'The Power of Concerted Lobbying'

Mark Roe:

The United States Securities and Exchange Commission (SEC) recently rejected proposed rules aimed at making money-market funds safer in a financial crisis – a rejection that has caused consternation among observers and other regulators. Given the risks that money market funds can pose to the global financial system, as shown by their destabilizing role in the 2008 financial crisis, it is not hard to see why they are worried.

What happened? It won't surprise you:

A majority of the commissioners turned down the proposals after substantial lobbying from the mutual-fund industry. ...

The SEC’s rejection of the proposed rules demonstrates the power of concerted lobbying – and that concentrated interests often trump diffuse benefits. Typically, an interest group lobbies Congress, blandishing persuasive arguments, campaign contributions, and other support; often enough members – or enough key members – come to see the merit of the group’s point of view (or at least vote as if they do). Meanwhile, ordinary citizens do not notice unless the issue receives significant media attention. Often no one lobbies the other side of the issue. ...

With no one having a direct financial interest in the outcome pressing an alternative view, the SEC’s initial decision was as predictable as it was bad.

I'm not sure people appreciate the degree to which the problems that caused the financial meltdown are still present in the fianncial industry (or, if the word "caused" is objectionable, there was certainly a failure to provide the safety relief valves that would have greatly reduced the severity of the problems).