As the regulatory reform process chugs to life, how should we think about the lobbying process? The Wall Street Journal has a story Thursday reporting that various groups are working to delay or to soften new Financial Accounting Standards Board rules forcing banks to account for off-balance-sheet operations. Wednesday the Journal reported on intense bank lobbying to soften FASB mark-to-market rules -- an effort, legitimate or not, that succeeded.
Meanwhile, the New York Times has a piece previewing Commodities Futures Trading Commission chief Gary Gensler's testimony before Congress Thursday, in which he will provide details on Treasury's derivatives regulation proposal. While Gensler does offer more rigorous rules from the past, it's also clear he's engaged in a bigger game: preserve the CFTC's bureaucratic viability. And it's pretty obvious Gensler's plan will be tilted to the CFTC's traditional constituencies in the Chicago commodities world, as opposed to big bank dealers on Wall Street, which deal with CFTC's rival, the Securities and Exchange Commission. To make this even better, Gensler is testifying before the House Committee on Agriculture, the traditional forum for commodities, not the finance committee of Rep. Barney Frank, D-Mass.
So the game is on, if it really ever really stopped. Now it's likely in both cases that there will be some tightening of currently deregulated -- meaning mostly nonexistent -- rules. There's an interesting dichotomy playing out here. The clear undertone of the WSJ stories on mark-to-market and off-balance-sheet accounting is that there's something seamy and untoward in the banks, which sit at the epicenter of the crisis and are recipients of bailout funds, using their money to influence Congress or the FASB. That undertone does not exist in the Times story, which does not question Gensler's motives -- or raise the issue of whether the CFTC and the ag committee have a bias toward Chicago exchanges. This is less about tendencies in the Times and WSJ -- Gretchen Morgensen in the Times has regularly wondered why bailed-out banks should be allowed to lobby for anything more than a hot lunch -- and more about how we perceive "interests" that need to be watched and (perhaps) who's leaking good stuff.
Part of what makes this so difficult is that on complex issues like derivatives regulation or bank accounting, it is very difficult to find a conflict-free but expert point of view that looks at these questions from high atop Mount Utilitarian where all the pluses and minuses to the nation are toted up. (It's also impossible to predict accurately the full effect of any of these rules, but that's another matter.) There is very little man-on-the-street input on these issues; and Congress, even on the key committees, lacks expertise. And even Treasury has its own array of self-interests, like making sure its bailout programs work. Besides, while Treasury can offer up a plan, Congress gets to decide, and Congress is a veritable Petri dish of mutating self-interests.
So what do we end up with? We produce, at best, a compromise, at worst, a hash. I'd lean to the latter right now, but then it's raining outside. As for the lobbying, it's difficult to see in a fair world, which this is not, restricting one part of finance, the TARP banks, from lobbying, while competing interests can throw money at every pol they can find. Lobbying is thus like executive pay rules: a competitive disadvantage or advantage, depending on whether you have TARP money or not -- or, in fact, whether you have money to toss around. The real answer here is as panglossian as the thought of Mount Utilitarian: eliminate contributions to campaigns, squeeze out the money factor from lobbying, or, even crazier, ban all contact between financial interests or their representatives and Congress. Like partial comp rules, the only way to create a fair and level playing field is to ban the activity for everyone. But that, of course, would produce a solution that undermines the very democracy we're trying to preserve.
The only other option brings us back to reporting: Lay out the interests and report the lobbying and the money. Do it until readers nod off, which may be soon. It ain't pretty, but it's all we've got.
Robert Teitelman is the editor in chief of The Deal.