10 year anniversary of the Dodd–Frank Wall Street Reform and Consumer Protection Act

Illustration: Steph Davidson, Getty (5).

---

​On June 10, I attended a Zoom discussion with Representative Barney Frank and Rodge Cohen, moderated by Stephanie Ruhle. The two men discussed the ten-year anniversary of the Dodd-Frank bill. 
 
Representative Frank began by reminiscing on the period around the financial crisis. He noted the difficulty getting large, substantive legislation passed and said, “Congressmen are motivated to vote for risky legislation for two reasons: national interest and support for their president.”
 
In Autumn 2008, according to Frank, Republicans in Congress were willing to support massive funding packages like TARP in order to support Bush. Democrats, Frank argues, were more concerned about the national welfare of the people, and this brought the two parties to the negotiating table. 
 
As legislators began to untangle some of the many problems which had caused the meltdown, one of major problems they found was that tons of overseas money had flooded the banking system (facilitated by technological innovations), and this had allowed U.S. banks to take on huge financial risks without large initial investments. So the most significant goal of Dodd-Frank, according to Frank, was to “reconnect the ability to take investment risks with the legal responsibility to deal with the losses if those risks were not successful.”
 
To this point, Cohen admitted, “Without Dodd-Frank, the financial system would have sunk in the Covid crisis," because the banking system was three times better funded in 2020 than it had been in 2008. 
 
Despite the bill's efficacy, though, much of the legislation passed during the 2008 crisis was extremely unpopular and attributed to the 2010 routing of the Democrat party in the Congressional midterms. Frank, explaining its unpopularity, said “One of the main rules of politics is you don’t get credit for getting things less bad than they could have been.” He said Trump was finding this out the hard way with coronavirus deaths. 
 
Ruhle asked Frank about the complexity of the bill. Frank answered that one of the most interesting things about chairing the Financial Services Committee had been his interactions with financiers, who told him things like, “When you legislate, don’t be too specific. Legislate according to principle, not rules,” as a way to create a backdoor for breaking rules. He explained that once companies get caught breaking the rules, they’ll take advantage of any ambiguity in the law and say, “Show me where it says I can’t do that.” So he sought to make the legislation as specific as possible.
 
Cohen added, “But Dodd-Frank had a theme: the largest organizations need the most regulation.”
 
Ruhle asked about criticisms that Dodd-Frank had killed small banking with regulations, to which Frank responded that other pre-existing rules (like the Anti-Money Laundering Act, the Patriot Act, and the Know-Your-Customers Rule) were responsible for regulating smaller banks. He said, “Raising the deposit limit was something I wanted, but we exempted small banks (holding less than ten billion) from being examined by the CFPB.”
 
Asked about the process of becoming the head of the Financial Services Committee, Frank said, “I didn’t have much expertise to start. I had jurisdiction over housing (which, by the way, if we ever get another Democratic president, I’m sure he will increase housing accessibility across all economic levels), but in other words, I had to go learn a lot. I didn’t know about derivatives. In the U.S. House, one committee did banks, the other did securities. I had to work harder than any other time in my life to learn this stuff. I had my staff and the administration to help, Paulson and Bernanke.”
 
Cohen then criticized the bill, saying, “I do disagree with parts of the Volker rule. The Collins Amendment might not have been a good idea changing leverage ratios. It imposed a lot of obstacles. But, it’s easy to look at little pieces and critique them. Overall, it created a much-improved regulatory system.”
 
Asked by Ruhle if Dodd-Frank tied the hands of the Federal Reserve, Frank replied, “No. We got rid of a 1930s-era rule, which said the Fed could give money to any institution in America if it thought it was a good idea. They had used this to bail out AIG, which received $175 billion dollars, and then started handing out bonuses to their executives. People were outraged. So, we said the Fed could not single out one institution and it couldn’t give money that wouldn't be paid back. Some complain we tied the Feds’ hands too much, but they’ve been extraordinarily creative in the Covid crisis. I really think we protected the Fed. Did the Fed even know what companies were doing with their money? We made sure every Fed dollar spent had to be made public, and for the public, that got rid of suspicions that any hanky panky was going on. I think we allowed for what was needed to be done. This is a democracy, so if extraordinary measures in the future are needed which are not now possible, Congress and the President will need to act. Why should an unelected organization be given complete autonomy to do whatever it wants?”
 
Cohen said he wanted to make a point, “Look, when you’re in a crisis, the correct response is to use overwhelming force. Whether its '08-09 or today, these crises are disproportionately adversely affecting the lower economic strata in this country. There’s a significant element of discrimination involved, but also a complete lack of a safety net. I’m not sure we fully learned that then, and we need to now.”
 
Ruhle replied that everybody can acknowledge that lesson was definitely not learned after 2008 and wonders what will happen in ten months if massive stimulus is offered to companies, while everybody else continues to struggle: “Might we not see people with pitchforks even stronger than in 2011?”
 
Cohen responded, “Yes, if unemployment stays at 10%, yes absolutely.”
 
Frank added, “Crises exacerbate underlying issues in American life. There should have been a fundamental shift in the role of government after 2008. Keynes needed updating. Government as a stimulator of growth as an answer to every economic problem worked after World War II, but by 2008, government money was being shared so unevenly. More should have been done to even it out. They said, ‘A rising tide will lift all boats,’ but if you’re standing on your tiptoes with your neck in water, a rising tide will drown you. When we passed TARP, Representative Maxine Waters and I said, ‘Part of that should go to people who need mortgage relief,’  but Paulson said, ‘No, I need every penny for bailouts. If I get a second package, then I’ll give some for mortgage relief, but only if President-elect Obama says yes.’ When Obama was asked, however, he of course, said, ‘No, we only have one president at a time,’ so nothing was done and nothing helped people. And by the time President Obama was inaugurated, the political system had hardened. We had an interregnum of leadership between the election and the inauguration, and the losers were the people who needed help with their mortgages.”
 
Ruhle commented, “And unless the rules of capitalism are modified, and regulatory changes force companies to address things like worker vs CEO pay or controls on how tax relief is spent, they’re going to do what they’re hired to do, which is profit optimization.”
 
Frank agreed, “Look at the Wagner Act. If we want to understand the American economy as it exists today, the decimation of unions for workers in private companies is incredibly important. Labor recruiting created a popular basis for democracy. We need to change our laws so it’s easier to form unions. I tell my friends, it’s time to get serious, boycott companies without unions, and insist workers get their rights and unions. We need a massive boycott. Republicans are ideologically opposed to it.”
 
Ruhle: “What about getting rid of police unions?”
 
Frank: “Private unions are really important for the economic big picture. Police unions protect officers who legally shouldn’t be protected, but its private sector unions here that are economically important and important for democracy.”
 
Cohen: “Right now, we are seeing a recognition amongst business leaders that things need to change. But if this is a passing phase, the pitchforks will come out and populist regulation will be passed which will seriously constrain profit making ability.”
 
Ruhle: “And anyway, isn’t that just philanthropy? Without regulation, there’s nothing assuring companies will continue to help foster change.”
 
Cohen: “Fair, but economically, this is a question about reforming the system vs. abandoning it. It’s not like racial discrimination, which needs to be rooted out completely.”