Fin-Reg 'Hope and Change': Santelli Laments SEC FOIA Restrictions

Transparency in government sounds like such a high-minded right thing to do, so that the citizenry is informed and engaged about how their government operates. And with the election of President Barack Obama, that’s what we thought we might see. But when the recently passed financial regulation reform legislation was signed into law by Obama, that promise slipped through the cracks. 

On the Aug. 5 broadcast of CNBC’s “Squawk Box,” a panel consisting of CME Group Floor reporter Rick Santelli, senior economics reporter Steve Liesman and The Peebles Corporation chairman Don Peebles argued about the merits of this financial regulation, known as the Dodd-Frank Act.

Santelli argued regulation won’t alter behavior – no matter how extensive.

I think that if you take failure out of the system, you could put regulations all the way up to the top of the Empire State Building,” Santelli said. “It isn't going to alter the behavior behind it.”

But Liesman explained the pre-Dodd-Frank Act direction of the U.S. financial system was unsustainable.

“You can't guarantee everything,” Liesman said. “At the same time you were the one who was talking for a long time about the shadow banking system. It wasn't in the markets that you cover. It wasn't covered by the regulations that were out there. This entire thing developed outside of the regulatory system and it's hard to argue that we should keep going the way we did before.”

However, this legislation wasn’t necessarily the positive for the economy Treasury Security Timothy Geithner made, as recently as Aug. 4 in a speech at the Center for American Progress.

“Look at Fannie and Freddie. Oh, my God. It's enough to make one sick. How Timothy Geithner could look at the camera and talk about this fin-reg as a big positive. I mean, it's beyond me. What are they drinking in DC?”

Peebles, who fundraised for Obama during the 2008 election cycle, even admitted the legislation wasn’t ideal but said Congress had to pass something or it would have never gotten done.

“Congress had to force some kind of reform,” Peebles said. “Congress was going to force it. So we had to go ahead and have financial reform. It was needed and the uncertainty of not doing it would have been a problem. And if they had done nothing, they would have talked about it a whole other session – we’d have a new election come up.”

And that’s where Santelli raised the point there’s no way of knowing if the regulation was working since the Dodd-Frank Act shielded the Securities and Exchanges Commission, the chief regulatory body, from Freedom of Information Act requests.

“No, no, no -- they did nothing long before Mr. Peebles, they did nothing because you have, what – 700 regulators for AIG? What did they do? In fin-reg, the Freedom of Information Act as it affects the SEC might be in question. … When they screw up catching the Madoffs in the future and the [CNBC correspondent] Scott Cohns go knock on the door for information, they're going to say, sorry, go read fin-reg.”

A bi-partisan group of senators on the Judiciary Committee – Sens. Patrick Leahy, D-Vt., John Cornyn, R-Texas, Ted Kaufman, D-Del. and Chuck Grassley, R-Iowa, has recently introduced a bill to strip the Dodd-Frank Act of this provision. A similar bill was introduced by Rep. Darrell Issa, R-Calif. in the House of Representatives.