Just before Christmas, I received David Skeel’s The New Financial Deal from Wiley. I read it in two days and then adopted it for my financial derivatives seminar.
Like many people, I anticipate spending a good chunk of time on Dodd-Frank this year, and was contemplating what I might assign that got the substance of the law across, but was also interesting and conveyed the political and economic climate that lead to the legislation. The New Financial Deal fit the bill.
Skeel is overall critical of the legislation, though not completely pessimistic. He sees some positive elements in the new law and believes that Dodd-Frank’s worst elements could be ameliorated with some relatively simple reforms. But Skeel identifies two themes that he believes emerge from the law that are quite dangerous: (1) government partnership with the largest financial institutions and (2) ad hoc interventions by regulators rather than a more predictable rules-based response to crises.
Skeel discusses the crisis, gives a brief history of the many incarnations of the law that eventually became Dodd-Frank, and recounts some of the debates surrounding major provisions. He then roughly categorizes the reforms as relating to one of the following, describing the important reform elements in each category:
(a) Derivatives, especially clearinghouse and exchange-trading requirements
(b) Banking, including the Financial Stability Oversight Council, systemically important non-banks, and the Volcker Rule
(c) Consumer Protection, and
(d) Resolution authority, including a discussion of bankruptcy and bailouts
I think that Skeel’s account is consistent with my own initial reactions to Dodd-Frank (see here and here), which I’m now developing more fully. But Skeel’s primary focus is what he refers to as the corporatist leanings of the Obama administration and, in particular, those in the administration closely tied to the 2008 bailouts, such as Tim Geithner. My goal, instead, is to look more closely at the legislative process and the congressional incentives to produce what I conclude is, ultimately, an overly lengthy and complex statute that accomplishes less than it advertises and punts the bulk of meaningful issues to regulators.
I will be back with more about these points in the coming months.
You can read a sample chapter and table of contents from Wiley’s website.
Robert Teitelman also has a nice and informative review over at the Huffington Post.
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