More regulations won't help

All you really need to know about the financial regulation bill that passed the Senate this week is its size — 2,300 pages.

Like so many things Congress passes, it is unlikely any of the 60 senators who voted for it have read it all. But its sheer size also is bound to increase the sense of uncertainty in the economy and the general feeling that Washington is anti-business, which will make economic recovery even harder.

Can anything good come from thousands of pages of new regulations, regardless of the subject?

Most of the bill contains prescriptions for the regulators themselves, who now will have to flesh out the details — a process that will take years. The CEO of the American Bankers Association estimates this will translate into more than 5,000 pages of new banking regulations "and years of uncertainty as to what the massive new rules will mean." These are much the same regulators, by the way, who allowed the banking crisis of 2008 to happen in large part because they had grown too cozy with the bankers they were regulating. Human nature being what it is, the current fervor for reform will one day settle into an equilibrium that makes such relationships likely again.

Significantly, the bill does nothing to regulate Fannie Mae and Freddie Mac, the quasi-government financing giants that helped destroy the housing market by promoting questionable loans. Once again, the federal government is casting blame virtually everywhere but at itself.

In theory, the bill would reduce the severity of a financial collapse by allowing the government to, in an orderly way, destroy failing institutions that threaten the larger economy, thus ending the notion that an institution is too big to fail. This could be a good thing if it succeeds in removing the idea that reckless behavior will result in a bailout, rather than ruin. But the bill also creates an entirely new level of bureaucracy, the Consumer Financial Protection Bureau, whose job will be to write reams of regulations governing how banks interact with consumers. The new agency covers virtually everyone but auto dealers, who somehow managed to warrant an exemption.

It is sadly ironic that while Congress and the president are trumpeting this enormous bill as a way to protect the economy against further collapse, leaders of the president's own debt and deficit commission came out this week with a sobering assessment. The enormous federal debt, they said, is a cancer that will destroy the nation from within unless dramatic steps are taken. Entitlements already eat up virtually all federal revenues.

Instead of tackling this real impediment to prosperity, political leaders write a 2,300-page bill to scare bankers overseas and tighten credit even further.