FORBES: An Unhappy Birthday For Dodd-Frank As Momentum Builds For The Next Meltdown

Sunday marks the third anniversary of the Dodd-Frank Wall Street Reform Act. Remember when it was touted as the solution to all of the problems that caused the financial meltdown of 2008?
I won’t be lighting any celebratory candles and neither should you. Except for a recent promising development involving capital requirements for megabanks, Dodd-Frank has not delivered on what it promised. By and large, those agencies charged with writing the regulations to bring the legislation to life have been overwhelmed by a combination of congressional underfunding and a massive lobbying effort by the megabanks that increasingly seem to control Washington. The Davis Polk law firm has been keeping tabs on what has actually been accomplished. Their latest count says that only 155 of the 398 rule makings required by Dodd-Frank have been finalized.
The economy has improved. The banks are making gigantic profits and insist it can never happen again. The White House and the Treasury Department see little need for further action. Neither do many members of Congress. We have gone right back to the “what, me worry” attitude we had until the day before Lehman Brothers went belly up. Remember Citibank’s Charles Prince and his infamous rationalization, “As long as the music is playing, you’ve got to get up and dance”?
The music is playing again and the same dancers are on the floor, because we have not fixed many of the things most experts agree caused the meltdown. Another financial crisis is inevitable.
If that sounds too pessimistically extreme to you, give me a chance to prove it to you over the next 10 days. I plan on writing one post a day, each examining at some length the causes of the meltdown and why we have not adequately addressed them. Here’s what I have in mind, post by post:
1) The megabanks are even bigger and more than ever “too big to fail.” The international agreements needed to implement Dodd-Frank’s solution—an “Orderly Liquidation Authority”— are still not in place. Even if they were, the authority would not work to resolve our bloated banks in a real-life crisis.
2) Regulatory agencies have largely failed to impose new rules with real teeth. Instead of writing legislation that fixed problems, Dodd-Frank kicked the can down the road to regulators who have been overwhelmed by Wall Street and underfunded by a hostile Congress.
3) Fannie Mae and Freddie Mac have not been fixed. In fact, they weren’t even mentioned in Dodd-Frank, despite the fact that everyone agrees they played a role in the meltdown.
4) The Obama administration has maintained the Wall Street-Washington revolving door. You can’t effect meaningful changes when top appointments uniformly come from, and go to, Wall Street.
5) Derivative monitoring and control still have gigantic loopholes. The biggest one of all will probably allow the big banks to trade derivatives in their foreign subsidiaries without any U.S. regulation.
6) The banks are still gambling with FDIC-insured money. The JPMorgan Chase “London Whale” fiasco was just the latest proof that there has been no change in the casino speculation of Wall Street banks.
7) The Fed’s recent capital requirements proposals are promising—but. The megabanks were given 60 days to “comment” before the new requirements take effect. What do you think Washington’s most powerful financial lobby is saying?
8) No one has gone to jail. And no one will. There are many examples of criminal behavior during the meltdown, but not one megabank executive has been jailed. Without that deterrent, white-collar crime is not just profitable but inevitable.
9) Reform of the credit-rating agencies is a long way off. “Essential cogs in the wheel of financial destruction,” as the Financial Crisis Inquiry Commission described them, the credit-rating agencies still operate as they always have, bought and paid for by the entities they rate.
10) What’s next? A realistic look at what ought to happen–and what won’t.
I’ll start tomorrow with an examination of why our big banks are still too big to fail.
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This article is available online at:
http://www.forbes.com/sites/tedkaufman/2013/07/17/an-unhappy-birthday-for-dodd-frank-as-momentum-builds-for-the-next-meltdown/