WASHINGTON -- If there's one thing the government produces in abundance, it's rules and regulations. And the U.S. Senate is about to dump a load of them on the financial industry.
And not just on Wall Street, which is the financial bill's chief focus, but on Main Street, too, and every nook and cranny of the business community.
This is not to say that regulations aren't needed to insure that the investment sector is run honestly, but too many of them come at a huge cost to the economy and have unintended consequences.
We are beginning to see some of those consequences from the health care reform bill in rising insurance premiums, companies taking charges that reduce earnings to offset higher health care costs and taxes, and medical device firms cutting their payrolls to offset taxes.
The Senate's 1,500-page financial regulation bill that Democratic Leader Harry Reid attempted to ram through in a few days has been slowed down in recent weeks by something called "due deliberation," which seems to rub impatient Democrats the wrong way.
But Alabama Sen. Richard Shelby, the Banking, Housing and Urban Affairs Committee's wily ranking Republican, was in no hurry. "Remember, this affects all of our economy -- everything," he reminded his colleagues.
And Republicans were in no hurry to pass what is a classic case of overregulation that would impose draconian rules on the nation's financial system that economists said wouldn't stop another financial meltdown from happening again anyway.
As a result, few changes were made in the legislation, including the elimination of the $50 billion slush fund that Republicans said would encourage future bailouts. But what remains in the bill are rigid, anti-growth provisions that will straitjacket American competition and innovation here and abroad.
The bill's consumer protection agency would be given free rein to poke its nose in just about every economic transaction, writing new unforeseen rules that will raise the costs of doing business. Its uninformed anti-derivatives provision is so counterproductive that some of President Obama's own economic advisers oppose it.
"One of the dangers of the Senate financial reform bill is that it includes so many provisions that could damage the financial services sector that just fixing one or two would not even come close to making it an acceptable bill," Heritage Foundation analyst David John told me.
"We started a list of serious problems with it, and finally stopped after reaching 14. Merely deleting the $50 billion fund and putting in a few strong statements against future bailouts does not come close as long as the derivatives section and the new consumer agency is still in the bill, and even after dropping those sections there would still be major problems with what is left," John said.
For example, consider the ban on derivatives offered by Sen. Blanche Lincoln of Arkansas, the Democratic chairwoman of the Agriculture Committee, who is eager to prove her liberal credentials back home.
Derivatives, complicated financial transactions that are essentially used to insure fluctuating commodity prices and other business deals and broaden the risks, have been blamed for much of the economic meltdown.
But they play a critically important role in our economy, as well as in the global economy. "This is an ill-thought-out idea. Not only would it push a lot of business offshore, it would contract credit on Main Street significantly," said Republican Sen. Judd Gregg of New Hampshire.
Key economic advisers to Obama weighed in against Lincoln's provision, too, including former Federal Reserve Chairman Paul Volcker.
In a letter to senators, Volcker defended derivatives, saying that the financial industry provides them to its clients "in the usual course of a banking relationship" and that they should not be banned.
Treasury Secretary Timothy Geithner also defended them in the administration's internal debate over the shape of the bill.
University of Maryland economist Peter Morici says the use of derivatives goes back to early Greek civilization. "Greek farmers insured crops with investors prepared to speculate on the weather, just as life insurers hedge mortgage-backed securities by purchasing credit default swaps," he wrote in a recent analysis.
"When written against real assets -- farmers' crops or homes -- derivatives spread risk, lower capital costs and foster growth," he said. "Pushing virtually all transactions through standardized contracts on public platforms, as the administration bill would do, "will work poorly, concentrate risks and lower economic growth."
This poorly understood bill, which will vastly expand the federal government's power over business, has sparked relatively little public concern. Wall Street has borne the brunt of public anger for the subprime mortgage collapse when its root causes are far broader than that. The government's bankrupt mortgage giants, Fannie and Freddie, bear much of the blame but have largely escaped serious congressional scrutiny.
So the Republicans aren't getting much if any public credit for their fully justified labors to slow the bill's eventual enactment as they try to remove its most onerous provisions.
This is a very bad bill that will make government bigger and more despotic and create thousands of costly regulations that will weaken future economic growth. It deserves more public attention than it has gotten so far.