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Odds On?

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The more people I speak to, the more cynical I get about the future of the US Office of Financial Research. It seems that some are even close to running a book on how long it will be before the government backs away from the idea, given the changing political dynamics on Capitol Hill.

In the interests of full disclosure: to be fair, I have always been quite cynical about the future of a government run utility, especially in light of the half a billion dollars of government spend it will require to set up. I’m not saying such a utility won’t be established, but I’m fairly sure it will need to be run as a commercial enterprise rather than as an agency of the Treasury if it hopes to succeed.

Many of those in certain right leaning political circles are also sceptical about its future and given that the Republicans are to take control of the House of Representatives this month, many regulatory reform measures are potentially up for review, not least of which could be the Office of Financial Research. After all, certain US politicians have been particularly vocal about their perception of the new agency as a waste of time and money – see US Republican senator Richard Shelby’s comments last year, for example, or the discussions during the Congress debate on the subject. These opinions are bound to come to the fore as power is ceded to the Republicans.

Moreover, if the US government is struggling to increase the funding of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), how can it possibly pour US$500 million into a new agency?

Obama has come under continuing pressure to rein in government spending and this pressure is increasing gradually over time. At the end of last year, the collapse of the planned US$1.1 trillion Senate budget for an increase in spending for the regulatory community to carry out the requirements of the Dodd Frank Act was not a good omen. The plan was to double the SEC’s budget by 2015, with the regulator receiving an additional US$1.3 billion, and the CFTC’s budget was to expand by US$117 million. Budget cutbacks have put paid to both of those increases.

Granted, the legal entity identification standards discussions are progressing, with the end of January deadline for responses to the Office of Financial Research’s request for comment fast approaching. But, as they say: talk is cheap, half a billion dollars isn’t.

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