Starving the Watchdogs

A frontal assault on the idea of prudential regulation of the financial system is unlikely to be a political winner, so the smart guys are sneaking through the back door:

Mr. Gensler, in testimony before a House appropriations subcommittee, called the Commodity Futures Trading Commission "a good investment for the American public, overseeing vast markets with a relatively small staff." Despite the nation's budget deficit, Mr. Gensler said his agency needed a budget increase "because, as we saw in 2008, without oversight of the swaps market, billions of taxpayer dollars may be at risk."

Although the White House agrees with Mr. Gensler, Congressional Republicans are eying severe cuts to the agency's funding.

Of course the premise of Gensler's testimony is that if Congressional Republicans come to believe that higher CFTC funding is important to maintaining appropriate derivatives regulation, that will make them more inclined to back it. My suspicion is that the reverse is true. If Gensler were to solemnly promise that he will endeavor to waste a giant share of his agency's budget on buying really fancy office chairs, that the committee might be persuaded to listen to lobbyists from the chair industry and pony up the money. The aim here is to starve enforcement agencies of money needed to enforce the law. Then when the next crisis comes we'll get (a) a giant bailout and (b) the argument that since existing regulations didn't work, clearly what we need to do is formally repeal all regulations and pretend there won't be any future bailouts.