In 2010 politicians enacted the Dodd-Frank Act, boldly proclaiming that it would “put a stop to taxpayer bailouts once and for all.” In truth, the bill was an enormous, cumbersome mess, and we could go on and on about why it’s weaksauce, which we’ve done here.
However, at the very least, the Dodd-Frank Act did make some effort to rein in derivatives and other risky activities that the megabanks were involved in leading up to the crisis. These efforts undoubtably were steps in the right direction. The bill, to its credit, also created “living wills,” which might help in the case that one megabank goes into bankruptcy—though there is still cause to worry about a handful of megabanks going under at once, as was the case in 2008.
So Dodd-Frank, while being mostly toothless, wasn’t all bad. (We might say, being generous, that it had about as many teeth as Gollum.)
And yet bank regulators have been hard at work since the bill passed in 2010 diluting and dismantling it.An article from The Nation, “How Wall Street Defanged Dodd-Frank,” details all the ways that this is happening. Here’s one telling snippet:
In the months leading up to Dodd-Frank’s passage, the big story was the staggering sums of money being spent by the industry to defeat the bill—more than $1 billion on lobbying alone, according to one estimate. Yet, incredibly, the financial sector dramatically increased its spending after Dodd-Frank was signed. Whereas commercial banks such as Wells Fargo, Citigroup and JPMorgan Chase, along with their trade groups, spent $55 million lobbying in 2010 (the year Dodd-Frank became law), they would collectively spend $61 million in 2011 and again in 2012, according to OpenSecrets.org.
The article also shows that the top 5 Wall Street banks have had 901 lobbyist meetings with regulatory agencies since July 2010 while the top 5 consumer protection groups have had only 116:
When an industry gets nearly nine times as many meetings with regulators as groups who oppose the industry, you can guarantee that regulators aren’t considering both sides of the issue equally.
It’s no wonder, then, that the teeth in the bill are being pulled one by one.
As a result, the Brown-Vitter Act has surfaced. This new bill aspires to force banks to be far less reliant on debt (as we explain in our last post). Unsurprisingly, in response to such a relatively simple and stringent bill—one that would be far harder for the big banks to game—Wall Street has suddenly come out quite in favor of keeping the status quo, including Dodd-Frank. You can see a few of their lobbyist-inspired op-eds and studies here, here, here, and here—all of which essentially call the bill radical in one way or another and say that Dodd-Frank already does enough to rein in the megabanks, no need to do any more, thanks.
But there is need to do more.. And to that end we support Brown-Vitter as a “Banking Overhaul With Possible Teeth,” as ProPublica’s Jesse Eisinger calls it.
If you want to know more about why you should support Brown-Vitter, too, read Matt Taibbi’s article from today explaining the basics behind the bill, and see Martin Wolf’s review of The Bankers’ New Clothes to get a sense of why raising equity requirements matters. Activists for Wall Street reform are up a fat army of bank lobbyists, as detailed above, which means that our only hope is an organized, focused, and informed public that will be loud in demanding change.