A 2300 page bill is usually an indication of many political compromises. The Dodd-Frank financial reform bill is no exception, for it is a complex, disorderly, politically motivated, and not well thought out reaction to the financial crisis that erupted beginning with the panic of the fall of 2008. Not everything about the bill is bad-e.g., the requirement that various derivatives trade through exchanges may be a good suggestion- but the disturbing parts of the bill are far more important. I will concentrate on five major defects, including omissions.
1. The bill adds regulations and rules about many activities that had little or nothing to do with the crisis. For example, it creates a consumer financial protection bureau to be housed at the Fed that is supposed to protect consumers from fraud and other abusive financial practices. Yet it is not apparent that many consumers were victimized during the financial boom years, or that consumer behavior had anything of importance to do with the crisis. For example, consumers who took out subprime mortgages that required almost no down payments and had low interest rates were not victimized since these conditions enabled them to cheaply own houses, at least for a while. The “victims” were the banks, and especially Fannie Mae and Freddie Mac, that were foolishly willing to hold such risky mortgages.
The bill gives the Fed authority to limit interchange or “swipe” fees that merchants pay for each debit-card transaction, although these fees had not the slightest connection to the financial crisis. Such price controls are in general undesirable, and hardly seem to require the attention of the Federal Reserve. The bill also gives the SEC authority to empower stockholders to run their own candidates for corporate boards of directors. Corporate boards often receive some blame for the crisis-mainly unjustified in my opinion- but stockholder election of some members will not improve corporate governance, and will probably make that worse.
2. The Dodd-Frank bill gives several government agencies considerable additional discretion to try to forestall another crisis, even though they already had the authority to take many actions. The Fed could have tightened the monetary base and interest rates as the crisis was developing, but chose not to do so. The SEC and various Federal Reserve banks-especially the New York Fed- had the authority to stop questionable lending practices and increase liquidity requirements. These and other government bodies did not use their authority to try to head off the crisis partly because they got caught up in the same bubble hysteria as did banks and consumers. In addition, regulators are often “captured” by the firms they are regulating, not necessarily because the regulators are corrupt, but because they are mainly exposed to arguments made by the banks and other groups they are regulating.
Despite the fact that regulators failed to use the powers they already had, the bill mainly adds not clear rules of behavior for banks, but additional governmental discretionary power. For example, the bill creates the Financial Stability Oversight Council, a nine-member panel drawn from the Fed, SEC, and other government agencies, that is supposed to monitor Wall Street’s largest companies and other market participants to spot and respond to any emerging growth in systemic risk in the economy. With a two-thirds vote this Council could impose higher capital requirements on lenders and place hedge funds and dealers under the Fed’s authority. Given the regulators reluctance to use the power they already had to forestall the crisis, it seems highly unlikely that this Council will act decisively prior to the emergence of a crisis, especially when a two thirds majority is required.
3. Insufficient capital relative to bank assets was an important cause of the financial crisis. The bill does reduce the ability of banks to count as bank capital certain risky assets, such as trust preferred securities, and gives the Fed authority to impose additional capital and liquidity requirements on banks and non-bank financial companies, including insurers. I would have preferred a simple rule that raised capital requirements of banks relative to their assets, especially capital of larger and more interconnected banks. As suggested by Raghu Rajan and the Squam Lake group of economists, the bill probably should have required larger banks to issue “contingent” capital, such as debt that automatically converts to equity when the banks are experiencing large losses, or when a bank’s capital to asset ratio falls below a certain level.
4. One of the most serious omissions is that the bill essentially says nothing about Freddie Mac or Fannie Mae. In 2008 these organizations were placed into conservatorship of the Federal Housing Finance Agency. During the run up to the crisis, Barney Frank and others in Congress encouraged Freddie and Fannie to absorb most of the subprime mortgages. In 2008 they held over half of all mortgages, and almost all the subprimes. They have absorbed even a larger fraction of the relatively few mortgages written after 2008. Freddie and Fannie deserve a considerable share of the blame for the crisis, but they continue to have strong political support. I would like to see both of them eventually dissolved, but that is unlikely to happen. Instead we are promised that they will be dealt with in future legislation, but I am skeptical that anything will be done to terminate either organization, or even improve their functioning.
5. Many proposals in the bill will have highly uncertain impacts on the economy. These include, among many other provisions, the requirement that originators of mortgages and other assets retain at least 5% of the assets they originate, that many derivatives go on organized exchanges (may be an improvement but far from certain), that hedge funds become more closely regulated, and that consumer be “protected” from their financial decisions.
Most of these and other changes in the bill are not based on a serious analysis of what contributed to the financial crisis, but rather are the result of political and emotional reactions to the crisis. Usually, such reactions do more harm than good. That is likely to be the fate of the great majority of the provisions of the Dodd-Frank bill.
water on the beautiful image of've had at home.
The reason why all these memories I feel it is important because it is never the old tradition. These glasses are beautiful in their case to the modern home and family today as they were in your childhood. All good people feel an innate need to give back gifts and the opportunities are endless. Weddings, anniversaries, house warming or Mother's Day
Posted by: nfl jerseys | 08/07/2010 at 10:36 PM
This is a wonderful opinion. The things mentioned are unanimous and
needs to be appreciated by everyone.
