The Affordable Care Act turns one year old tomorrow. The biggest impact of that will be that the Consumer Financial Protection Bureau will go into operation at the Federal Reserve. But it’s also a good opportunity to assess the law.
Clearly, implementation has been an ordeal where the finance lobby tries to win among regulators what it could not win among members of Congress. And in many areas, the lobbyists have succeeded. They have delayed implementation or softened it on a variety of fronts, including swipe fees, derivatives trading and commodity speculation. They’ve also been aided by a bank-friendly Republican Party who has come into control in the House. While they have pushed repeal of Dodd-Frank or many of its key functions, behind the scenes, their denial of funding for implementation has had a much broader impact. Senate obstruction on confirming any of the many key financial officers whose posts are currently vacant has played a role as well.
The public senses that Republicans are more aligned with protecting Wall Street. But it’s really been lobbyists able to win over the Administration’s regulatory apparatus that has had the greatest impact to this point, in tandem with defunding efforts. The struggles of Gary Gensler at the Commodity Futures Trading Commission is typical.
Republicans in Congress have moved to cut the CFTC’s budget, curb its power and request time-consuming analyses for every proposal. Some commissioners are irked by Mr. Gensler’s aggressive approach. And crucial parts of the $600 trillion global market for derivatives, which many observers believe played a central role in the financial crisis, remain free of new regulations, partly because the CFTC has missed deadlines.
At a meeting Monday of the new Financial Stability Oversight Council set up by last year’s law, Mr. Gensler warned that the financial system still is largely at risk, saying, “until the CFTC completes its rule-writing process and implements and enforces these new rules, the public remains unprotected.”
And supporters are up in arms at the lack of progress. “Right now we have the Wild West,” said Michael Greenberger, a former CFTC official who teaches law at the University of Maryland. “We have no governance at all in this market.” He thinks it will be five years before all derivatives are fully brought into the new regulatory structure.
Of all the regulators, Gensler perhaps deserves the least criticism. And yet even his agency has not been able to overcome the hurdles of implementation.
As a result, Dodd-Frank has been nothing more than a speed bump for the financial industry, which continues to enjoy record profits (Bank of America aside; most of the loss comes from their Countrywide RMBS settlement). Former Senator Ted Kaufman, who voted for Dodd-Frank, told the LA Times, “Name me one significant thing that Dodd-Frank has done to alter the behavior of these banks. There isn’t one.” Indeed, the fluttering economy has been more of an impediment than regulations, and for the banks, they’ve done just fine.
The public still supports financial reform. But public desires are rarely reflected in action these days. The banks still own the place, and Dodd-Frank didn’t offer fundamental reform even if it was implemented perfectly, without resistance. Much of the law has yet to be written, and there’s still hope that it can provide a bulwark against excessive risk-taking. But so far, the banks have been able to bottle up whatever would constrain them in Dodd-Frank, and they haven’t missed a beat.