The 'crushing burden' of regulation illustrated?

In times gone by, persons of good will in of both parties fretted publicly about unnecessary regulation (not that there was ever great agreement, even in carefree days of yore, about which regulations were unnecessary). Today, though, fear and loathing of the Federal Register (or, locally, the Illinois Register) seems pretty much confined to the Red Meat Right. When the Red Meat Right shouts at the True Blue Believers over the Cultural Divide, the phrase 'crushing burden of regulation' is often used.

But most people don't experience regulation directly. The 'do not remove' tag on a mattress imposes no 'crushing burden' on the body politic. A great many talking heads insist that We the People pay a high price for regulation, but most non-political folks are far more concerned that the government continues to look out for the safety of the meat and vegetables on the dinner table than they are with the details concerning how that safety is assured.

Jerry Crimmins' September 20 story in the Chicago Daily Law Bulletin (subscription required) provides a real-life illustration of how confusing (and therefore burdensome) regulations can be.

Crimmins reported that the State of Illinois has selected Mayer, Brown LLP as its exclusive "bond counsel/disclosure counsel" for the next two years. Mayer, Brown beat out 16 other firms for the business, the article notes.

Using a single firm is expected to result in some financial savings, an important consideration in these tough times. But, according to the article, that wasn't the primary explanation for the switch. And it is the primary explanation as to why the State felt the need to appoint only one firm for this purpose that illustrates the potential 'crushing burden' of regulation.

John Sinsheimer, director of capital markets for Illinois, told the Law Bulletin that the State had used as many as 20 different firms, on a rotating basis, as bond counsel in the past:

But "we weren't getting consistent advice on what we needed to disclose and how to disclose it," Sinsheimer said, "because we kept switching law firms. Each law firm would have a different interpretation of what the regulations meant."

Imagine: Twenty different law firms, each with its own different opinion about what might be required to keep the State in compliance.

And the State has reason to worry about staying in compliance with regulations just as much as any other person or business.

Last year, the SEC charged New Jersey with securities fraud for failing to disclose to investors in municipal bond offerings that New Jersey was underfunding the state's two largest pension plans.

In 2008, the SEC filed securities fraud charges against five former San Diego city officials who the SEC said "played key roles in the city's inadequate municipal securities disclosures in 2002 and 2003." That scandal, too, involved underfunded pension obligations.

And in January, according to the Wall Street Journal, Illinois officials said that the SEC had launched an inquiry into public statements by Illinois officials about the state's underfunded pension plan.

Crimmins quotes Robert Dean Pope, an expert on municipal bond issues for the law firm of Hunton & Williams LLP in Richmond, Virginia, as saying, "Recent enforcement actions by the SEC against the state of New Jersey suggest that large political subdivisions need to be very careful in producing good disclosure, especially on financial health and pension matters."

Here is an illustration of a sound general principle -- but where the specific application of that general principle may be open to question. It seems to me that a regulatory scheme designed to protect the investing public (and in the case of municipal bond issues, the taxpaying public) from fraud and misrepresentation is, in general, a Good Thing. On the other hand, if 20 different law firms, all practicing in the area, really do have significantly differing opinions about how to stay on the right side of those regulations, then maybe the specific regulations are too complex... and burdensome.

Distinguishing between useful regulations and those which are needlessly burdensome or confusing is undoubtedly far more difficult than shouting slogans -- but isn't that one of the things we pay our elected officials to do?