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Banking and Finance


You would expect that a publication with a libertarian tilt like The Economist would not look favorably at the Dodd-Frank Wall Street Reform and Consumer Protection Act. They call it Too big not to fail. Being The Economist, the article argues with the facts on its side.

  • Dodd-Frank: 848 pages
  • Federal Reserve Act of 1913: 32 pages
  • Glass-Steagall act: 37 pages
  • Sarbanes Oxley: 66 pages

"The scope and structure of Dodd-Frank are fundamentally different to those of its precursor laws, notes Jonathan Macey of 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."

It's not a matter of more regulation. The focus should be on better regulation. Much of Dodd-Frank is just tacked on because it had the momentum to become law. I'm pretty sure extractive minerals had nothing to do with the financial crisis. But Section 1502 of Dodd-Frank requires public companies to make extensive disclosures on the use of conflict minerals in their supply chain.

There are some good things. An unregulated derivatives market was a bad thing. Although, I'm not sure they are getting the regulations right in the new regulated derivatives market.

The test will be the next financial crisis. I assume one will come. Inevitably there will be an oversupply of capital in some area of investment and investors will run in to trouble. Companies will be in trouble, consumer will be in trouble, and investors will be in trouble. Will Dodd-Frank succeed in reducing that likelihood and reducing the impact? Only time will tell.

For additional commentary on developments in compliance and ethics, visit Compliance Building, a blog hosted by Doug Cornelius.

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