Ex-SEC Commissioner On Dodd-Frank: 'This Is Not A Recipe For Strong Regulation'

Senate Banking Committee Chairman Christopher Dodd, D-Conn., left, and House Financial Services Committee Chairman Barney Frank, D-Mass. take their seats in the East Room of the White House in Washington, Friday, Oct. 9, 2009, prior to President Barack Obama delivering remarks on regulatory reform. (AP)

Dodd-Frank isn't stopping this baby from going under once again.

That's according to at least one former commissioner of the Securities and Exchange Commission. Roberta Karmel told Bloomberg Law on Tuesday that Dodd-Frank financial reform isn't strong enough to stop another financial crisis.

"This is not a recipe for strong regulation," said Karmel, who is now a professor at Brooklyn Law School. "We not only did nothing to change the balkanization of the regulatory system; we actually made it a little bit worse by creating FSOC [the Financial Stability Oversight Council]."

The FSOC was created under Dodd-Frank to monitor the stability of the nation's financial system. Karmel said that the council's creation actually worsens divisions within the regulatory system, but it also has inspired criticism from Republican and Democratic Congressmen alike, who claim the council lacks specificity when discussing which banks it will deem too big to fail, according to the Wall Street Journal.

Karmel said that the Dodd-Frank Act "has improved some financial regulation, but it did not work any real structural change either in the regulatory system or in the financial system."

"What we've moved away from is holding people responsible for business failure," she added.

Karmel said in a separate interview with Barron's earlier this month that the government should break up the big banks rather than try to better regulate them.

"We have to eliminate the problem that comes along with too-big-to-fail: that of socializing losses and privatizing profits," Karmel told Barron's. "Such a system is antithetical to any notion of the capitalist ideal."

Some critics say that the Dodd-Frank Act, signed into law by President Obama in 2010, is unlikely to enact tangible change within the financial industry. Former Federal Reserve chairman Paul Volcker, the inspiration behind a rule to prevent banks from making risky bets with their own money, said in September that Dodd-Frank is "nowhere near what we need."

The question of too-big-to-fail banks, he said, has "not yet been convincingly settled."

Yet the financial industry continues with attempts to weaken Dodd-Frank, last year spending more than $150 million on lobbying, the second consecutive year it's spent at least that sum. They've also shifted focus on to the regulators themselves. Some banks have made strained arguments to claim that the Volcker rule would hurt the economy -- criticism that Treasury Secretary Tim Geithner recently dismissed as false.

Comments

[Siebenstein]

10:06 PM on 03/13/2012

Indeed it isn't. It is a lock with a huge opening to slip through, if you know what I mean.

[muck-raker]

07:54 AM on 02/24/2012

I DEMAND that the Glass-Steagal ACT be reinstalled which protected Americans from the evil Banks for generations
Today real Americans should demand that the people that caused the collapse of Wall Street and real estate be JAILED..lets start with:
DODD, FRANK, LEVITT, SUMMERS, RUBIN, GREENSPAN, BLANKFEIN,DIMON, just do it

[Siebenstein]

10:07 PM on 03/13/2012

Agreed !

[Donatella]

05:54 PM on 02/23/2012

What can you expect from legislation drafted by Dodd. He said he'd never be a lobbist and is now an aggressive lobbist for the entertainment industry. All politicians lie.

[jantomnidrah]

04:19 PM on 02/23/2012

Frank and Dodd screwed it up now it is time for them to get out before they create another big mess. How hard headed are we to put up with them again?

[ran6110]

12:22 PM on 02/23/2012

Of course it's not strong regulation!

The politicians (either party) only want the appearance of regulation so they can give the process a 'butch' name to convince the people not pay attention that something is actually being done.

[Dogvane]

11:01 AM on 02/23/2012

Any government act with Dodd's name attached to it is bound to be ineffectual.

