08/01/2012
IN DEFENSE OF DODD-FRANK
As enacted in the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in July 2010, the Volcker Rule requires U.S. financial regulators to:
> Prohibit proprietary trading by banks
> Prohibit banks from investing in and sponsoring private equity funds or hedge funds
> Limit banks’ relationships with private equity funds and hedge funds
> Restrict and regulate non-banking financial institutions’ proprietary trading and investment in private equity funds and hedge funds
Basically, the Volcker Rule prohibits banks and other financial depositor institutions from gambling with depositor funds on questionable securities – yes, THOSE securities and derivatives whose default caused the collapse of the financial sector in 2008.
According to Steven J. Markovich on the Council on Foreign Relations website, the Volcker Rule “proposed banning proprietary trading by these banks, reasoning that financial firms backed by government deposit insurance should not be permitted to trade speculatively for their own benefit.” { http://www.cfr.org/united-states/dodd-frank-act/p28735?cid=ppc-google-grant-dodd_frank&gclid=CM6-yvj3xrECFaIGRQodeXkAhQ }
Dodd-Frank protects you. It protects your money. It's a good thing. Going further, Title X of the Dodd-Frank Act provided for the establishment of the Consumer Financial Protection Bureau (CFPB), championed by the current Massachusetts Senate candidate, Elizabeth Warren.
The NAR (National Association of Realtors) opposition to Dodd-Frank makes sense only in one aspect: Opposing any current or future transaction tax that Sellers must pay on their side of the real estate transaction. This proposal never actually made it into the bill, but the NAR will do well by being a watch dog to make sure it doesn't make it into any other bill. The Seller already pays taxes on proceeds if they exceed capital gains limits. Applying a transaction tax on ALL Sellers may discourage them from bringing their homes to market in the first place. Reduced profit is a disincentive in a housing market that is just now getting back on its feet. Whatever your beliefs, housing and construction remain a significant economic engine.
Mortgage lenders have a plethora of new rules to contend with, but for now, that is their discussion. Like the NAR, they have their own battalions of lobbyists. The majority of Dodd-Frank must be preserved. Non-homeowners deserve to be protected as much as homeowners do.
The Economist quoted Jonathan Macey, a professor of corporate law at Yale Law School: “Laws classically provide people with rules. Dodd-Frank is not directed at people. It is an outline directed at bureaucrats and it instructs them to make still more regulations and to create more bureaucracies. Like the Hydra of Greek myth, Dodd-Frank can grow new heads as needed.”
Yes, Dodd-Frank is a behemoth of bureaucracy, unnecessarily messy and unwieldy. But given the obstructionism of the last two years, we need new heads. Of course, this entire argument can be made moot by taking one sensible action: Reinstate the Glass-Steagall Act largely gelded by the Clinton administration in 1999.
And so, you see, no matter what side of the political divide you are on, we can all be victims of irrational exuberance.
