The OLA: Concept and Reality

The Orderly Liquidation Authority (OLA) in Dodd-Frank reminds me of automatic flush toilets — a great idea in concept, but not so wonderful in reality. Like an automatic flush toilet, you’re never quite sure when the OLA will start or how long it will run — regulatory discretion decides when it’s triggered and keeps it going. Automatic toilets often flush without reason — an unnecessary waste of water and often quite a shock; the OLA likewise could be invoked unnecessarily when the market could handle the problem, but regulators are spooked so they jump in. The proliferation of automatic flush toilets also contributes to a socially harmful laziness when it comes to the most basic practices; people get so accustomed to these full-service toilets that they neglect to do what they ought to. So too, the OLA breeds bad habits — people get lazy and stop taking common-sense precautions because they assume that the OLA is there to clean up after them. I explain some of my concerns about the OLA in more high-brow terms in a recent piece at RealClearMarkets.