Forbes: After Four Years of Dodd-Frank, We’re Still Waiting for Wall Street Reform

Four years after passage in July, 2010 of the grandiloquently-named Dodd-Frank Wall Street Reform and Consumer Protection Act we’re pretty much back to square one in terms of fixing the major causes of the financial meltdown of 2008-2009.
Yes, a very few positive things have happened. Thanks mainly to prodding from Federal Reserve Governor Daniel Tarullo, the Fed has set modestly higher capital requirements and reduced leverage ratios for the big banks. Still fighting Wall Street resistance at every turn, the Consumer Finance Protection Bureau continues to do good work.
But what else? The solemn pronouncements coming from Washington that “Too Big to Fail” is a thing of the past are ludicrous. The megabanks are bigger than ever, and are behaving exactly the way they did when, one year before the crash, Citibank’s CEO Charles Prince declared, “as long as the music is playing, you’ve got to get up to dance.” And the music being made these days while the banks gamble with FDIC-insured money and expand trading in risky derivatives is truly beautiful for the dancers. Megabank profits are soaring.
Last year I wrote an eleven part series in Forbes that laid out the failed promises of the Dodd-Frank financial reform package and the continued dangerous imbalances in our financial system. The entire series can be foundhere.
Not much has changed in the past year.
There has been no movement at all to actually reduce the size of the banks. Strangely, just about everyone agrees with the Alan Greenspan’s simple rule that “if they are too big to fail, they are too big.” But Washington is paralyzed, and JPMorgan Chase JPM +0.48% and the other megabanks have mounted a defense that more or less says that size isn’t a problem. It sure was five years ago, and it will be again.
Beyond the TBTF problem, regulators have not required realistic “living wills” for the big banks or implemented the international resolution authority required to avoid another taxpayer bailout.
Fannie Mae and Freddie Mac weren’t even mentioned in Dodd-Frank, but clearly they were major contributors to the housing crash. No reform of them has been approved.
The Obama administration has maintained the Wall Street-Washington revolving door. The old fox guarding the hen house analogy is as apt as ever. In the latest example, Diana Farrell, Larry Summers’ deputy in the White House and a key player in the administration’s policy on Dodd-Frank, just went to work for the new JPMorgan Chase Institute.
There has been a lot of regulatory busy work on reforms that would monitor and control the trading of derivatives. Unfortunately as with many Dodd-Frank “reforms,” a gigantic loophole was added at the very end of the process that allows the big banks to trade derivatives overseas without U.S. regulatory oversight.
After almost four years of lopsided input from Wall Street lobbyists, regulators finally approved a watered-down Volcker Rule to attempt to limit the big FDIC insured banks engaging in risky investments. Of course the real solution is reinstating the Glass-Steagall Act, but there is no movement in Congress or the administration to do that.
Another year has passed with no one from a Wall Street bank going to jail for the criminal behavior everyone knows helped cause the financial crisis. Fines against Wall Street banks are reaching $100 billion, but all will be paid by stockholders. Bank CEOs and managers pay no fines and face no prison.
There has been no reform—zilch, nada– of the credit-rating agencies. They are right back rating securities from issuers who pay them for their ratings.
Sad, right? But funny too, if you have a mordant sense of humor, when you follow the constant complaints of some in Congress that Wall Street banks are suffering under the heavy heel of the federal regulatory agencies.
I have no hope at all that the current Congress will do anything to reform the big banks and protect us from another meltdown, but there are signs of awakening beyond the beltway.
A national poll conducted by Greenberg, Quinlan Rosner Research, on behalf of Better Markets, shows that almost 90 percent of the American people believe the federal government has failed to rein in Wall Street. In addition, “sixty four percent of all voters and 62 percent of voters that own stock believe the stock market is rigged for insiders and people who know how to manipulate the system.”

“Another 55 percent majority,” the poll shows, ”believes Wall Street and big banks hurt everyday Americans by pouring money into ‘get-rich-quick’ schemes rather than real businesses and investments. This view is shared by strong majorities of Democrats and independents and more than four in ten Republican voters.”
“Sixty percent of voters favor stricter regulation on the way banks and other financial institutions conduct their business,” with only 28 percent opposed. Stricter regulation of Wall Street and the big banks finds large and wide bipartisan support, including 74 percent of Democrats, 56 percent of Independents and a comfortable plurality of Republicans at 46 percent.”
Politicians let the people they represent get this far ahead of them at their peril. My hope, as always, is that they take some real action before a very skeptical American electorate is inevitably asked again to bail out the big banks.