We are familiar with the tragedy of trees crushing people during severe storms. But can processed pulp (paper) do the same to a pending proposal at the Commodity Futures Trading Commission (CFTC) regarding the extraterritorial application of the Dodd-Frank Act? The experiment is underway as CFTC staff wades through a veritable mountain of comment letters received from around the globe, much of them opposed.
In fairness, the CFTC itself has resorted to massive tomes to explain its various Dodd-Frank initiatives. What's good for the goose . . . And yet, I mourn the ravaged forests that were felled to feed both sides in this dispute. The same lumber might have been used to build shelters for the homeless or put to some other noble purpose.
The issue at stake is a simple one. Might financial activity abroad endanger the domestic economy? It can. If so, how can we protect ourselves without imposing our own requirements upon offshore jurisdictions? We can't.
But, wait a minute! Other nations have (in addition to sovereignty) their own regulatory structures. Not all are as advanced (read: complex) as ours but, after the 2008 financial crisis, many major countries are beefing up their programs and they should be operational "pretty soon." God bless them but delay is a very risky strategy.
The Eurozone is a mess, our own economy is limping along, and many governments (including our own) are dysfunctional. Time alone will not heal the situation.
The CFTC's release on the subject cites many instances where overseas troubles not only washed back on our shores but required the American taxpayer to pay about a trillion dollars to stanch the bleeding, a significant portion of this largesse going abroad. Act II could happen at any time. Can we afford to wait?
Maybe, but on one condition. Any nation that wishes to be exempted from Dodd-Frank's reach should be obliged to maintain a multi-billion dollar emergency reserve (akin to TARP and its ancillary programs) for use if another melt down occurs. The reserve should be off limits for any other purpose. This fund, of course, would not prevent another crisis but it would spread around the damage far more equitably than last time.
How many countries might be willing to take this course? There is only one way to find out. And would they submit to CFTC audits based on the Reaganesque policy of "trust but verify"? Only they can make the calculus whether this approach, or compliance with Dodd-Frank, is more intrusive.
The only thing that is certain is that universal agreement across nations on the details of a post-crisis policy is a very long shot (that's why we have armies). Even if doable, probably not in my life time (like trees, also a wasting asset). Opponents of the CFTC plan know this. In fact, some may be counting on it. Not the sort of dialogue that engenders trust.
If the CFTC staff can survive the multiple paper cuts that they will surely suffer as they read all of the comment letters, the outcome will likely satisfy no one completely. All I know is that every time I remove my shoes at airport security, it is because some dingbat tried to light his own foot on a flight to the Midwest some years back. If that is sufficient to alter our lives, surely the 2008 (and counting) global financial crisis deserves a more robust response than simply (forgive me) kicking the can down the road.
