I'm greatly enjoying Kim's series of posts on the rulemaking process for the Volcker Rule.  She's gathered incredibly useful data.  The basic story she tells, that the financial industry has dominated the rulemaking process and as a result been able to shape the rule in a more lenient direction, seems extremely plausible.  But even accepting that story, I'm not sure she has yet fully made the case that the extent of delegation to agencies in the Act is the main culprit in a process that has hurt the public interest.  To make that case, she needs to do two further, harder analyses:  a counterfactual and a normative analysis of the optimal rule.

As for the counterfactual, suppose one believes that the resulting Volcker Rule has too many holes, and that the optimal rule would allow fewer forms of trading.  Even so, one must still make the case that if Congress had been forced to draft a fuller rule (say, by a much stronger constitutional nondelegation doctrine that would have invalidated the current version of the Act) it would have drafted a tougher rule.  Perhaps, but I doubt it.  Yes, Congress faced some populist pressure when it wrote Dodd-Frank.  But there was already strong public opposition to the Rule in Congress.  Its opponents weren't shy.  Almost all Republicans voted against the Act, and that didn't seem to harm them in the midterms a few months later.  Is there good reason to believe Congress was ever willing to draft a Rule with more teeth than has emerged through rulemaking?  In short, Congress is at least as subject to capture as the bureaucracy.  There's a clear capture story here, but does the delegation angle really add that much?

As to the normative analysis of the optimal rule:  though not (yet) explicit, Kim's posts have a clear tone of disapproval, suggesting that capture has led to a rule that does not adequately support the public interest.  Perhaps.  But imagine an argument from a Slightly Imaginary Larry Ribstein (SILR).  SILR opposes most (all?) mandatory regulation, including the Volcker Rule.  But SILR also recognizes that in the face of a financial crisis, there's strong public pressure to regulate.  This pressure is ill-informed, and likely to lead to bad rules (think of that one-word comment letter--"Regulate"--that Kim mentions).  What is Congress to do?  Perhaps the public interest is best-served by passing a vaguely worded statute that seems to do a lot, satisfying the ignorant public, while trusting the agencies to pass rules which give the statute little effect.  This is Kim's story, but with an opposing normative twist.

I'm no SILR.  I'm much more inclined to like some regulations, and on the whole I tend to approve of Dodd-Frank.  But I've never been a big fan of the Volcker Rule, or of the Glass-Steagall Act before it.  Indeed, one of my first publications celebrated the end of Glass-Steagall.  So in this instance, I find SILR's argument rather tempting.

Of course, Kim isn't done posting yet, and maybe by the end she will make the counterfactual and normative cases that I suggest she needs to consider.  And even if not, she is still adding a lot to our understanding of the political dynamics of regulation for Dodd-Frank, even if the normative debate as to how to evaluate that politics remains open.

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