Championship Subdivision Football | FCS Football | Stadiums | Blogs | Forums

Wall Street's lawfare strategy against regulation
After lobbying Congress to weaken the Dodd-Frank financial reforms, big banks are delivering the coup de grace by litigation

By Heidi Moore

Last week, in a Washington, DC courtroom, a whole bunch of powerful people gathered with a common purpose: to try to kill the Dodd-Frank financial reform act.

That quest may seem a bit overdone, given the already weakened state of the attempt at financial regulation – like taking a hammer to a housefly.

Still, a phalanx of injured parties – 11 states, two groups dedicated to conservative economic agendas and one Texas state bank – argued that Dodd-Frank is unconstitutional.

Their complaints all center around the part of Dodd-Frank that wants to solve the problem of "too big to fail" by allowing regulators to manage the bankruptcy of big banks. The idea of this affront to capitalism makes the people behind the lawsuit sputter – in a way that, strangely, they never do at the prospect of the government having to step in and save banks with multibillion-dollar bailouts. Among their complaints is that: the law forces banks to bow to the authority of the US Treasury ; it interferes with state securities regulators; and it imposes high costs of complying with the law on small banks, as well as the larger ones that can afford it.

The lawsuit also argued that banks should, in effect, be allowed to remain too big to fail because it is unconstitutional to give the US Treasury the power to wind them down : it argues that Dodd-Frank "empowers the Treasury Secretary to order the liquidation of a financial company with little or no advance warning, under cover of mandatory secrecy, and without either useful statutory guidance or meaningful legislative, executive or judicial oversight."

The depth of the outrage from Wall Street and its legislative nursemaids is amusing sometimes, in that it is entirely out of scale with the weakness and uselessness of the law they're attacking.

In joining the lawsuit, the state of Georgia exaggeratedly denounced the law – as mortifying a stab at regulation as ever existed – as "the federal takeover of the financial industry". Or consider this:

"The law's Title II gives the Treasury secretary and the Federal Deposit Insurance Corp unprecedented authority to 'liquidate' financial companies. This grants immense power to a handful of unelected federal bureaucrats, empowering them to pick winners and losers among a liquidated company's investors."

It's not really clear why elections matter here, when deciding how to save the financial system from destruction. It's entirely perplexing why "unelected federal bureaucrats" at the Treasury and FDIC – who, by the way, helped save the financial industry from itself in 2009 – are any worse than unelected traders or unelected bank executives. Maybe, it's related to the fact that federal bureaucrats who aren't elected also don't need to take campaign donations to get elected, and thus are beyond the reach of the financial industry's greenback seductions.

Spoiler: show

Ivy...you're welcome!

GannonFan wrote:Gee, could you pick a more slanted editorial? Even without the smilies there were enough jabs in there to eliminate any sense of objectivity.

It would be interesting to have a serious article that actually debated or looked at the Dodd-Frank bill with some amount of objectivity. This article, as weak as it is in that regards, does bring up the idea that the federal government will be able to, case by case, determine the bankruptcy procedures and how funds get paid out and to whom during a liquidation, and that the decision to liquidate is not spelled out in detail to understand when it happens and who decides when it happens. It's kinda like the argument some people had during the GM bailouts in that normally accepted orders of priority in terms of who got paid first were ignored and the government did pick who won and who lost. The question of whether that happened or not is not a question - it did happen - so the real question is what impact does that have on the investing climate going forward. You can certainly make an argument that introducing that level of uncertainty in how/when/why a liquidation occurs will make people skittish. It's fine to say we're a consumer economy and the only thing that matters is that people buy things, but to ignore the impact on investing on the overally economy is not a particularly wise choice, and we have the evidence of the slow motion recovery we're in now to prove that.

The article is right - Dodd Frank is a weak and useless piece of law. But that doesn't mean that it can't do harm either. We should've done it right when it was written, but it was clear at the time that there wasn't a lot of good understanding on how these things work by those who were writing the bill in haste. No regulation and badly conceived/implemented regulation are not really any different from each other - they both fail the taxpayers in the end.

kalm wrote:

GannonFan wrote:Gee, could you pick a more slanted editorial? Even without the smilies there were enough jabs in there to eliminate any sense of objectivity.

It would be interesting to have a serious article that actually debated or looked at the Dodd-Frank bill with some amount of objectivity. This article, as weak as it is in that regards, does bring up the idea that the federal government will be able to, case by case, determine the bankruptcy procedures and how funds get paid out and to whom during a liquidation, and that the decision to liquidate is not spelled out in detail to understand when it happens and who decides when it happens. It's kinda like the argument some people had during the GM bailouts in that normally accepted orders of priority in terms of who got paid first were ignored and the government did pick who won and who lost. The question of whether that happened or not is not a question - it did happen - so the real question is what impact does that have on the investing climate going forward. You can certainly make an argument that introducing that level of uncertainty in how/when/why a liquidation occurs will make people skittish. It's fine to say we're a consumer economy and the only thing that matters is that people buy things, but to ignore the impact on investing on the overally economy is not a particularly wise choice, and we have the evidence of the slow motion recovery we're in now to prove that.

The article is right - Dodd Frank is a weak and useless piece of law. But that doesn't mean that it can't do harm either. We should've done it right when it was written, but it was clear at the time that there wasn't a lot of good understanding on how these things work by those who were writing the bill in haste. No regulation and badly conceived/implemented regulation are not really any different from each other - they both fail the taxpayers in the end.

Yes I could find a more slanted editorial. Probably could find one on the editorial page of the WSJ or definitely at Heritage or the AEI. If you can't see the irony behind the "free marketeers" own words I might not be able to help you.

But you do raise some good points in your the other two paragraphs...once you've settled down.

GannonFan wrote:

kalm wrote:
Yes I could find a more slanted editorial. Probably could find one on the editorial page of the WSJ or definitely at Heritage or the AEI. If you can't see the irony behind the "free marketeers" own words I might not be able to help you.

But you do raise some good points in your the other two paragraphs...once you've settled down.

Super, you can find slanted, often misleading editorials in many places. Good for you. But at the end of the day, it still doesn't help. Not all regulation is good. And if you're still reading after that comment, zero regulation isn't good either. Pulling editorials from sources that truly believe all regulation is either fully good or fully bad reeks of partisanship. But it doesn't fix the discussion we should be having on whether the regulations we have are properly positioned or even properly implemented. That's the kind of discussion that should be happening after the snarky parisanship barbs are done - although it seems we have trouble getting past that.

"Gee, can you find a more slanted article..."

"I wish we could move past the snarky partisanship jabs"

It's entirely perplexing why "unelected federal bureaucrats" at the Treasury and FDIC – who, by the way, helped save the financial industry from itself in 2009 – are any worse than unelected traders or unelected bank executives. Maybe, it's related to the fact that federal bureaucrats who aren't elected also don't need to take campaign donations to get elected, and thus are beyond the reach of the financial industry's greenback seductions.