sitting in his computer ready to go, Thomas Boyd opines that:
The federal Consumer Financial Protection Bureau wasn’t declared unconstitutional on Tuesday, as many conservatives had hoped. But a split decision from the U.S. Court of Appeals for the D.C. Circuit has put an important political check on the agency by making its director accountable to the White House. It was a partial victory for constitutional principles. ...
The Dodd-Frank legislation placed virtually all of the CFPB’s executive power in a single director, appointed to a five-year term by the president and confirmed by the Senate. This was a novel structure for a regulatory agency. Historically, independent federal agencies have been managed by multi-member commissions, often with bipartisan representation. For example the Federal Communications Commission and the Securities and Exchange Commission follow that pattern.
Even more troubling, the CFPB’s director was shielded from normal executive-branch checks and balances. The law specified that he could not be fired, not even by the president, and could be removed only for cause, defined in the statute as “inefficiency, neglect of duty, or malfeasance in office.” Advocates of the statute, including now-Sen. Elizabeth Warren (D., Mass.), wanted the bureau and its director to be immune from political oversight—by Congress or even by the president.
On Tuesday a panel of the U.S. Court of Appeals for the D.C. Circuit held that this structure is unconstitutional. “Other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power,” wrote Judge Brett Kavanaugh for the 2-1 majority. “That is not an overstatement.”
He added that this agency, led by a single director who cannot be fired, is “the first of its kind and a historical anomaly.” As such, the CFPB “lacks the critical internal check on arbitrary decision-making, and poses a far greater threat to individual liberty.” Judge Kavanaugh, joined by Judge A. Raymond Randolph, declared that the power vested in the agency’s director violated the Constitution’s Separation of Powers Doctrine.
In an editorial, the Journal itself comments that:
Some of us hoped the court would find the entire CFPB unconstitutional, but the ruling highlights again what a rush job Dodd-Frank was. Then professor and now Senator Elizabeth Warren proposed the consumer agency as a multi-member commission. So did the White House. But late in the game the bureau’s director became an unconstitutional authority unto himself. Ms. Warren sniffed in reaction to the ruling that it is merely a “technical tweak” that would be overturned on appeal, which shows how much contempt for the Constitution progressive elites now have.
If Congress won’t kill the CFPB, then it should at least make it conform to the normal constraints on independent federal agencies. And if Donald Trump wins, he should fire Mr. Cordray immediately.
Of course, the Democrats hope to appeal to the en banc DC Circuit, which is now dominated by Democrat appointees, who presumably are more inclined than their GOP counterparts to put Liz Warren's personal policy preferences ahead of the Constitution. But, at least for the moment, the rule of law prevailed.
So concludes Tyler Cowen.