It could work but probably won't

This morning our diligent friends at the Treasury Department released a 200+ page document entitled A Blueprint for a Modern Regulatory Structure. Before I begin I will preface my remarks with the fact that since I'm not being paid to review the fine print of monetary and regulatory policy I didn't read all 200 pages. From what I can tell though this proposal seems to make sense.

Treasury is proposing that overlapping regulatory bodies be combined to eliminate complicated questions of jurisdiction and improve the efficiency of the current framework. In addition Treasury recognizes that these steps should be taken in the intermediate to long-term in order to eliminate knee-jerk reactions (See Barney Frank, Hillary Clinton, or Barak Obama's websites for said reactions) that could extend the current financial market crisis.

The generality of this statement does leave me with concern though:

The structure will consist of a market stability regulator, a prudential regulator and a business conduct regulator with a focus on consumer protection.

If these three consolidated bodies expand the regulatory framework this proposal is a means by which to entrench new larger bureaucracies. This will likely be the case when the new charters are put through a Congress controlled by a pro-regulation party.

On the surface the proposal seems to be a free market idea. That is that the current patch worked regulatory environment was the cause of the current crisis. If the Federal framework kept pace with the new efficiencies of the market the associated risks would not have been introduced into the system.

The bottom line is the current proposal seems well intentioned, the unfortunate reality is that this proposal will morph into a new animal by the time it snakes its way through the halls of the Capitol.

And for those fans of Federalism, the proposal would expand Federal Government power to regulate the insurance industry by way an "optional federal charter". Currently that power resides with the States. As with all legislation, what starts off optional can quickly become required.