Poor Richard Berner moves to Treasury to try to sensibly implement Dodd-Frank--and runs into the Republican Party crazies, and some others:
Dodd-Frank-Created Stats Office Comes Under Fire: For the most part, Treasury’s new Office of Financial Research has gone unnoticed as Washington and Wall Street agonize over other aspects of last year’s Dodd-Frank financial-overhaul law. Indeed, the office’s mandate to description as a provider of data and economic analysis to federal regulators hardly sounds like ingredients of controversy. But the new office and the man in charge of setting it up – former chief U.S. economist for Morgan Stanley, Richard Berner – felt some heat this afternoon.
The subject of an oversight hearing Thursday, the investigating subcommittee’s chairman, Rep. Randy Neugebauer (R., Tex.) criticized the office’s data-collecting mission as “Orwellian” in his prepared remarks, and painted an image of powerful bureaucracy with no limits on how much it can spend or what information it can demand from the industry, a characterization echoed by many of his Republican colleagues.
Author and investor Nassim Taleb, one of the witnesses at the hearing, described the office in his prepared testimony as an attempt to create “an omniscient Soviet-style central risk manager.”...
The OFR has two key components – a data-collection arm that has broad power to request any kind of information from financial firms it deems necessary, and a research and analysis arm that to be focused on monitoring the financial system for risk and producing research to improve regulation.
“As we learned during the financial crisis, many firms did not understand what they had on their own balances sheets, let alone how their balance sheets interacted with their counterparties. The goal of OFR is to standardize and coordinate data with the aim of reducing firms operating costs while protecting taxpayers from another forced Wall Street bailout,” said Sen. Jack Reed (D., R.I.), who helped write the provision creating the OFR....
Its director is appointed by the President, and confirmed by the Senate, serving a six-year term. The director can testify to Congress without Treasury’s approval. After getting its funding for the first two years from the Federal Reserve, the OFR will then fund itself through fees it will levy on large bank holding companies – and there’s no limit in the law as to how high those fees can go, or what the OFR’s budget will be. Republicans complained that the OFR director can set his staffs’ salaries at any level he wants, without regard for the federal government’s general schedule. The OFR has subpoena power to demand information from financial firms....
Mr. Berner sought to temper the Frankenstein-like descriptions of the OFR. He said the office’s goal is to “fill in information gaps, not duplicate” data collection that’s already going on among financial regulators. But the 2008 financial crisis revealed that there are shortcomings in the data available to police threats to the system....
Republican lawmakers, pointing to the recent spate of attacks on financial firms and government entities, also raised concerns that concentrating an enormous trove of valuable, confidential information in one office leaves it open to serious risk of theft by cyber criminals. One called it “a hacker’s dream.”
Mr. Taleb’s critique of the OFR, on the other hand, is directed at the whole concept of creating a body to try to measure risk in the financial system. Mr. Taleb gained fame for his book “The Black Swan,” which suggested consequential, and unpredictable, events in financial markets are more likely than most investors believe.
In his testimony, Mr. Taleb said that “[f]inancial risks, particularly those known as Black Swan events cannot be measured in any possible quantitative and predictive manner; they can only be dealt with [in] nonpredictive ways.” He argued that trying to do what the OFR is designed to do could actually increase risks, in part by increasing “overconfidence” in the information’s ability to predict the next crisis.
If Victoria is accurately summarizing Taleb, he is incomprehensible.
His argument is that you should actively seek to be completely ignorant of everything, for if you learn something then you will be overconfident about how much you know and will run unacceptable risks as a result. Better to just shut your eyes and act completely at random. And that makes no sense.