Weil on Finance: Regulation by Hypothetical

Morning links from Bloomberg View financial columnist Jonathan Weil

We meet again, kind readers. Here are your morning links.

This is a pretty good slogan for anyone who enjoys mocking Dodd-Frank bank regulation.

Mehrsa Baradaran at the University of Georgia's law school calls it "regulation by hypothetical," which rings true and is short enough to fit on a bumper sticker. Worth a read. Here's the nutshell version: "Regulation by hypothetical refers to rules that require banks to predict future crises and weaknesses. Those predictions -- which by definition are speculative -- become the basis for regulatory intervention. Two illustrative instances of this regulation were codified in Dodd-Frank: stress tests and living wills. They are two pillars on which Dodd-Frank builds to manage risk in systemically important financial institutions. As I argue in my forthcoming article, regulation by hypothetical in Dodd-Frank should be abandoned for three reasons: it relies on a faulty premise, tasks an agency with a conflicted mission, and likely exacerbates the moral hazards involved with governmental sponsorship of private institutions."


Charlie Gasparino says Jeb Bush may have trouble with some Republican loyalists if he runs for president, because he's an adviser to Barclays.

And I don't doubt it's true. But what I enjoyed most about his column was this description of what the former Florida governor supposedly does for Barclays: "helping traders and bankers interpret the impact of government policy and legislation on the markets and business, such as tax reform and the future of Fannie Mae and Freddie Mac." What does Jeb Bush know about any of that stuff? Beats me, but I guess we'd have to pay him lots of consulting fees to find out. At least it isn't as bad as the time when Newt Gingrich was running for president and said he got paid more than a million bucks by Freddie Mac to provide the company advice as a "historian."


The Fed giveth and the Fed giveth again .

Can't take away all the froth in the equities markets at once, you know. There are still lots of garbage IPOs that must be sold before August, when Wall Street heads to the Hamptons. So this should help buy at least a little time. Here's the key passage, as highlighted by Bloomberg News reporters Jeff Kearns and Craig Torres: "Several participants noted that the increase in the median projection overstated the shift in the projections," according to minutes of the March 18-19 meeting of the Federal Open Market Committee. Some expressed concern the rate forecasts "could be misconstrued as indicating a move by the committee to a less accommodative reaction function."


A couple of good reads about bubble stuff .

The first is by Ryan Chittum of Columbia Journalism Review, who chides Slate for this headline -- "Candy Crush's Terrible Market Debut Shows We're Not in a Tech Bubble" -- and correctly notes that "the stock performance of one company among thousands doesn't show much of anything, much less that tech valuations are reasonable." Also, Rob Cox of Breakingviews had a solid post the other day: "Crazy valuations -- even after a recent dip -- are not the only signal that parts of the U.S. stock market, particularly internet companies, are in bubble territory. The willingness of investors in hot initial public offerings to accept second-class stock and governance that favors insiders suggests an imbalance between providers of capital and its consumers. Add head-scratching market caps based on contorted metrics, and this risks storing up trouble when the inevitable headwinds arrive."


Ben Bernanke saved the banks' bonus pools, and now he's getting his cut .

Fresh off his $250,000 haul last month for a 40-minute speech in Abu Dhabi, here's an ad for the annual meeting of the Association for Finance Professionals in November, where the former Federal Reserve chairman will be speaking. For non-members, it will cost about $1,500to attend and hear him talk -- but only if you act fast, because the price will be going up to about $1,900 next month. Wonder how much of that money Bernanke gets. Remember what Harry Truman said after he left the White House: "I could never lend myself to any transaction, however respectable, that would commercialize on the prestige and dignity of the office of the presidency." But prestige and dignity are such old-fashioned concepts.


Talk about asleep at the switch.

John Hempton of Bronte Capital wins a gold star for spotting the year's funniest proxy statement. The company is Harvard Illinois Bancorp. And a dissenting shareholder included a photo of the bank's chairman sleeping at last year's shareholder meeting, noting that "none of the other board members bothered to wake him up."


Where in the world is Epicurean Dealmaker ?

He hasn't posted anything since March 1. I'd file a missing-persons report, but I don't know his real name because he won't tell anyone. Come back, Epicurean Dealmaker! Come back!


This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

    To contact the author on this story:
    Jonathan Weil at jweil16@bloomberg.net

    To contact the editor on this story:
    James Greiff at jgreiff@bloomberg.net

    Before it's here, it's on the Bloomberg Terminal.