When President Obama signed the new financial services reform legislation, there were rounds of applause by the Democratic politicians and broad smiles on their faces. Two who stood out were Senator Christopher Dodd and Congressman Barney Frank who led the effort to get the law enacted. According to press reports in the media, including the Wall Street Journal, it was their late night last minute negotiations that reconciled the difference between the House and Senate versions of the bill. Similar to Obamacare, which also passed earlier in the year, the law passes the huge effort of writing regulations to the bureaucrats. This time the task is gargantuan and will leave many affected businesses in limbo until they know what the new rules will be. This will take months and maybe years.
The last major piece of financial regulatory change was the Sarbanes Oxley legislation, which transformed the rules affecting public corporations and implemented a new and very expensive regimen of compliance for companies. The law mandated that companies develop, document and have audited their financial internal control processes and procedures. The big change was the audit requirement which was a bonanza for the Big 4 accounting firms. The cost of these audits doubled the fees paid to the Big 4 firms. This cost eventually flows down to consumers and taxpayers.
The recently enacted financial services regulatory reform legislation requires some 533 regulations to be written by 12 separate regulatory bodies. In comparison, Sarbanes-Oxley required 16 rulemakings by regulators. The difference is staggering and a major move toward the expansion of government into private enterprise. This is another example of a trend or of the policy position of the current administration to enact legislation in massive gulps even when the effects are not clearly understood. There will be plenty of opportunities for consultants and lobbyists to feast on the fees that they will earn by advising clients and trying to shape the rules to the benefits of their constituents. At some point in the future, companies will know what the new rules are and what the financial consequences are. Until then, there will be uncertainty which will affect the economy and the job market. This is not a good situation for the unemployed.