Businesses Seeking Regulation

In his landmark 1971 article, economist George Stigler wrote: “Regulation is acquired by the industry, and is designed and operated primarily for its benefit.”  Occupational licensing is a classic example.

At Axios, Kim Hart provides additional confirmation:

Digital currencies: 2017 ushered in a boom in so-called “initial coin offerings,” but so far the Securities and Exchange Commission has only issued one no-action report and a string of charges against fraudsters.

• The cryptocurrency industry is clamoring for regulators to finally declare what qualifies as securities (among other questions). And it would also like some further guidance from the Internal Revenue Service, which has kept mum since a short 2014 memo, notes Axios' Kia Kokalitcheva.

Online privacy: Early in the Trump administration, Congress overturned the FCC's privacy rules for internet service providers such as AT&T, Verizon, Charter and Comcast. The rules didn't apply to web giants like Google or Facebook, who supported their repeal.

• In the wake of high-profile data scandals and an increased interest in reining in Big Tech's power, policymakers from both parties are revisiting the need for federal privacy rules. This time, the telecom and tech companies are on board with rules — partly because they're inevitable, and partly to pre-empt state regulations are are cropping up all over the country.

Financial advisers: Brokerage firms want more clarity about an Obama-era fiduciary rule that was overturned this year. The rule required financial advisers to work in their client's best interest — and not push products with higher fees, even if they produce less-than-stellar returns.

• But firms have already shifted investment products and altered structures of broker fees in preparation for the regulation's full implementation. The question is what's coming back and when. The SEC has since taken up the issue, proposed "Regulation Best Interest" and put it high on its 2019 agenda, Axios' Courtenay Brown reports.

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The bottom line: Companies may feel safer handing government the hot potato of figuring out where to draw lines around potentially controversial technologies to help limit their own liabilities. But government may not be inclined to limit its own freedom to use the new tools, as may be the case with facial recognition and drones, notes Axios' Ina Fried.

Stock Ownership Since the Crash

Jeffrey M. Jones reports at Gallup:

U.S. stock ownership remains below where it was before the financial crisis in the fall of 2008, with declines since then evident among most major subgroups of the population. Adults aged 65 and older and those with an annual household income of $100,000 or more are two groups whose ownership rates have held firm.

These findings are based on combined data from Gallup's annual Economy and Personal Finance survey, conducted each April and including more than 18,000 U.S. adults since 2001. The survey asks U.S. adults whether they personally or jointly have money invested in the stock market, including in individual stocks and stock market funds such as 401(k)s and individual retirement accounts (IRAs).

Before the 2008 financial crisis, 62% of U.S. adults, on average, said they owned stocks. Since then, the average has been 54%, including lows of 52% in 2013 and 2016. In Gallup's April 2017 update, 54% of Americans report having money invested in stocks.

Upstairs in America

"Upstairs, Downstairs" is the future of American politics and life.

At The Daily Beast, Joel Kotkin writes:

But if the highly affluent are thriving, the super-rich are enjoying one of the brightest epochs since the days of the robber barons. These people, according to a study by economists Steven N. Kaplan and Joshua D. Rauh, are the top 0.0001 percent of 311.5 million U.S. individuals. In constant 2011 dollars, their wealth has grown seven-fold since 1992—from $214 billion in 1982 to $1.525 trillion in 2011. This at a time when most Americans have endured little or no real income growth.

They find that the share who grew up wealthy has actually declined.

But origins are not the only thing that has changed in this era of oligarchy. So too have the industries that create the wealth—largely represented by the shift toward technology and finance—and, not surprisingly, where that wealth tends to concentrate. These shifts are already changing not only our economy, but also the outlines of political power, as industries friendlier to Democrats, notably tech and finance, supplant those, notably energy, that have long been associated, particulary in the last decade, with the Republicans.

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Perhaps more surprising has been the shift in the location of the rich. Despite the rise of the tech oligarchs, the biggest gainers over the past decade have not occurred in California but in New York, Florida and Texas. This reflects not only the power of Wall Street and the investment class (some of whom have decamped to Florida), but the growing diversification of the Texas economy.