________________________________________________________________
robin39
Mba Business
Posted by: robin39 | 08/12/2010 at 04:33 AM
From discussions with Fed officials, I gather that market concentration is leading to rising interchange fees, which are being used to shift liability for fraud from acquirers to issuers. I am happy to defer to their expertise about the markets they regulate. In addition, the Fed will soon have to take a decision on whether to allow US banks to deploy the EMV "Chip and PIN" card payment system that's used in Europe and is currently being rolled out in Canada. That has been bad news for both customer protection and overall fraud levels, as it was engineered from the start to facilitate liability shifting. (If you dispute a transaction with your bank, then if a signature was used the bank blames the merchant; if a PIN was used, the bank blames you.) I can well understand the Fed's desire to have regulatory tools to cope with the likely consequences. And if there's only going to be one bank regulation bill this decade, it's quite rational for the Fed to use it to acquire the powers it feels it needs.
Posted by: Pandora Bracelet | 08/17/2010 at 04:08 AM
In addition, regulators are often “captured” by the firms they are regulating, not necessarily because the regulators are corrupt, but because they are mainly exposed to arguments made by the banks and other groups they are regulating.
Posted by: Pandora Bracelet | 08/18/2010 at 03:31 AM
What a great article.there so much you were going to learn from this article.
Posted by: Credit card apply boy | 08/26/2010 at 04:09 AM
Thanks for sharing your valuable opinion here.
I am sure it will definitely help many ones.
Posted by: Rv Dealers | 09/13/2010 at 03:19 AM
Sounds cool. How did you get the raw data? How did you generate the graphics?and waiting for your comment,and now pls come to my website and see my products ahout ari yeezy shoes,you will like them,come on!
Posted by: Air Yeezy | 09/29/2010 at 10:08 PM
Mortgage lenders point of view, which have affected consumers in the new rules put into the loan originators. The bill would make it even more difficult for brokers and correspondent lenders to compete with banks regulated by the federal government and are exempt from licensing requirements that were established.
Posted by: virginia homes for sale | 10/04/2010 at 02:54 AM
According to Gary Becker, University Professor Department of Economics and Sociology and Professor Graduate School of Business, The University of Chicago, the Dodd-Frank Wall Street Reform and Consumer Protection Act has five “major defects.” While commenting that not everything about the bill is bad—bringing derivatives trades onto exchanges is one example of what Becker thinks is good in the bill—Becker noted that the “disturbing parts of the bill are more important.”
Posted by: Stentor Media | 10/11/2010 at 04:22 PM
A great boost emotional strength, therefore, it is an important precondition of all ethical behavior, who had no strong ambition, also won't be able to put this warm in career aspirations.
Posted by: jordan shoes | 10/12/2010 at 07:25 PM
Yes, I agree with Jack that there are certain worrying aspects to this bill. We must seriously consider the potential effects they can have.
Posted by: Credit Card | 10/17/2010 at 11:01 PM
Nice piece. I'd be interested to find out more of your thoughts on this issue.
Posted by: nike shox | 10/19/2010 at 01:01 AM
If you don't learn to think when you are young , you may never learn .
Posted by: Asics shoes | 10/20/2010 at 03:46 AM
Really interesting topic. Thanks for sharing. Have a great day!
Posted by: OpenCart Templates | 10/27/2010 at 06:55 PM
yup..very niche content..thanxs for sharing...
Posted by: creditcardrays | 10/27/2010 at 10:01 PM
Greater posts.many good ideas you said to us ,so I think we could learn something.thanks.I saw your opinion is beyond someone,come on!
Posted by: jordan 7 | 10/28/2010 at 09:05 PM
I think Ban Bernakay did good job he has good understanding of economy. Also Bailing our Too Big To Fail institution was not very good idea it cause reforming stability being delayed long time. Credit card debt relief
Posted by: Debt Help | 11/08/2010 at 04:15 PM
No matter what happens, Please be quiet and happy to accept life, Boldly and boldly, and never smiled.
Posted by: Jordan 13 | 11/12/2010 at 08:07 PM
Female. Kind and good temper, knowledgable and elegant.
Posted by: cheap air yeezy | 11/15/2010 at 02:38 AM
My love can only be your own!
Posted by: air yeezy | 11/15/2010 at 08:39 PM
I define soviet-style capitalism as economic behavior driven by unbounded greed, devoid of ethical consideration, purely selfish in nature, with concern only for short-term profits, and with no thought to the long-term interests of clients, minority shareholders, or society in general.
Posted by: lower back pain | 11/23/2010 at 09:50 AM
I can see that you are an expert in this area. I am launching a website soon, and your information will be very useful for me.. Thanks for all your help and wishing you all the success in your business.
Posted by: Shelia | 11/27/2010 at 10:35 AM
I liked the information you contained in it. I will bookmark your site to check if you ddwrite more about in the future. Many thanks!
Posted by: air max shoes | 12/02/2010 at 09:51 AM
Terrific work! This is the type of information that should be shared around the web. Shame on the search engines for not positioning this post higher!
Posted by: best wireless headphones | 01/05/2011 at 08:01 AM
Further, even if there were potential appearance issues regarding the timing of the fundraising events at issue, the nature and duration of these events were dramatically different from the DeLay matter and exhibited no characteristics of special access.
Posted by: David | 01/28/2011 at 01:14 AM