It’s August 6 as I write this, and the finance industry is taking a deep breath after hustling for weeks to get their comments delivered to the SEC on the SEC’s massive restructuring (pdf) of Reg AB and offering reform.  We here at Dechert had been very busy writing the CREFC comments (pdf) and I’m delighted to see that effort coming to a close (it only took 24 drafts to get to our submission).

To be clear, this is merely the opening act of what will be a protracted insect dance between business and government to settle on rules that deliver on the SEC’s goals of transparency and alignment between issuers and investors while not imperiling the restoration of a healthy CMBS market.  This process will consume the time of many of us for the indefinite future.

Moreover, the SEC’s AB Reg project now must be woven into the tapestry of FinReg (I’m just not gonna call it Dodd-Frank), and someone with way too much time on their hands has determined that something like 90 studies and new rulemaking initiatives are required by FinReg.  Estimates are that the FinReg regulatory product may amount to 25,000 pages in the Federal Register. I hope our little corner of the financial sector will only be graced with a small fraction of that rulemaking activity!

If only it didn’t matter so much. FinReg and its progeny is a broad invitation to the regulatory constituencies to regulate and, as they say: to a man with a hammer, everything looks like a nail.  If I’m a regulator, I want to regulate – and this is an extraordinary invitation to remake much of the structure and operation of U.S. financial markets, including our CMBS market. Oh, and let’s also not forget the Gnomes of Basel and what they and the G20 might do between now and the end of 2010.

There appears to be a drug in the Perrier served in Washington that gives legislators and regulators extraordinary confidence in their ability to get things right, and a certain blindness to the notion of the unintended adverse consequences of regulatory action.  Populism, political anxiety, unemployment, the conga line of failed financial institutions and the parade through various Congressional hearings of largely unlovable masters of the universe has created an environment in which the urge to regulate is terribly seductive, and even when they truly, truly try their best, they will often get it wrong.  We will need to continually remind the regulators that as the risks and rewards of the financial pie are whacked up by new rules, we need to make sure we still have a pie to whack up.  Moreover, the Treasury Secretary has been on a mission to convey Treasury’s commitment to getting to rules quickly. The instinct to do this massive regulatory overhaul quickly will not help. Complex and quick are a toxic brew.

Which is a long way of saying that the financial services industry and, in no small measure, the commercial mortgage securities industry, has to sustain and, indeed, redouble its effort to educate, engage and partner with the various regulatory agencies charged under FinReg to re-make our financial markets.  Perhaps a good first step was this week’s Wall Street speech by Secretary Geithner in which he makes it clear that the administration wants to work with industry to make regulations that work. We need to clasp that outstretched hand and hope that all players will work together in good faith to get this right.