Substance vs. form

Since the Obama administration has finally turned its attention away from healthcare reform and to financial industry overhaul legislation expect me to comment quite a bit about it.

First, as I have said since my very first blog posting back in October 2008, the financial industry needs reform.  Old laws that were systematically rolled back need to be shoved forward.  Additionally, regulators need new tools and new budgets to monitor and police an industry whose evolution has outstripped lawmakers’ abilities to keep up.

Second, I would like to see flexibility built into any new legislation so that enforcement agencies can ensure that financial industry participants follow, not just the letter of the law, but the spirit of the law.  Originally this form and substance was built into the judicial system.  Yes, we have the laws themselves, but then we have a judge and jury system as well.  These folks are to allow for individual circumstances in any given case.  However, in the financial world, too often an ace corporate lawyer has allowed the industry to either walk right up to the boundary erected by the law, or frequently, to figure out how to artfully avoid the boundary all together.  Effectively, legislating the financial industry has become a no win game of chicken for regulators.  The financial industry dares Congress and regulators to lay down the law because then, with that certainty in place, they begin to figure out how to creatively maneuver so that the law might just as well have not been written in the first place.  Thus, I vote for legislation that allows regulators to apply their judgment in unique circumstances to declare the choice of a business to have strayed outside the spirit of the law and consequently, illegal.  This kind of flexibility would force industry to tiptoe up to the boundary, but not try so hard to circumvent it because they would be dealing with the subjective judgment of an adjudicant, as opposed to the weak specificity of a hard and fast law/rule.

Jason