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Sunday, April 22, 2012

The Office of Financial Research

It is the most powerful federal agency you’ve never heard of -- and lawmakers from both parties on Thursday vowed to keep abreast of its astonishing growth and rein it in, if necessary.

The Office of Financial Research, or OFR, was created by the Dodd-Frank financial services overhaul that President Obama signed into law in July 2010. Technically housed under the Treasury Department, the agency has until now received its funding not from the Congress, but directly from the Federal Reserve.

Starting in July, the OFR Fiscal Year 2013 budget, estimated at $158 million, will be funded entirely through assessments -- also known as taxes -- on bank-holding firms with consolidated assets worth at least $50 billion.

But as became clear at Thursday’s hearing by the House Financial Services Subcommittee on Oversight and Investigations, a close reading of the law the president signed provides no limit on the growth of OFR’s budget, nor on the taxes the agency can impose on big banks to fund it. 
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The agency’s official mission is to collect financial data and funnel it to another Dodd-Frank creation: the Financial Stability Oversight Council. These agencies were designed with the idea of preventing another systemic shock of Lehman Brothers magnitude.

Toward that end, OFR was invested with virtually unlimited subpoena power. It can compel just about any company in America to turn over to the federal government sensitive internal data, even proprietary information.
“We're only going to be collecting the data that we absolutely need, to fulfill our mission,” testified Michele Shannon, the new agency’s chief operating officer. “We're trying to fill data gaps. We're not going to be collecting for collection's sake. We're going to be making sure that only those people who absolutely need to have access to sensitive data have that access.”

Another of those bills that they had to pass to know what was in it?

There are a lot of potential problems here. First, the hubris at thinking that they can stave off another crises simply if they have enough information. They will never have enough information, although they will certainly try to obtain it.

Second, there has never been a government agency that has shown self restraint. They will do everything they can do under the law, and then push the envelope, then go to get the law expanded further, and so on. And if the need for the agency disappears, they will create new "problems" for the agency to "solve." 
 
Third, per the first two points, the agency will eventually go back to Congress to complain that it doesn't have the power to actually do anything, so it seek to accrue enforcement powers.
 
Fourth, other agencies will want to use the data collected, and so will be given access to to it.
 
Rinse, and repeat.

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