The foolproof way to achieve deregulation: Cut the budget

<i>This post has been corrected. See the note below for details.</i>

When all else fails, defund.

This technique is spectacularly on display in the $1.1-trillion federal spending bill unveiled by House and Senate negotiators Monday and scheduled for debate this week. The measure provides $215 million in funding for the Commodity Futures Trading Commission. That’s one-third less than the budget the agency requested, and nearly $100 million less than it got a year ago.

“It’s not everything anybody wanted, but we’ve been working hard at it,” said Sen. Richard Shelby (R-Ala.), a crack deregulator among the negotiators.

He said a mouthful. Back in April, when the original agency budget requests were made, CFTC Chairman Gary Gensler observed that his agency’s staff was just 7% larger than it was 20 years ago, while the futures markets it was tasked with supervising had grown fivefold, and it had just acquired oversight of the swaps market, which was eight times bigger still and much more complex.


“Simply put,” Gensler said, “the CFTC is not the right size for the new and expanded mission Congress has directed it to perform.”

Someone’s going to get it in the chops when the cop on the beat lacks the firepower to do his job. In this case, that someone is the investing public.

The same “defund-to-defang” method is being applied to the Securities and Exchange Commission, which asked for $1.67 billion and got shaved to $1.35 billion. That should be plenty, asserts House Appropriations Committee Chairman Hal Rogers (R-Ky.) -- after all, it’s $29 million more than the SEC got last year.

If you think a 2% raise is enough to cover the SEC’s vastly expanded duties under the Dodd-Frank financial reform act, then you’re onboard with Rogers. But you’d get an argument from the SEC, which warned a year ago that its significantly expanded authority over “derivatives, private fund advisers, municipal advisors, clearing agencies, and credit rating agencies, among others, “couldn’t be met under its existing budget “without undermining the agency’s other core duties.” The speaker was Elisse B. Walker, the SEC’s then-acting chair, who was then asking for $1.57 billion. The new appropriation is lower than even that year-ago request. One more disgusting fact: The SEC’s spending is covered entirely by fees on the financial industry, so it has no effect on the federal budget.

The financial regulators aren’t the only agencies getting hollowed out. As we reported in October, the IRS budget is down nearly 20% since 2002. Even before its operations were pared by the sequester, the IRS said it would conduct 18% fewer audits of major corporations last year compared with the year before.

Then there’s the Consumer Financial Protection Bureau, which was established after the 2008 crash to avert the kind of mortgage and other financial fraud on the public that had contributed so much to the disaster. The congressional negotiators didn’t have to do much to hamstring the CFPB--that was achieved in its original enactment, which makes it the sole financial regulator without a non-congressional revenue source. Are you surprised that the regulator with the sole job of standing between banks and the public has to go hat in hand to Congress for every dollar? Of course you’re not.

There’s no mystery about who drives the squeeze on regulators--it’s the regulated industries, who natter incessantly into the ears of their bought-and-sold members of Congress.

The only reason not to fully fund the CFTC and the SEC is to protect Wall Street profits, bonuses and reckless trading,” states Dennis Kelleher, founder of the reform organization Better Markets. He calls it “shameful” and observes quite accurately that “that’s why there’s a crime spree on Wall Street.”

The signal from Congress is that crime on Wall Street pays, and will pay even better in the future.

[For the record 10:55 a.m. PST Jan. 15: An earlier version of this post identified Richard Shelby as a senator from Georgia. He represents Alabama.]