Dodd/Frank financial reform…haste makes confusion

The recently enacted Financial Reform bill, brought to us chiefly through the efforts of Senator Dodd (D. Ct.) and Congressman Frank (D. Ma.), was, like much of the handiwork of this Congress, passed in haste. Remember, something had to be done immediately so that we never have another financial meltdown like we just had?  This bill, too, was ponderous, consuming 2300 plus pages, and, like Obamacare, probably wasn’t read by anyone who voted for it.  Well, as Speaker of the House Pelosi (D. Ca.) would have said, now that the bill has passed, we can see what is in it. 

Within days, what we saw was problematical, and, I’m guessing this is the tip of the iceberg.  Here are just two of the issues.

The first involved the $1.4 trillion asset-backed securities market.  This is the market where corporations and municipalities sell bonds to raise funds for certain specific projects.  As an example, your town might issue bonds to cover the cost of a new police and fire station. 

What happened here was that under SEC regulations, any bond issue sold must have a rating from a “credit rating” firm, such as Moody’s or Standard & Poor’s.  The Dodd/Frank bill, however increased the legal liability of these credit rating agencies (a lawyer’s relief act), so the companies refused to provide ratings in bond deals.  The bond market screeched to a halt.  After a few days, the SEC had to “suspend” its long standing regulation of requiring credit ratings, and allow the bond deals to proceed without a credit rating.

The second involves the process by which the FDIC gauges the soundness of banks.

Banking regulators were “weeks away” from finalizing a long-running effort to set risk-based capital standards for smaller, less-complex banks, say people familiar with the matter.

But now, thanks to the Dodd/Frank Bill, it is anyone’s guess when that will happen.  Bank regulators had planned to use credit ratings as part of that process, but the bill bans the use of credit ratings in setting those standards. 

As Comptroller of the Currency John Dugan, an FDIC board member said,

I do worry about there is a little bit of throwing out the baby with the bath water. It might be worth Congress taking a second look at.  [emphasis supplied]

Anyone think Senator Dodd and Congressman Frank will do so?

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The Sound Off Sister was an Assistant United States Attorney for the Southern District of Florida, and special trial attorney for the Department of Justice, Criminal Division; a partner in the Florida law firm of Shutts & Bowen, and an adjunct professor at the University of Miami, School of Law. The Sound Off Sister offers frequent commentary concerning legislation making its way through Congress, including the health reform legislation passed in early 2010.


  1. Dimsdale on September 7, 2010 at 2:12 pm

    Legislate in haste, regret at leisure.  Or is that "repeal at leisure"?

  2. chris-os on September 7, 2010 at 2:44 pm

    The bill is a step forward, but it does not go far enough. It will be important that legislators view this is the first step in the process of fixing the problems in the financial sector, not the final word.

  3. Dimsdale on September 7, 2010 at 3:37 pm

    Brobdiingnagian bills full of lawyyerese gobbledygook isn't a step anywhere except backward.  These bills, written by "someone" (names, please?), in indecipherable language, full of earmarks and loopholes, is exactly the kind of thing that got us into this economic mess.  Where was the transparency, as defined by Øbama on the campaign trail?  Why can't the amended and appended bills be distilled down to readable, searchable documents that are posted online?  Why don't the people that allegedly wrote the bills and happily voted for them know what is actually in them?


    If this is a step forward, it is a step into more quicksand (dare I say quagmire?).

  4. socialenemy on September 8, 2010 at 2:52 am

    2300 pages of nonsense is a step forward? Well I'm sorry if I don't like the direction this bill is taking us. but I feel like after 2300 pages there should be a bit more than a few good things in there. In fact, after 2300 pages there should be allot of good things in there. BUT THERE ISN'T. And exactly how doesn't it go far enough? I'm assuming you've read it to make have such an opinion? So tell me, if it doesn't go far enough, how much further would you like it to go? And actually, why don't you do me a favor and  post some links to parts of the bill that you think do go far enough. You know, since you've read it… Unless you haven't… And are just agreeing with the Dems to disagree with us… Get back to me.

  5. Murphy on September 9, 2010 at 7:11 am

    I think its more of a case of Waste (Dodd and Franks) creating the haste.

  6. NH-Jim on September 10, 2010 at 4:06 am

    Well, the two-headed monster strikes again.

    And, a knife has been thrust into the backs of the banks, especially the small ones who had no part in the mortgage meltdown, that sparked our economic collapse.  Since Dodd is not running for reelection, it has left him free to turn up the heat on his former cozy relationships.  But, all will be hunky-dory in the end as there is always the presidential pardons to fix things up.

    As for the other head of the monster, Mr. Franks, well, he's just a blabbering fool who also must go.


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