Tales of the administrative state

We have written a lot about the administrative state and administrative law on Power Line over the past few years. Reviewing Philip Hamburger’s Is Administrative Law Unlawful? for National Review last year, I summarized just about everything I have learned about the administrative state. The review was published under the apt heading “A new old regime.” Drawing on his personal experience and observation, a reader writes to comment:

As a long-time reader and VIP subscriber, I’ve enjoyed your series about the administrative state. I went to law school shortly after you and I recall the relatively innocuous justifications for the APA and administrative law in general: legislative economy from delegating the details to the bureaucrats. I’m old enough to remember thinking that most of the rules I read when I entered practice were within the clearly delineated parameters of statutes whose authors didn’t shirk their responsibility to legislate clearly and authoritatively. Well, that horse left the barn a long time ago.

These days I work for a hedge fund that has been pulled into the maw of the regulatory state by Dodd-Frank. I’m just another old guy complaining about the good old days when our investors decided whether we knew what we were doing instead of regulators.

I thought of you and your series when I read the lead editorial in Saturday’s Wall Street Journal (“ObamaCare’s Oligopoly Wave,” accessible here via Google). I suddenly understood the grand plan behind the administrative state. The Journal editorial highlights the consolidation wave about to break in the health insurance industry, but it can be applied to almost every regulated industry (which is probably now 99 percent of the economy).

The government is interested in creating monopolies and oligopolies that operate as public utilities, which are the functional equivalent of state-owned enterprises. “Such domestication is part of ObamaCare’s goal of political control, and it may well be that only fewer, larger and more centralized insurers can survive financially.”

Substitute “Obama” for “ObamaCare” and “companies” for “insurers” and the sentence will be true for all other industries. Since 2008, this has been occurring in my world as banking has come to be dominated by a few players who are closely tied to big government and the Democratic party, under the guise of reining in Wall Street (“Don’t let a good crisis go to waste”). The financial services industry has been dramatically reshaped by administrative agencies accountable to no one.

The experience of a good friend illustrates the trend. We formerly cleared certain of our trades through an independent clearing firm that was one of the largest unaffiliated members of the major exchanges. We moved to them after the near-death experience of transacting through MF Global, the large, “safe” choice run by Jon Corzine.

Our new clearing firm was a model of how to run a brokerage business and it was presided over by a majority owner who had started on the exchange floor in the 1970’s and worked his way up through every level of the business. After Dodd-Frank, he was personally advised by one of the senior officials at his primary federal regulator that the agency no longer wanted to supervise clearing firms that were not subsidiaries of big banks. He was given a period of time to find a buyer for his company and get out of the way. It was very much along the lines of “Nice little company you’ve got here; it would be a shame if anything was to happen to it.”

He sold to a giant financial institution and now we have to call an 800 number to speak to someone in India or the Philippines when our trades don’t show up on our statements like they did before. One other fact: my friend was a major donor to Republican candidates, but I’m sure that’s just a coincidence.

How did we turn into Sweden, or even China, so fast? I don’t make a decision anymore without thinking about how I’ll explain it to our regulators. They’ve made it clear to us that they won’t hesitate to pull the trigger on the gun they hold to our head. I used to think only of our investors, but they’re a distant second to the regulators. I can afford to lose an investor, but I don’t get to lose the regulators. How many people are there like me throughout the economy?

You’re really on to something big and I encourage you to stay with it and explore the larger dimension of the emasculation of private enterprise and the use of administrative law and agencies to create a new economy that is captured by the government.

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