Dodd-Frank - No One Knows How It Will Work

Congress has agreed upon financial reform legislation, but the bills leading sponsor doesn't know how it will work. Only that it's good.

"It's a great moment. I'm proud to have been here," said a teary-eyed Sen. Christopher J. Dodd (D-Conn.), who as chairman of the Senate Banking Committee led the effort in the Senate. "No one will know until this is actually in place how it works. But we believe we've done something that has been needed for a long time. It took a crisis to bring us to the point where we could actually get this job done."

Both the House and Senate must approve the compromise legislation before it can go to Obama for his signature.

I suppose it's an improvement over health care reform, which congress had to pass before they could find out what was in it.  At least this time they know what's in it.  They just don't understand what it means. 

Yippee.  When reform passes congress will have let loose a bureaucracy that will have nearly unlimited power.  Let's pause now and ponder, what will it do with that power?

A new consumer protection bureau housed in the Federal Reserve would have independent funding, an independent leader and near-total autonomy to write and enforce rules. The government would have broad new powers to seize and wind down large, failing financial firms and to oversee the $600-trillion derivatives market. In addition, a council of regulators, headed by the Treasury secretary, would monitor the financial landscape for potential systemic risks.

Bureaucratic legislation!  Lobbyists, lawyers, and congressmen must be salivating at the prospect of huge financial firms lining up with their political action cash.  And what large financial firm won't be thrilled at the chance to influence rule writing in ways that will shield it from any meaningful competition.  Call it the cost of doing business.  In the best case scenario we will see yet another round of regulatory capture where the regulated industry writes its own rules  What we won't see out of this is any reduction in the systemic risk nor any economic stability.

"This legislation is a failure on both counts," Sen. Judd Gregg (R-NH) said in a statement that denounced the compromise as failing to address "shoddy underwriting practices" or problems with the government-sponsored entities Fannie Mae and Freddie Mac. "It will not encourage much-needed stability and confidence in our financial markets. It will not significantly reduce systemic risk in our financial sector."

What it will do is generate more special interest money that will flow through lobbyists into political campaign war chests.  This is what you get with progressive government.

Comments

[Bob Smith]

I hope Dodd's squeeze of private equity firms got negotiated out. Nearly 75% of my potential investors would no longer qualify as accredited investors if this bill passes with that provision. It would destroy the private equity markets, which is probably the point (throw Wall Street a bone as compensation for nasty regulation).