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Ultimately what will make “the sovereigns of cyberspace,” to quote author Rebecca MacKinnon, so dominant is precisely what made John D. Rockefeller so rich: control of markets. Google, for example, accounts for over 60 percent of Internet searches. It and Apple control almost 90 percent of the operating systems for smartphones. Similarly, over half of American and Canadian computer users use Facebook, making it easily the world’s dominant social media site.

And soon, they, like the old Wall Street elites or the energy barons, may be able to regard the government as yet another subsidiary. They will benefit greatly from the likely electoral victory of the Democrats, who are increasingly dependent on tech contributions, while the old economy oligarchs already in retreat, in energy, manufacturing, and real estate, fade before them.

Ultimately what will make “the sovereigns of cyberspace,” to quote author Rebecca MacKinnon, so dominant is precisely what made John D. Rockefeller so rich: control of markets. Google, for example, accounts for over 60 percent of Internet searches. It and Apple control almost 90 percent of the operating systems for smartphones. Similarly, over half of American and Canadian computer users use Facebook, making it easily the world’s dominant social media site. 

And soon, they, like the old Wall Street elites or the energy barons, may be able to regard the government as yet another subsidiary. They will benefit greatly from the likely electoral victory of the Democrats, who are increasingly dependent on tech contributions, while the old economy oligarchs already in retreat, in energy, manufacturing, and real estate, fade before them. Perhaps more surprising has been the shift in the location of the rich. Despite the rise of the tech oligarchs, the biggest gainers over the past decade have not occurred in California but in New York, Florida and Texas. This reflects not only the power of Wall Street and the investment class (some of whom have decamped to Florida), but the growing diversification of the Texas economy. Perhaps more surprising has been the shift in the location of the rich. Despite the rise of the tech oligarchs, the biggest gainers over the past decade have not occurred in California but in New York, Florida and Texas. This reflects not only the power of Wall Street and the investment class (some of whom have decamped to Florida), but the growing diversification of the Texas economy. Perhaps more surprising has been the shift in the location of the rich. Despite the rise of the tech oligarchs, the biggest gainers over the past decade have not occurred in California but in New York, Florida and Texas. This reflects not only the power of Wall Street and the investment class (some of whom have decamped to Florida), but the growing diversification of the Texas economy. Perhaps more surprising has been the shift in the location of the rich. Despite the rise of the tech oligarchs, the biggest gainers over the past decade have not occurred in California but in New York, Florida and Texas. This reflects not only the power of Wall Street and the investment class (some of whom have decamped to Florida), but the growing diversification of the Texas economy. 

Financial Regulation is a Bureaucratic Maze

The Government Accountability Office reports:

The U.S. financial regulatory structure is complex, with responsibilities fragmented among multiple agencies that have overlapping authorities. As a result, financial entities may fall under the regulatory authority of multiple regulators depending on the types of activities in which they engage (see figure on next page). While the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) made a number of reforms to the financial regulatory system, it generally left the regulatory structure unchanged.

U.S. regulators and others have noted that the structure has contributed to the overall growth and stability in the U.S. economy. However, it also has created challenges to effective oversight. Fragmentation and overlap have created inefficiencies in regulatory processes, inconsistencies in how regulators oversee similar types of institutions, and differences in the levels of protection afforded to consumers.

 

Compliance Jobs

Our chapter on bureaucracy and the administrative state discusses the cost of complying with federal regulations.  At The Hill, Ben Goad and Julian Hattem report that growing regulatory activity has created jobs in the compliance industry

ObamaCare, the Dodd-Frank Act and other large federal undertakings have led to an outpouring of new agency rules derided by business groups and defended by advocates.

But the regulations have also been a boon for professional compliance officers paid to help companies understand and adapt to the new requirements.

“Staff to track compliance issues is on the rise, and it has been for the last several years,” said Richard Riese, senior vice president for regulatory compliance at the American Bankers Association. “And, at the moment, there’s no prospect it will decrease anytime soon.”

Data kept by the Bureau of Labor Statistics (BLS) shows an 18-percent increase in the number of compliance officers in the United States between 2009 and 2012, according to an analysis conducted by the conservative American Action Forum (AAF).

At last count, there were an estimated 227,500 compliance officers employed in the United States, according to the BLS. The bureau defines a compliance officer as an employee responsible for evaluating conformity with laws and regulations.

