The Underrated FinReg Bill

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The Dodd/Frank financial regulation bill that passed the U.S. Senate today isn’t the greatest piece of legislation in human history, but with eighty percent of Americans saying they have little or no confidence in the bill I think it’s fair to say that these measures have become substantially underrated. I also agree with Tim Fernholz that these numbers largely reflect the intersection between complicated issues and a general collapse in public trust. Almost nobody in the public has an informed, detailed opinion about this legislation but everyone’s sick and tired of trusting the powers that be.

That said, I think media elites have also fallen down on the job a bit here. We’ve tended to focus much more on what’s not in the bill than on what is in the bill. What is in the bill is a consumer protection setup that would be considered a major progressive win as a standalone item. What is in the bill is a “resolution authority” that will let future regulators avoid the bailout-or-crisis dynamic that plagued us in 2008. What is in the bill are regulatory tools that even Simon Johnson likes. The bill clarifies lines of regulatory authority and responsibility and should cut down on abusive “competitive regulation.” I don’t think the bill means we’ll never see an asset price bubble or a banking crisis again, but I also don’t think it’s possible to achieve that goal. It should, however, make crises less likely and make cleaning them up easier.

My hope is that we won’t just leave things alone here. There are a lot of loose threads left hanging here regarding, on the one hand, America’s housing policy and on the other hand hand the role of Wall Street in American society. What’s more, this regulatory setup, like all regulatory setups, only works if the regulators want it to work and that only happens if politicians want the regulators to want it to work. So nothing is over.