It was a year ago today that the government began planning the takeover of AIG to prevent the collapse of this, the largest insurance company in the world. Just about everyone seemed outraged that taxpayers had to save a private company. Congress vowed to rewrite the rules of American finance, to prevent any bailouts in the future.

Democrats and Republicans will now spend much of the fall battling over regulatory changes. Adam Davidson and Alex Blumberg, from NPR's Planet Money team, have discovered that getting Republicans and Democrats to agree is sometimes the easy part.

ALEX BLUMBERG: Ladies and gentlemen, welcome to the nightmare that is regulatory reform; a world where even universal consensus means nothing.

ADAM DAVIDSON: Pretty much everyone agrees, that Democrats or Republicans, we have too many regulators, just way too many. We should merge a bunch of them.

BLUMBERG: That's right. Take AIG - they were watched over by 400 different agencies around the world, dozens in the U.S., and nobody noticed that the company was on the verge of taking down the entire global economy.

DAVIDSON: This problem we're talking about, it has a name. Economists call it regulatory arbitrage. That's when more than one regulator oversees the same kind of activity. Financial firms always find a way to play one of them off against the other.

BLUMBERG: It's like what every four-year-old has figured out — if Mommy won't let you, maybe Daddy will.

DAVIDSON: Or worse, if Mommy thinks Daddy is watching you, and Daddy thinks Mommy is watching you, well, you can get away with just about anything.

BLUMBERG: So, Adam, there's something else Democrats and Republicans agree on: the simple solution to this problem of regulatory arbitrage is never going to happen.

Take one of the most glaring examples: the bizarre division of labor between the SEC - the Securities and Exchange Commission - and the CFTC - the Commodity Futures Trading Commission.

DAVIDSON: You know those exchanges where you see all the traders yelling at each other buying and selling stocks or pork belly futures or whatever? That's what these guys regulate.

BLUMBERG: And they divide things in a weird way. If you buy and sell stocks, your overseer is the SEC. If you buy and sell stock index futures and other things that take place in the future, you get the CFTC. Much of this financial crisis is linked to all sorts of strange financial products that fell between the cracks of the SEC and CFTC.

DAVIDSON: Jeb Hensarling, a Republicans Congressman from Texas who is one of the staunchest free market advocates, says this makes no sense. Merge them into one.

BLUMBERG: That way none of these financial products get overlooked. Barney Frank, the Democrat from Massachusetts - the ideological opposite of Jeb Hensarling - he agrees.

Representative BARNEY FRANK (Democrat, Massachusetts): Obviously, we all know now, anybody, that it would have been better not to have had two separate entities. It would be better to have just one. It is now and will be politically impossible to put the two together.

DAVIDSON: See what we mean? Barney Frank is one of the most powerful people in Congress when it comes to financial reform issues. He wants the SEC and the CFTC to merge, he says so all the time. And he is one man who knows better than anybody why it never will.

BLUMBERG: Actually, Adam, there's this one other guy who might know even better than Barney Frank.

Former Representative MIKE OXLEY (Republican, Ohio, Former Chairman, Financial Services Committee): Barney doesn't want to fight that. And he saw what I went through, and he just figured it's just not worth it, and I think he's probably right.

BLUMBERG: This is Mike Oxley. He used to have Barney Frank's job as chairman of the House Financial Services Committee. The Financial Services Committee oversees one of these two agencies that we're talking about - the SEC.

DAVIDSON: Oxley was a Republican representative from Ohio. He says this crazy system of two agencies looking over the same thing comes out of ancient financial history.

The SEC was created to look over stock traders, who were mostly in New York. The CFTC started life as a different agency to look over the activities of farmers trading grain futures - mostly in Chicago.

BLUMBERG: These grain traders loved their regulator, which lived in a basement of the Department of Agriculture. They saw it as friendly and easy to work with, and they fought every effort from the larger New York-focused SEC to come to town and watch over things, which is why the CFTC today is still overseen by the agriculture committee.

