There is an excellent piece by Gary Rivlin in The Nation entitled How Wall Street Defanged Dodd-Frank. It is truly appalling reading. Rivlin's take is that, despite criticism on the Left, many parts of Dodd-Frank were serious and important steps towards reform of the financial system, at least if they were allowed to take effect as intended. But that is a big "if". As Rivlin notes, Wall St. has been mounting a ferocious attack on the bill, trying to weaken its effects as much as possible. More after the squiggle.
Much of the article is concerned with the U.S. Commodity Futures Trading Commission (CFTC).
The CFTC is largely in charge of regulating financial derivatives. Why is it important?
.. no product peddled by Wall Street has proved as lucrative in recent years, especially for the country's most elite firms. Just five banks--Goldman Sachs, JPMorgan Chase, Citicorp, Morgan Stanley and Bank of America--account for more than a 95 percent share of a derivatives market that has been generating an estimated $40 billion to $50 billion in annual revenues.
The profits are large in part because derivatives have been traded on "dark" markets where transactions are private, regulation is light, and pricing is opaque. Dodd-Frank is aiming to undo this by pushing trading of derivatives onto public exchanges.
Besides being profitable, derivatives also had a major role in a series of financial meltdowns, going back to the bankruptcy of Orange County, California, in 1994.
Reducing the systematic risk from derivatives is also a major part of Dodd-Frank.
Rivlin quotes Bart Chilton, a Clinton Administration official now a CTFC Commissioner, who describes the financial industry's strategy as a "full-meal quadrakill deal." The "quadrakill" is a four-part strategy. First, the big financial firms hire armies of lobbyists to try to kill unfavorable legislation before it is passed. If it does pass, phase two is the strategy of getting Congress to de-fund the agencies that implement and enforce it. Phase 3 is deploying industry-paid lawyers to influence the regulatory rule-writing process, which goes on behind the scenes at government agencies. And if all else fails, Phase 4 is taking the government to court to challenge regulations the industry doesn't like. Eugene Scalia (son of Antonin, the Supreme Court justice) is an attorney specializing in this kind of suit.
To accomplish all this the financial industry is deploying tens of millions of dollars and hundreds of high-priced lawyers, lobbyists, PR staff and the like. They are swamping the resources of any progressive groups who are on the other side.
It is working: "Three years after Dodd Frank was passed, only 148 of the 396 rules requiring action by legislators have been finalized, and draft versions have yet to be submitted for half the reminder."
Gary Genstler was appointed by Obama in 2008 to head the CFTC. He had spent eighteen years at Goldman Sachs. But he has turned out to be a surprisingly enthusiastic advocate of reform. Still, he is up against enormous resistance from the industry.
And he points to what happened to his predecessors. Every one of them, going back to the beginning of George W. Bush's administration, is now a lobbyist or working for a financial industry trade association. Two commissioners also resigned before their terms were up to join the other side and work against regulation. The revolving door is in full operation at the CFTC.
Passing Dodd-Frank was an important step, but it is not enough. Seeing it through and getting its intended effects are going to be big ongoing challenges.