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A close reading of the recent report by Treasury Secretary Timothy Geithner (grandly known as "the chairperson of the Financial Stability Oversight Council") on the "Study of the Effects of Size and Complexity of Financial Institutions on Capital Market Efficiency and Economic Growth" offers two enlightening statements in a 56-page morass of irrepressibly, and possibly deliberate, econospeak. First, on the matter of bank size: "The economics literature suggests that there are both costs and benefits to limiting bank size." Second, on putting limits on complexity and diversification of large financial institutions: "Whether the benefits of diversification are larger than the costs cannot be determined from theory alone and is therefore an empirical question."
That makes me feel better, though I do detect a needling migraine somewhere behind my right eye, which may be a serious health issue or the effect of an hour or so hacking through this prose. This report from the Treasury secretary -- if you believe he actually wrote it, then I have some speeches to peddle to you -- is baffling for several reasons. The report, which consists almost entirely of a literature search, was mandated by Dodd-Frank (as the title page says, bristling with aggression: "Pursuant to Section 123 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010"), which gives it a kind of homework-like air. Now you would think that if you were setting out to rethink financial regulation, you'd do such a literature search first, then ponder how to wrestle these large issues to the mat. You might think that, but you'd be dead wrong. Let's legislate, then study. Moreover, if this report is right, we are legislating and regulating without a whole hell of a lot of confidence, short of our belief in our regulatory savvy (oh great), that we have a clue as to what we're actually doing. On the other hand (that's three hands if you're counting), the often raucous counterarguments against the general thrust of Dodd-Frank -- that financial institutions need to be smaller, less intertwined and safer -- also lack much in the way of clear evidence. The real conclusion of this report should probably be: We don't know what the hell we're doing, but we'll make it sound so technical no one will realize it. 
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