New Deal 2.0, the Roosevelt Institute’s blog, had a series of posts up yesterday marking the one year anniversary of Dodd-Frank, legislation that was in response to the 2008 financial collapse and ostensibly sought regulatory reforms to minimize the ongoing consequences of the financial collapse and prevent such a collapse from happening again. Except it didn’t really do any of those things. Rob Johnson writes:
As Senator Durbin exclaimed in a 2009 radio program, “[Banks] frankly own the place”. The clarity of that thought was revealed by the contrast between the magnitude of the crisis and the harm that it has done, and the lack of meaningful reform in Dodd Frank. Real balanced legislation would have gone much further to curtail embedded leverage and complexity of instruments. Real legislation would have contained a mortgage modification dimension like the Home Owners Loan Corporation. We do not have those things because they would have threatened reported profits, bonus pools and campaign contributions. This is not just a problem of government, as distinct from the private sector, it is a problem of the governance of the concentrated powerful interests who spent years shaping legislation and regulatory enforcement to unshackle themselves until they imparted great harm to the rest of society and handed it a bill for the cleanup.
I think Johnson’s attack on legislative capture by the banking industry is right and he goes on to point out that this destructive phenomena isn’t limited to the world of finance – we saw the same thing during the process of passing healthcare legislation.
Matt Stoller writes:
After the immediate crisis was contained, losses were socialized, and profits returned to financial executives, Congress had to put together a “solution”. It would have a giant bite at the apple in restructuring our regulatory apparatus. But in order to perpetrate the oligarchic banking structure, it would be important that no structural changes to the industry be implemented. Not one regulator was fired for his or her part in the crisis. The Justice Department adopted a posture of legalizing financial control fraud by refusing to prosecute anyone involved in the meltdown, and continues to allow millions of cases of foreclosure fraud to continue. Ben Bernanke was renominated, and the administration fought a bitter below-the-radar battle to secure his confirmation. With a few modest exceptions, the risk-taking and leverage in our financial markets continues apace, and the deregulatory neoliberal mindset is still dominant. The Federal Reserve has been audited, but the system is now accountability-free for high level operatives in finance and politics. And now that Elizabeth Warren has been thrown overboard by the administration, the lockdown of the financial system is nearly complete.
And mostly, that’s what Dodd-Frank accomplished. It rearranged regulatory offices and delivered a new set of mandates, but effected no structural changes to our banking system. Congress never asked what happened, or why, or even, what kind of banking system do we want? And that’s because Obama’s Treasury Secretary already had the answers to these questions.
What’s particularly dangerous about this is that the financial crisis demanded structural changes. It demanded governmental responses that sought to directly benefit working and middle class consumers. It demanded a direct confrontation of the popped housing bubble and millions of underwater homeowners. It demanded investigation and accountability – of Wall Street executives, of corrupt ratings agencies, and of captured regulators. But these things didn’t happen and while Dodd-Frank contained some good things (CFPB, audit the Fed), the presence of these good things doesn’t address the things that the legislation never even attempted to do.