MetLife decision a win for constitutional government, loss for ambitious bureaucrats
In particular, does the committee of government agency heads known as “eff-sock” (FSOC, or the Financial Stability Oversight Council) have a notable will to power, desire to expand its jurisdiction and bring more companies under its orders? You bet it does.
How do these bureaucratic desires fit with constitutional limited government and the separation of powers required for a healthy republic? Not well.
So thank goodness for Judge Rosemary Collyer, who earlier this week ruled in favor of MetLife’s legal challenge to FSOC’s attempt to become its regulator on “systemic risk” grounds. The judge’s ruling points out to FSOC members, who include the Treasury secretary and chair of the Federal Reserve, that just because they want regulatory authority over somebody doesn’t necessarily mean they can have it. They needed to make a convincing case in accordance with the law, which they hadn’t done.
FSOC apparently thought the court would defer to their committee opinion, but their opinion, like everybody else’s, is colored by their self-interest. Indeed, the one FSOC member appointed to the panel explicitly to provide insurance expertise — former Kentucky Insurance Commissioner Roy Woodall — also happened to be the lone vote against designating MetLife. The court wisely didn’t defer to the majority.
A fundamental problem of the current American government is how to control the “administrative state” of unelected bureaucrats, who often combine all the powers of the constitutional three branches, without their checks and balances. The administrative agencies create rules which have the force of law, carry out the rules in executive actions, sit in judgment in disputes about them and mete out punishments. MetLife – one of the four nonbanks designated by FSOC as systemically important financial institutions, along with Prudential Financial, American International Group and GE Capital – had previously appealed the ruling which made it subject to FSOC, but it first had to appeal to FSOC. Strange to say, FSOC found in favor of itself.
Luckily, MetLife had the pluck to take the issue to the courts, where it has now won—at least the first round. Indeed, the courts provide the best hope there is of keeping the regulatory agencies within constitutional bounds.
But for the courts to work, somebody has to bring the cases and argue them. This is hard for regulated entities to do, for a simple reason: they can count on retaliation from the bureaucrats, who have a lot of ways to punish them later. This certainty of retaliation is why there are very seldom any lawsuits against bank regulatory agencies brought by banks, the most regulated industry of all, and the one most subservient to regulators. But this time, FSOC was challenged by an insurance company, not a bank.
The existence of FSOC raises a more fundamental problem. This committee of agency heads draws its claim to functional legitimacy from its alleged ability to address “systemic risk.” But that it has or could have such an ability is more than dubious. For example, central banks, regulators, the U.S. Treasury and economists in general utterly failed to anticipate or understand the great 21st century bubbles in housing and European sovereign debt. More recently, they utterly failed to anticipate the collapse in oil prices and its severe effects. Further back, they did equally poorly in the 1990s, 1980s and 1970s.
So is there anything in the record to show that the government bureaucracies represented on FSOC ever saw in advance what was happening better than everybody else? Nope. Are they exempt from the cognitive herding which is a deep characteristic of human minds? Nope. Are they exempt from the influence of their own will to power? Nope. Can they see the future? Nope.
Further, it is essential to understand that governments themselves are major creators of systemic risk. Is a committee of government employees, chaired by a political office holder (the Treasury secretary) capable of criticizing the systemic-risk-increasing actions of its employer? Nope.
In spite of this, FSOC was given the unprecedented power to expand its own jurisdiction, a power which seemed immune to constitutional checks and balances. Until FSOC met MetLife and Judge Collyer.
Bravo MetLife and bravo Judge Collyer.