Question

Explain the good/bad of the Dodd-Frank Act.

Answer 1

There are good aspects to the Dodd Frank Act. It forces the secretive Federal Reserve to open up more about its operations and has already reduced costs associated with getting a mortgage, eliminating some of the junk fees that banks buried in the fine print of loan documents. Dodd-Frank has also mandated a greater focus on consumer issues, an area that regulators had little interest in last time around. The “good” here is that as a result of Dodd-Frank, there are greater capital, margin and clearing requirements on trading so that over-leveraging won’t occur. There’s added transparency which enables regulators to see what’s going on. Additionally, Dodd-Frank took away authority to provide for another bailout. But there are problems with Dodd-Frank that run deep. First is in its delegation to regulators to write the actual rules of the road in the Dodd-Frank framework. Unfortunately, the legislation hands off the crucial task of resolving financial industry problems to some of the same people who failed to see these dubious practices when they were staring them in the face and harming consumers. The unfortunate part of Dodd-Frank is that the law and some of the regulations went too far. That is: there were areas of the financial sector which were not culprits to the economic calamity but received increased regulation. The trading exchanges, for example, were not problematic leading up to 2008. Even more troubling, this delegation to regulators provides financial services lobbyists with a second opportunity to influence the law’s final outcome. Even as we speak, regulators are being sweet-talked, pummeled and manipulated by lobbyists to write the rules in ways that favor them and their big bank clients. Another problem—Dodd-Frank did nothing about resolving Fannie and Freddie. That work remains to be done. Finally, the law did nothing to eliminate the threat of too-big-to-fail institutions or cut them down to size, perhaps the single most important matter that should have been addressed by lawmakers.