[shewolf2002]

09:38 AM on 02/23/2012

Of course Dodd-Frank is weak; it was designed to be.
It's the logical outcome of GOP Congressman Darrell Issa's strategy - as Chair of the House Oversight and Government Reform Committee, Issa hired (yes PAID, at taxpayer expense) former Goldman Sachs VP Peter Simonyi (who conveniently changed his name to Peter Haller just before coming to work for Issa) to "help" write the rules on Dodd-Frank.
The GOP hires foxes to guard the henhouse, then complains about the number of chickens disappearing on Obama's watch.

[MrSavage]

07:15 PM on 02/23/2012

Goldman Sachs is one of the biggest contributers to both Obama and Romney. Geithner is a former GS guy. Current and former GS folks are practically tripping over themselves coming and going from the White House just as they were under Bush. This isn't an R or D issue.

[shewolf2002]

08:59 PM on 02/23/2012

Agreed. Dylan Ratigan has it right - we need to get big money the hell OUT of politics!

[Scurvydog74]

08:47 AM on 02/23/2012

Who writes the laws that define the regulations in this country? Oh, gosh, that's right - the people being regulated write the rules. That makes it really difficult to have any rules that protect anyone besides them. Throw it out and start over and make these two lame-duck congressmen write the law themselves without " industry" input.

[jannas2cents]

08:38 AM on 02/23/2012

I love the way Karmel summarizes the shortcomings of Dodd-Frank: "It socializes losses and privatizes profits" -- and how like Big Banks to want that, and how like our Do Nothing congress to allow them to do it. Big Banks (along with insurance companies and investment/securities companies) want no part of being regulated and seek to "do their own thing" in conducting high risk imprudent banking practices -- as long as it's profitable. But when they're losing too much money (through their reckless, imprudent banking practices) they expect to be bailed out by the taxpayers because "they're too big to fail". Dodd-Frank will do far too little far too late. As taxpayers, we DO NOT owe it to banks to continue to bail them out when they fail, anymore than banks feel any obligation to bail out distressed homeowners when they're on the verge of foreclosure -- then the banks want only to operate in private and foreclose on the taxpayers who in essence funded their bailout. The only way to prevent the banks from repeatedly causing our country to endure such catastrophic financial collapses is to REPEAL the Gramm-Leach-Bliley Act of 1999 and reinstate the Glass-Steagall Act of 1933. If we are to be a country "of the people, for the people and by the people", we the people must take charge and pressure congress into doing what is best for the people of this country and not what is best for Big Banks.

[muck-raker]

07:57 AM on 02/23/2012

Wall Street Will Be Back for More

By Chris Hedges

Corporations, which control levers of power in government and finance, promote and empower the psychologically maimed. Those who lack the capacity for empathy and who embrace goals of the corporation—personal power and wealth—as the highest good succeed. Those who possess moral autonomy and individuality do not. And these corporate heads, isolated from mass of Americans by insular corporate structures and vast personal fortunes, are no more attuned to the misery, rage and pain they cause than were the courtiers and perfumed fops who populated Versailles on eve of the French Revolution. They play their games of high finance as if the rest of us do not exist. And it is a game that will kill us.

These companies exist in a pathological world where identity and personal worth are determined solely by the perverted code of the corporation. The corporation decides who has value and who does not, who advances and who is left behind. It rewards the most compliant, craven and manipulative, and discards the losers who can’t play the game, those who do not accumulate wealth or status fast enough, or who fail to fully subsume their individuality into the corporate collective. It dominates the internal and external lives of its employees, leaving them without time for family or solitude—without time for self-reflection—and drives them into a state of perpetual nervous exhaustion.
more:http://www.truthdig.com/report/item/wall_street_will_be_back_for_more_20100110/

[DannyMcDance]

08:44 AM on 02/23/2012

Stupidity, from someone who obviously has a detached outsiders view and no real world experience whatsoever.