And compliance has fostered the growth of interest groups:

Over the last five years, membership at the Health Care Compliance Association has grown at a rate of roughly 9 percent annually, according to Roy Snell, the trade group’s chief executive.

He said the compliance industry’s growth reflects a shift within companies to consolidate compliance duties under a single officer or department.

From the AAF report:

 

The Fnancial Services Institute and the Black Caucus

Many posts have discussed the ways in which interest groups try to influence the government.

Mother Jones reports that a letter that a group of progressive Democrats sent to federal regulators opposing new protections retirement accounts was actually the product of a financial-industry lobbyist.

The Department of Labor, which oversees the federal law setting minimum standards for many retirement plans, would like to require retirement investment advisers to act in the best interest of their customers, as opposed to their own best interest.

But 28 out of the 43 members of the Congressional Black Caucus (CBC)—a group of African American members of Congress that advocates the interests of low-income people and minorities—signed onto a June 14 letter opposing the rule. So did Democratic lawmakers Pedro Pierluisi of Puerto Rico, Tulsi Gabbard of Hawaii, Ed Pastor of Arizona, and Jim Costa of California.

The letter's metadata indicates it was drafted by Robert Lewis, a lobbyist who works for theFinancial Services Institute (FSI), an investment industry trade group.

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It's not unheard of for lobbyists to ghostwrite letters—or even legislation—for lawmakers. In May, Mother Jones reported on a House bill written almost entirely by a Citigroup lobbyist that would vastly expand the types of risky trades a bank can conduct with taxpayer-backed money.
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In just the last election cycle, lawmakers who signed the June 14 letter raked in over $88,000 in donations from the securities and investment industry, according to the Center for Responsive Politics. In this case, says Bart Naylor, a financial policy advocate at Public Citizen, "serving ones' own self interest is manifest abidingly, conspicuously, and outrageously."

Without mentioning that its own lobbyist wrote it, FSI has cited the letter in several places.

On its website: 

In a letter to the Securities and Exchange Commission:

On the FSI's own blog.

Financial Services Roundtable

Our chapter on interest groups emphasizes that they spend far more on lobbying and related activities than on campaign finance, and that among these activities is targeted philanthropy. They also spend a lot of time persuading decisionmakers on the merits on policy. The Financial Services Roundtable: illustrates these points. The New York Times profiles its leader, former House member and Dallas mayor Steve Bartlett:

Though little known outside Washington and Wall Street, Mr. Bartlett has played a pivotal role with other lobbyists in their fierce and frenetic behind-the-scenes effort that has successfully delayed or watered down many of the major regulatory changes passed by Congress in the aftermath of the financial meltdown.

Wall Street has spared little expense, spending nearly $52 million to woo Washington in the first three months of the year, up 10 percent from the previous quarter, according to the Center for Responsive Politics. Mr. Bartlett’s organization, the deep-pocketed Financial Services Roundtable, itself spent $2.5 million in that period, more than any organization focused primarily on the Dodd-Frank regulatory overhaul law, including Goldman Sachs and JPMorgan Chase.

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In recent months, Mr. Bartlett’s team has gone into high gear, sending regulators some 100 letters proposing changes to soften the Dodd-Frank rules and holding dozens of meetings with lawmakers and regulators, including the Securities and Exchange Commission, the Commodity Futures Trading Commission and other federal agencies.

In February, the roundtable sponsored “Financial Services University,” a two-day conference for Congressional staff members, where “visiting professors” gave presentations on Dodd-Frank. A top executive at Visa, the credit card giant, addressed new caps on debit card fees, according to a copy of the agenda. The associate general counsel for Bank of America discussed new mortgage regulations.

Mr. Bartlett, 63, called the event educational. “We are not here to lobby,” he told roughly 200 attendees. “We’re here to tell you what the facts are, and we think you’ll ultimately agree with us.”

The roundtable has taken a similarly direct approach with regulators. In a letter to the S.E.C., it asked the agency to reward whistle-blowers who report fraud internally before going to the government, urging that it “must be a specific factor in determining the amount of any award.” The language bore a striking resemblance to the S.E.C.’s description of the final regulation, which said working with internal-compliance departments was “a factor that can increase the amount of an award.”

Among the philanthropic activities that the Roundtable supports is Operation Hope: