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Constructing the Governance of American Finance: Timing and the Creation of the SEC, OTS, and CFPB

  • Kathryn C. Lavelle (a1)

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Earlier versions of this paper were presented to the annual meeting of the Canadian Political Science Association, Brock University, May 2014, and the 25th annual conference of the Society for the Advancement of Socio-Economics, Milan, Italy, 2013. I would like to thank Justin Buchler, Jonathan Entin, Jessica Gerrity, Beth-Anne Schuelke-Leech, Colleen Shogun, James Young, and several anonymous reviewers of JPH for their suggestions and assistance.

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NOTES

1. The “doctrine of choice” is associated with the dual banking system in the United States, which allows national banks to exist along with state-chartered ones. The accompanying ability to choose a regulator is argued to create a healthy dynamic among regulators and avoid unreasonable regulation.

2. Lavelle, Kathryn C., Money and Banks in the American Political System (New York, 2013).

3. Reinhart, Carmen M. and Rogoff, Kenneth S., This Time Is Different: Eight Centuries of Financial Folly (Princeton, 2009), 238.

4. For some examples, see Skowronek, Stephen, Building a New American State: The Expansion of National Administrative Capacities 1877–1920 (New York, 1982); Thelen, Kathleen, How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States, and Japan (New York, 2004); Pierson, Paul, ““Increasing Returns, Path Dependence, and the Study of Politics,”” American Political Science Review 94, no. 2 (2000); Politics in Time: History, Institutions, and Social Analysis (Princeton, 2004); Rabin, Robert L., ““Federal Regulation in Historical Perspective,”” Stanford Law Review 38, no. 5 (1986); Konings, Martijn, The Development of American Finance (New York, 2011); Krippner, Greta R., Capitalizing on Crisis: The Political Origins of the Rise of Finance (Cambridge, Mass., 2011).

5. Binder, Sarah and Spindel, Mark, ““Monetary Politics: Origins of the Federal Reserve,” Studies in American Political Development 27, no. 1 (2013); Broz, J. Lawrence, The International Origins of the Federal Reserve System (Ithaca, 1997); McCulley, Richard T., Banks and Politics During the Progressive Era: The Origins of the Federal Reserve System, 1897–1913 (New York, 1992); Meltzer, Allan H., A History of the Federal Reserve: Volume I, 1913–1951 (Chicago, 2004); Pierce, James L., “The Federal Reserve as a Political Player,” in The Political Economy of American Monetary Policy, ed. Mayer, Thomas (New York, 1990).

6. For a discussion of the methodological issues surrounding American political development, see Gerring, John, “APD from a Methodological Point of View,” Studies in American Political Development 17 (Spring 2003): 100; Rabin, “Federal Regulation,” 1190. For a discussion of a study that focuses on an era where some of the most important institutions in the American experience were constructed, see Bensel, Richard, “The Tension between American Political Development as a Research Community and as a Disciplinary Subfield,” Studies in American Political Development 17 (Spring 2003): 105.

7. George, Alexander L. and Bennett, Andrew, Case Studies and Theory Development in the Social Sciences (Cambridge, Mass., 2004). For the use of case studies in theory development in the study of diplomacy, see George, Alexander L., “Case Studies and Theory Development: The Method of Structured, Focused Comparison,” in Diplomacy: New Approaches in History, Theory, and Policy, ed. Lauren, Paul Gordon (New York, 1979), 67.

8. Bensel, Richard Franklin, Yankee Leviathan: The Origins of Central State Authority, 1859–1877 (New York, 1990); Skocpol, Theda and Finegold, Kenneth, State and Party in America’s New Deal (Madison, 1995); Hall, Peter A., “Introduction,” in The Political Power of Economic Ideas: Keynesianism Across Nations, ed. Hall, Peter A. (Princeton, 1989); Thelen, How Institutions Evolve; Skowronek, Building a New American State; Jacobs, Alan M., Governing for the Long Term: Democracy and the Poliitcs of Investment (Cambridge, 2011).

9. Gerring, “APD from a Methodological Point of View,” 100; Pierson, Politics in Time; Durant, Robert F., “Taking Time Seriously: Progressivism, the Business-Social Science Nexus, and the Paradox of American Administrative Reform,” PS: Political Science and Politics 47, no. 1 (2014).

10. Thelen, How Institutions Evolve, 34.

11. Ibid., 36.

12. Eisner, Marc Allen, The American Political Economy: Institutional Evolution of Market and State (New York, 2011), 28; Rabin, “Federal Regulation.”

13. Gilardi, Fabrizio, “Institutional Change in Regulatory Policies: Regulation Through Independent Agencies and the Three New Institutionalisms,” in The Politics of Regulation, ed. Jordana, Jacint and Levi-Faur, David (Northampton, Mass., 2004), 67.

14. Morrison, Alan B., “How Independent Are Independent Regulatory Agencies?” Duke Law Journal 1988, no. 2 (1988): 252.

15. Skowronek, Building a New American State, 11; James E. Anderson, Public Policymaking (New York, 2000); Gilardi, “Institutional Change,” 71; Eisner, American Political Economy; Mashaw, Jerry L., Creating the Administrative Constitution: The Lost One Hundred Years of American Administrative Law (New Haven, 2012).

16. Rabin, Robert, “Federal Regulation in Historical Perspective,” in Foundations of Administrative Law, ed. Schuck, Peter H. (New York, 2004), 51.

17. Kolko, Gabriel, The Triumph of Conservatism: A Retinterpretation of American History, 1900–1916 (London, 1963), 6.

18. WNelson, illiam Edward, The Roots of American Bureaucracy, 1830–1900 (Cambridge, Mass., 1982), 67.

19. Wallach, Philip A., “Competing Institutional Perspectives in the Life of Glass-Steagall,” Studies in American Political Development 28, no. 1 (2014).

20. Rabin, “Federal Regulation,” 40.

21. Ibid., 41.

22. Landis, James, “The Administrative Process,” in Foundations of Administrative Law, ed. Schuck, Peter H. (New York, 1938), 11.

23. For a review of crises and government responses, see Rosenthal, Uriel, Boid, Arjen, and Comfort, Louise K., eds., Managing Crises: Threats, Dilemmas, Opportunities (Springfield, Ill., 2001).

24. Lavelle, Money and Banks; Seidman, L. William, Full Faith and Credit: The Great S&L Debacle and Other Washington Sagas (New York, 1993).

25. Moe, Terry, “The Politics of Bureaucratic Structure,” in Foundations of Administrative Law, ed. Schuck, Peter H. (New York, 2004), 97.

26. Ibid., 98.

27. Ibid., 100.

28. Rabin, “Federal Regulation,” 1192. Eisner, American Political Economy, 58.

29. Eisner, American Political Economy, 182.

30. Joel Seligman, The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance, rev. ed. (Boston, 1995), 12.

31. Ibid., 3.

32. Peter H. Schuck, ed., Foundations of Administrative Law, 2nd ed. (New York, 2004), 9.

33. Landis, “The Administrative Process,” 13.

34. Parrish, Michael E., Securities Regulation and the New Deal (New Haven, 1970), 36.

35. Seligman, The Transformation, 20.

36. Ibid., 21.

37. Ibid., 50–52.

38. Ibid., 54.

39. Parrish, Securities Regulation, 47.

40. Ibid., 62.

41. Ibid., 108.

42. Ibid., 112–13.

43. Seligman, The Transformation, 72.

44. Ibid., 62.

45. Parrish, Securities Regulation, 121.

46. Seligman, The Transformation, 75.

47. Ibid., 92.

48. Ibid., 93.

49. Ibid., 97.

50. Parrish, Securities Regulation, 131–35.

51. Seligman, The Transformation, 98.

52. Parrish, Securities Regulation, 141–42.

53. Seligman, The Transformation, 99.

54. McCormick, Edward T., Understanding the Securities Act and the SEC (New York, 1948), 29.

55. Parrish, Securities Regulation, 144.

56. McCraw, Thomas K., “With Consent of the Governed: SEC’s Formative Years,” Journal of Policy Analysis and Management 1, no. 3 (1982): 346.

57. Ibid., 351.

58. Robert M. Garsson, “Twilight of OTS? Lawmakers Light Flame; Thrifts Add Fuel,” American Banker, 22 January 1990.

59. Meerschwam, David M., Breaking Financial Boundaries: Global Capital, National Deregulation, and Financial Services Firms (Boston, 1991), 53.

60. Woolley, John T., “Persistent Leadership: Presidents and the Evolution of U.S. Financial Reform, 1970–2007,” Presidential Studies Quarterly 42, no. 1 (2012): 65.

61. White, Lawrence J., The S&L Debacle: Public Policy Lessons for Bank and Thrift Regulation (New York, 1991), 55.

62. Rabin, “Federal Regulation,” 1279.

63. Ibid., 1316.

64. Ibid., 1318–19.

65. Eisner, American Political Economy, 183.

66. White, The S&L Debacle, 73; Konings, The Development of American Finance.

67. Seidman, Full Faith and Credit, 178.

68. Seligman, The Transformation, 158; White, The S&L Debacle, 127; Seidman, Full Faith and Credit, 178.

69. Financial Crisis Inquiry Commission, The Financial Crisis Inquiry Report, Authorized Edition (New York, 2011), 35.

70. Seidman, Full Faith and Credit, 180.

71. Johnson, Simon and Kwak, James, Thirteen Bankers: The Wall Street Takeover and the Next Financial Meltdown (New York, 2010), 74.

72. Financial Crisis Inquiry Commission, Financial Crisis Inquiry Report, 36.

73. G. Christian Hill, “Thrift Industry Is Said to Plan to Lobby for Short-Term FSLIC Recapitalization,” Wall Street Journal, 20 January 1987.

74. John E. Yang, “Sale of 30-Year Bonds by FSLIC Raises $500 Million,” Wall Street Journal 1 October 1987.

75. Seidman, Full Faith and Credit, 183.

76. Ibid., 190.

77. Mark K. Cassell and Susan M. Hoffmann, “Managing a $700 Billion Bailout: Lessons from the Homeowners’ Loan Corporation and the Resolution Trust Corporation” (Washington, D.C., 2009), 20.

78. Seidman, Full Faith and Credit, 200.

79. White, The S&L Debacle, 176–78.

80. Robert M. Garsson, “Landmark Bill on S&Ls Awaits Bush Signature,” American Banker, 8 August 1989; Cassell and Hoffman, “Managing a $700 Billion Bailout.”

81. White, The S&L Debacle, 180.

82. Ibid., 182.

83. Barbara A. Rehm, “In Focus: S&L Crisis Law Has Lasting Impact on Housing, Lending, Reinvestment,” American Banker, 9 August 199.

84. Robert M. Garsson, “President’s Pen Ends Era of Deregulation for Thrift Industry,” American Banker, 10 August 1989; Cassell and Hoffman, “Managing a $700 Billion Bailout.”

85. Seidman, Full Faith and Credit, 87–88.

86. Jim McTague, “Plan Will Change Regulatory Landscape for Thrift Executives,” American Banker, 10 August 1989.

87. Garsson, “Twilight of OTS? Lawmakers Light Flame; Thrifts Add Fuel.”

88. “Choice of Ryan Brings OTS Fate into Question,” American Banker, 12 March 1990.

89. Bill Atkinson, “Charter Flipping by Thrifts Brings Cutbacks at OTS,” American Banker, 20 April 1993.

90. Binyamin Appelbaum, “One Time Cop out of Business,” New York Times, 13 July 2010.

91. For some examples, see Martin Neil Baily, Robert E. Litan, and Matthew S. Johnson, “The Origins of the Financial Crisis” (Washington, D.C., 2008); Financial Crisis Inquiry Commission, Financial Crisis Inquiry Report; Gorton, Gary B., “Questions About the Financial Crisis,” in NBER Working Papers, ed. National Bureau of Economic Research (Cambridge, Mass., 2010); Phillip Swagel, “The Financial Crisis: An Inside View,” in Brookings Papers on Economic Activity (Washington, D.C., 2009); Lavelle, Money and Banks.

92. Carpenter, Daniel, “Institutional Strangulation: Bureaucratic Politics and Financial Reform in the Obama Administration,” Perspectives on Politics 8, no. 3 (2010): 826.

93. Orice M. Williams, “Federal Financial Assistance: Preliminary Observations on Assistance Provided to AIG,” ed. Government Accountability Office (Washington, D.C., 2009), 3.

94. David Wessel, In Fed We Trust: Ben Bernanke’s War on the Great Panic (New York, 2009), 198; James P. Stewart, “Eight Days,” New Yorker, 21 September 2009, 73.

95. Wessel, In Fed We Trust, 198; Stewart, “Eight Days,” 73; Lavelle, Money and Banks, 197.

96. Congressional Oversight Panel, “March Oversight Report” (Washington, D.C., 2011), 23.

97. Kaiser, Robert G., Act of Congress: How America’s Essential Institution Works, and How It Doesn’t (New York, 2013), 147.

98. Ibid., 126.

99. Ibid., 128.

100. Jennifer Liberto, “Consumer Protection Agency Moves Ahead,” CNNMoney.com, 22 October 2009.

101. Kaiser, Act of Congress, 166.

102. Bair, Sheila, Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself (New York, 2012), 223.

103. Kaiser, Act of Congress, 151.

104. Ibid.

105. Ibid., 153.

106. Ibid., 175–76.

107. Ibid., 197–98.

108. Barbara Kiviat, “Don’t Kill the Consumer Financial Protection Agency,” Time, 15 January 2010.

109. Bair, Bull by the Horns, 223. See also Kaiser, Act of Congress, 266.

110. Lavelle, Money and Banks, 264.

111. Edward Wyatt and Ben Protess, “Foes Revise Plan to Curb New Agency,” New York Times, 5 May 2011.

112. Suzanna Andrews, “The Woman Who Knew Too Much,” Vanity Fair, 10 October 2011, 231.

113. Lavelle, Money and Banks, 216.

Earlier versions of this paper were presented to the annual meeting of the Canadian Political Science Association, Brock University, May 2014, and the 25th annual conference of the Society for the Advancement of Socio-Economics, Milan, Italy, 2013. I would like to thank Justin Buchler, Jonathan Entin, Jessica Gerrity, Beth-Anne Schuelke-Leech, Colleen Shogun, James Young, and several anonymous reviewers of JPH for their suggestions and assistance.

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Constructing the Governance of American Finance: Timing and the Creation of the SEC, OTS, and CFPB

  • Kathryn C. Lavelle (a1)

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