Institute for Financial Transparency

Shining a light on the opaque corners of finance


Trump’s Regulation Monitors

One of the Trump Administration’s stated goals is the deconstruction of the administrative state in the US by rolling back existing regulations and limiting the creation of new regulations.  To that end, President Trump signed an executive order

to repeal regulations that “inhibit job creation,” are “ineffective,” impose costs that exceed benefits or “create a serious inconsistency or otherwise interfere with regulatory initiatives and policies.”

To ensure this order is enforced, he has asked all the agencies to create a task force responsible for monitoring all regulations and identifying those that qualify for repeal using these criteria.

This sounds reasonable until you realize the failure to correctly estimate the benefits of a regulation has a huge negative impact for all of us.  Let me give you an example of how underestimating the benefits of a regulation has cost all of us dearly.

In Transparency Games, I discussed a conversation with a senior SEC official about the disclosure requirements for structured finance securities.  The official told me the SEC understood it should have required each deal provide disclosure that is updated whenever an activity involving the underlying collateral occurred.  With this disclosure, investors could know what they own.

However, the SEC had performed a cost/benefit analysis and determined the cost of providing this disclosure so investors could know what they own did not exceed the benefit to the investors. As a result, the SEC specified disclosure requirements it knew to be inadequate.

These opaque securities were at the heart of the financial crisis.

All of us are still paying the cost of the failure of the SEC’s cost/benefit analysis.