[muck-raker]

10:22 AM on 02/23/2012

Mr. Hedges is recognized as a celebrated World journalist..I am not sure where you are going. are you saying that our Govt. is not bought by the Corporations? /because of campaign donations(bribes) we now have 5 Repub in the Prez cabinet and Fed. here is the list and its easy to see that the Bankers bought themselves people that will look out for their interests.
http://www.opensecrets.org/orgs/list.php?order=A

[nkurland]

07:24 AM on 02/23/2012

If Dodd-Frank were simply a weak piece of financial reform, that would be bad enough. But the very design of the law virtually ensures its going to get weaker- and it already has.

When Congress passed Dodd-Frank, regulators had already met with lobbyists from the financial sector over 700 times compared with 28 for a group like Americans for financial reform. At their behest, they inserted a couple of poison pills, among them some 70 studies to be commissioned on proposed rules and leaving the rulemaking and finalizing process entirely to the regulators.

Its been 18 months since the passage of the law. The Durbin amendment on swipe fees has been weakened. Key provisions like the Volcker rule or position limits have been diluted so as to render them virtually meaningless.

The banks new exactly what they were doing when Dodd-Frank was being written. Hinder and obstruct the implementation of the law BY DESIGN so even the most meager restrictions on their activity would never see the light of day.

[George Broadway]

08:00 AM on 02/23/2012

Well, they paid good money for the government they bought...

[jannas2cents]

08:43 AM on 02/23/2012

And it's the WORST GOVERNMENT money can buy.

[Labor Party]

06:59 AM on 02/23/2012

Only 28 Democrats supported the Brown Kaufman Amendment to break up Big Banks. (only 2 Republicans supported it)

EVERY SINGLE CONGRESS PERSON (Outside that 28+2) MUST BE HELD RESPONSIBLE. (which appears to be nearly the ENTIRE GOP/TP) The Dodd-Frank Act does not go far enough because, CONGRESS DID NOT ALLOW IT!

CALL CONGRESS TODAY TO TELL THEM WE WILL NOT BAIL OUT WALL STREET!

[Labor Party]

07:18 AM on 02/23/2012

Some sources put this at 30 Dems and three Republicans. Here are the Democrats who would NOT support breaking up big banks.

Akaka (D-HI)
Baucus (D-MT)
Bayh (D-IN)
Bennet (D-CO)
Carper (D-DE)
Conrad (D-ND)
Dodd (D-CT)
Feinstein (D-CA)
Gillibrand (D-NY)
Hagan (D-NC)
Inouye (D-HI)
Johnson (D-SD)
Kerry (D-MA)
Klobuchar (D-MN)
Kohl (D-WI)
Landrieu (D-LA)
Lautenberg (D-NJ)
McCaskill (D-MO)
Menendez (D-NJ)
Nelson (D-FL)
Nelson (D-NE)
Reed (D-RI)
Schumer (D-NY)
Shaheen (D-NH)
Tester (D-MT)
Udall (D-CO)

Warner (D-VA)

http://www.huffingtonpost.com/2010/05/06/senate-votes-for-wall-str_n_567063.html

[njterry7]

06:02 AM on 02/23/2012

Dodd- Frank, with politians like these two , we don't need enemies. both should be locked up indefinately

[Labor Party]

07:01 AM on 02/23/2012

Along with the ENTIRE GOP/TP CONGRESS!

[bichn]

01:32 AM on 02/23/2012

Lobbying pays. The financial industry spent $1.3 billion in 2009 and the first three months of 2010 lobbying to kill reform and have spent at least as much since it passed to fight its implementation.

We now have the weakest financial reform money could buy.

[luv2livzen]

04:49 AM on 02/23/2012

The GOP is still watering regulations down.

[bichn]

05:00 AM on 02/23/2012

They are also campaigning on actually gutting regulations. They have no soul.

[George Garros]

01:06 AM on 02/23/2012

Huffington Post: And to help you visualize SEC regulation, we've included this stock photo of a stove-top for no apparent reason...

[George Broadway]

08:01 AM on 02/23/2012

No no no, there was a reason, albeit a crappy metaphor of a bad "recipe" which apparently requires an oven but no pots or pans.