Wednesday, November 25, 2009
Something to be Thankful for: The Kanjorski Amendment?
Ok, I admit I am a super-nerd on corporate governance and financial regulation. After all, compared to good health, family and friends, an African-American President, and general financial well-being in this age of financial strife, how else could I possibly suggest we give thanks for the Kanjorski Amendment. Well, I am thankful for much, but I am also truly gratified that someone, somewhere is willing to take on the financial elites and propose a reform that actually may help prevent future financial calamities.
I posted on the too-big-to fail problem months ago. At the time my proposal simply tried to make government bailouts unpleasant for financial titans, with a particular focus on CEOs and top managers, and the incentives they face. One element of this package was to give the regulators the power to order prudential divestitures if a firm threatened to become too-big-to-fail. Ultimately, I posted Subprime Bailouts and the Predator State, which formalized my thinking on the entire too-big-to-fail issue.
The Kanjorski Amendment provides the power for regulators to order divestitures if necessary to limit systemic risk.
Some have termed the Amendment a "trojan horse." I think this is ill-founded. The trojan horse argument has its basis in the provision of judicial review for arbitrary and capricious regulatory action. I can imagine nothing less. Regulators never have power to take arbitrary and capricious actions. This is, in fact, the lowest level of judicial review available. I would object if this review were not necessary before or shortly after a divestiture order.
I wish that there were sterner approaches out there. We need to take the profit out of being bailed out and even being too-big-to-fail. And, the political reality may preclude even Kanjorski's rather sensible proposal. Today, at least, I am thankful for the Kanjorski Amendment.