By Teresa Welsh |
Dodd-Frankenstein is a deeply flawed bill that contains many different laws thrown together, some good and some bad. Congress should have taken the time to consider—and vote on—each title in the law separately. While it would be nice to go back to the drawing board and start over again with a clean sheet of paper, that is not realistic in the current political environment. The same partisan mud wrestling in Congress that brought us this mess would probably come up with another monster bill just as flawed.
Fortunately or unfortunately, Congress delegated most of the work to our regulatory agencies with hundreds of required studies and rulemakings. This slow process gives us time to work on fixing it, one section of the law at a time.
Some parts should be repealed. As enacted, the "Volcker rule" that prohibits banks from engaging in certain types of "proprietary trading" will not substantially reduce risk in the banking system, but will substantially drive up costs that ultimately get passed on to consumers. The government estimates that it will consume over six million (!) person hours for banks to comply with that provision alone. The well meaning but deeply flawed provision on conflict minerals should also be repealed. That section will impose huge costs on public companies that have nothing to do with the appalling human rights abuses in the Congo, while doing nothing about the non-public companies that do contribute to the problem.
Other parts should be fixed. We needed better regulation of OTC derivatives, but the new law needs to be refined. The Bureau of Consumer Financial Protection should have a bipartisan commission structure and come up for reauthorization every few years, like the Commodity Futures Trading Commission. This would force Congress to review the consumer protection bureau periodically and see how well it is doing its job. Congress should directly set the budget of the agency as it does with other agencies. The consumer bureau's current structure, which puts the agency under the Fed, has little accountability for how taxpayer dollars will be spent.
Congress really has not thought through how to regulate the modern financial system. We have hundreds of different financial regulatory agencies at the state and federal level, and these separate fiefdoms often don't work well together. Stuff falls between the cracks, and navigating this unwieldy mess imposes major costs on everyone. This needs to be fixed.
About James Angel Professor at Georgetown University
Tim Johnson Chairman of the Senate Banking, Housing and Urban Affairs Committee
David John Fellow at the Heritage Foundation
Dean Baker Author of 'The End of Loser Liberalism: Making Markets Progressive'