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Did It Work? Dodd-Frank

Wednesday, July 20, 2011

US President Barack Obama signs the Dodd-Frank Wall Street Reform and Consumer Protection Act alongside members of Congress, the administration and US Vice President Joe Biden U.S. President Barack Obama signs the Dodd-Frank Wall Street Reform and Consumer Protection Act alongside members of Congress, the administration and U.S. Vice President Joe Biden (Getty Images)

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on the Brian Lehrer Show, Roben Farzad, senior writer for Bloomberg Businessweek, continues his weekly series this month looking at Obama administration economic programs. This week: Dodd Frank turns one-year-old.

Telling banks that “unless your business model depends on cutting corners or bilking your customers, you’ve got nothing to fear from reform”, President Obama signed the massive Dodd-Frank financial reform bill one year ago this week.

But one year in—did it work? Roben Farzad said the jury is still out.

This thing is way too massive and it’s way too in-progress for us to be able to look back and say with any amount of certainty that it’s been a success. But certainly it’s one of the more polarizing things out there in an already-polarized environment.

The bill – the full name is the Dodd-Frank Wall Street Reform and Consumer Protection Act – is dense. There are sixteen individual sections within the bill. The main two sides, though, are those named in the title – Wall Street reform and consumer protection.

One of the main tenets of the bill was to do away with the too-big-to-fail situation. Farzad said that so many of the struggling banks consolidated into even larger conglomerates, this particular attempt has been wildly unsuccessful.

I don’t want to yell fire in a crowded movie theater, but Bank of America is being confronted with these very questions… this financial stability oversight council which is supposed to intervene… has hardly been heard from… These firms are even too-bigGER-to-fail now.

The Volker rule says that if you are a bank that does business with the public, you cannot also be a bank that engages in the type of risky speculation that a hedge fund might take on. It was hotly disputed at the time and still has not been implemented. Farzad said it’s not that easy to make the switch.

The devil is in the details. Proprietary trading happens in all these other nooks and crannies on Wall Street.

Another controversial element of the bill is derivative reform, which requires certain trades go through a trading house. Farzad said this was absolutely necessary.

This at least ensures that qualified necessary participants out here... that they’re legitimate players, they’re not these fly by night people who are going to take on, you know, 50-to-one leverage, just to turn a buck or two overnight.

There are currently two dozen bills in Congress that seek to dismantle part of the Dodd-Frank Act, with business lobbyists spending more than $50 million this year alone to try to change the law. The agency charged with implementation has missed all of the deadlines thus far for implementation of the provisions in the Act. Farzad explained that there is a Catch-22 preventing progress, with the Consumer Financial Protection Agency finding it difficult to function without a leader, and Congress staunchly opposing the administration’s attempts to name a director.

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Comments [4]

Kat from New Jersey

I'm an attorney who has worked in Bankruptcy and in compliance for more than a few years. If FD is anything like BAPCPA we're in trouble. The biggest problem with these pieces of legislation are based in construction. For all practical purposes they are incomprehensible.

How can't anyone expect legal laypeople (bankers/traders/consumers) to understand this when sophisticated parties are scratching their heads trying to puzzle out major ambiguities coupled with overly vague phrasing. Then the governing bodies expects us to put up the money to go fight it out either in court or arbitration so we can determine the meaning of (sometimes) single words or phrases?

Congress should focus on the less is more approach. After all, the devil is always in the details. What they aught to do is construct a general framework that outlines the authority and powers that regulatory agencies will have. Plus any specific limitations. Then leave the rest for agency rule makers who can tap the real experts on the ground.

We can dream. We can dream.

Jul. 20 2011 11:38 AM
John A.

Only (3) comments is quite a contrast to the importance of this story. A pro-regulatory heavyweight is preferred, but, Brian, are their rules against having anonymous guests on? How about 'JP Bayes', below?

Jul. 20 2011 11:18 AM

I work in the industry as a consultant now. I did work in sovereign and corporate defaults and credits as a math quant and as a trader for 15 years.

Now, I am requested by hedge funds to see how they can create new derivatives and Global cross assets to offshore risk. I play by the rules as given.

OTC IR Swaps are nothing in comparison to interest rate derivatives esp in forex .

My take is that the CEO's want to crush the law. They like their 100 dollar lunches as I was told. Also, WNYC should be investigate Schumer and others.

Oy.
JP

Jul. 20 2011 11:03 AM
Martin Chuzzlewit from Manhattan

My understanding is that the bill was rushed through without many of the details being fleshed out.....and that it is actually still being written....is that true?

Jul. 20 2011 10:56 AM

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