Tags: Cannon | Dodd-Frank | ACA | Cato

Concern Over 'Super-Legislative' Powers

By    |   Thursday, 04 April 2013 03:03 PM

On April 1, the Cato Institute sponsored an hour-long program titled “Super-Legislatures: Evaluating Dodd-Frank’s CFPB [Consumer Financial Protection Bureau] and OLA [Orderly Liquidation Authority] Provisions and Obamacare’s IPAB [Independent Payment Advisory Board],” featuring two experts who expressed alarm over what they charge are super-legislative powers that have been awarded to newly created federal agencies under recent legislation.

The complaints involved disparate statutes — the Affordable Care Act (ACA) and the Dodd-Frank Act of 2010, the so-called Wall Street reform legislation — but the two have in common that they give extraordinary powers to federal agencies to manage large segments of the U.S. economy.

Two speakers, Michael Cannon, director of Health Policy Studies at Cato, and C. Boyden Gray, former White House counsel during the George H.W. Bush administrations and founding partner of Boyden Gray & Associates LLP, presented their cases against the regulatory schemes created by the respective laws.

Cannon began by stating that the two laws provide for regulations to be promulgated and administered without any congressional oversight. Critics contend that such arrangements violate fundamental constitutional principles that vest legislative powers solely with Congress. The subject of Cannon’s attack is the IPAB, which was established under the ACA. Cannon reminded the audience that the IPAB is also known popularly as the “death panel,” because it has the power to ration medical care.

But Cannon stated that he is more frightened of the super-legislative nature of the panels than of their authority to ration care, because if the government is paying for services, it is bound to have a say in how the money is spent. However, according to Cannon, this authority should be exercised, or at least overseen, by Congress. Instead, the IPAB can issue regulations that have the force of law and are not even subject to repeal by Congress.

Moreover, in light of the difficulty the administration would face in trying to get its 15 appointed members through the confirmation process, the law provides that all of this authority can ultimately be vested in the Secretary of Health and Human Services, Kathleen Sebelius, who has already been confirmed.

Cannon noted that while the ACA prohibits rationing, this is a meaningless feature of the Act, because the IPAB is empowered to define rationing. Finally, he suggested that it is more understandable that medical spending should be controlled, because since the advent of Medicare, it has grown at 2.5 times the rate of the economy.

He asserted that the Dodd-Frank Act is more problematic, because its reach extends beyond the resources of the federal government.

Perhaps Cannon should have stopped before he said that, for he had lurched beyond his expertise. However, he did provide some useful quotes, citing Friedrich von Hayek’s “Road to Serfdom” for an explanation of how government would extend its authority through the use of experts. Then he augmented that insight with a recent quote from former Obama Budget Director Peter Orszag that in order to realize the potential of democracy, it may be necessary to overcome the tendency toward gridlock by making government less democratic.

Gray chose as his targets the CFPB and OLA provisions of the Dodd-Frank Act. He complained that the Bureau has put out 1,000 pages of mortgage regulations that small banks have to spend tens of thousands of dollars to learn. The CFPB is also empowered to stop any practice by banking or non-banking financial institutions that is abusive.

As with Obamacare, the agency has the power to define the term, and Gray quoted the CFPB’s director, Richard Cordray, as saying that these definitions would be determined on a case-by-case basis. Under Dodd-Frank, the courts will be required to give deference to the findings of the Bureau.

Further, he contended that the OLA empowers authorities to designate banking and non-banking financial institutions as systemically important and put them through resolution if their failure could endanger the financial system, and then assess the financial industry for the cost.

He argued that the OLA, as a substitute for bankruptcy, overturns 100 years of bankruptcy law. Most noteworthy is that Gray has a client, a small bank in Big Springs, Texas, that is suing to have at least part of Dodd-Frank declared unconstitutional.

I have pointed out in these articles that the extent of embedded losses run up by the financial services industry is on the order of $15 trillion, equivalent to the entire gross domestic product of the United States, and that the so-called regulators have failed over decades to do anything effective to contain these losses.

Even when Congress has given the regulators additional powers, the regulators have refused to use them, and the congressional committees of jurisdiction have been pushing back vigorously on behalf of the industry against the implementation of Dodd-Frank.

Perhaps one should be more concerned about the extraordinary powers the authorities have employed to provide back-door subsidies to the “too big to fail” financial firms than to the regulation that should go with the opportunity to engage in risky lines of business with little or no capital. The complainers in the industry appear to regard themselves as deserving beneficiaries of an array of federal entitlements, and they have adopted the strategy of presenting themselves as the victims of the financial crisis.

Certainly there should be vigorous debate over the appropriate roles of various actors —legislators, bankers, consumers, regulators and advocates — as the ongoing financial crisis proceeds. It will be interesting, if not necessarily enlightening, to see how the courts respond.

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The Cato Institute sponsored a program titled “Super-Legislatures: Evaluating Dodd-Frank’s CFPB and OLA Provisions and Obamacare’s IPAB,” featuring experts expressing alarm over what they charge are super-legislative powers that have been awarded to newly created federal agencies under the new laws.
Thursday, 04 April 2013 03:03 PM
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