DAVIDSON: Over the last 30 years it's been harder to tell the difference between securities in New York and futures in Chicago, most of which today have nothing to do with grain or anything that comes from farms. But, as former Financial Services Committee Chair Mike Oxley discovered, once you create two agencies, it's really hard to convince them to merge into one.

BLUMBERG: Oxley tried in the early 2000s and got nowhere, which he's sure is just where Barney Frank would get if he tried to do it as well.

Rep. OXLEY: Basically, he'd go to the speaker and the speaker would say are you out of your mind? And that would be the end it - which is exactly what I did. I knew it was an uphill battle to begin with, and so I just had some people close to me in leadership and went to them and I got the word. So, I mean…

BLUMBERG: You mean you went to other people, like the…

Rep. OXLEY: Oh sure.

BLUMBERG: …and they said forget about it; don't fight this.

Rep. OXLEY: Pretty much, yeah.

BLUMBERG: So, one question: why is this a fight? Why are people battling over their right to regulate financial futures? We got some insight on this from Ben Nighthorse Campbell, who's a good person to talk to about this. He was in the House and the Senate on the Banking and Agriculture Committees. And, in fact, he was a Democrat and a Republican at different points in his career.

DAVIDSON: He said, imagine if the speaker of the House takes one of these two agencies away from a committee chairman. That chairman would be really miserable.

Former Representative and Senator BEN NIGHTHORSE CAMPBELL (Republican, Colorado): He loses a group that may be very interested in being reelected, as an example.


Sen. CAMPBELL: Which it relates to, you know, money for reelection and all kinds of stuff; votes for reelection.

DAVIDSON: And is it as straightforward as I want that group of lobbyists to keep giving me money?

Sen. CAMPBELL: No. I think it's much more subtle than that.

DAVIDSON: You can look at this whole thing really cynically. If I'm a committee chairman, I don't want to give up those big donations from lobbyists.

BLUMBERG: Or you can look at it just sort of cynically - the more a chairman oversees, the bigger the budget he gets, the more staff, the nicer office, cooler Congresspeople want to be on his committee, it's easy to trade favors in exchange for votes that benefit his constituents.

DAVIDSON: Or - dare we say it - you can look at this really idealistically. The more you oversee, the more power you have to make the world a better place.

BLUMBERG: The point is whatever you kind of Congressperson you are, you want to hold onto your jurisdiction. Which means, the way Congress works, it's almost impossible to end regulatory arbitrage.

DAVIDSON: Even right now, one year after regulatory arbitrage helped cause that huge financial crisis, Mike Oxley says trying to merge those agencies is like beating a dead horse.

BLUMBERG: Worse than beating a dead horse.

Rep. OXLEY: That horse is not only dead, but it's been dissected and ground up for horse meat. Give it up.

DAVIDSON: Once you give up you can have peace with it.

Rep. OXLEY: Just like, I'm never going to beat Tiger Woods. All right? I've come to terms with that issue.

DAVIDSON: What do you think's more likely: that you'll beat Tiger Woods or the CFTC and the SEC will merge?

Rep. OXLEY: Oh, I'll beat Tiger Woods before the CFTC and the SEC are merged, yeah.

BLUMBERG: A few months ago, Barney Frank and Colin Peterson, the chairmen of the financial services committee and the agriculture committee, announced that the SEC and the CFTC would stay separate - but they'd all work together more closely.

DAVIDSON: And this month, the two agencies held their first-ever joint meeting, complete with all sorts of finance experts to discuss ways to prevent financial products from slipping through the cracks.

BLUMBERG: And at that very meeting, some of those experts said, hey, guys, you shouldn't be two agencies talking about working together; you should merge. You should be one.

I'm Alex Blumberg.

DAVIDSON: And I'm Adam Davidson, NPR News, New York.

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MONTAGNE: And you can find more of our financial crisis series at While you're there, catch up on the latest economic news in our Planet Money blog.

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MONTAGNE: This is NPR News.

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