Mike & Co. —
Congratulations, team. Last night’s narrow win in Iowa provided a big moral victory and took some of the win out of the challenger’s sails. It also means that, for at least several weeks, the Democratic nomination contest will continue apace. And it is likely that Wall Street regulation will likely remain one the campaign’s central issues.
At the heart of this debate is the Dodd-Frank Act (DFA). Public opinion is still influenced in the main by memories of the 2008 financial crisis and the recession that followed, so the candidates’ views on DFA get special attention.
Below, we re-examine these views and try to clear up the misconceptions that make it hard for voters to identify the candidate best able to defend the protections that DFA provides millions of American consumers, investors, and workers.
The assertion that DFA doesn’t do enough to rein in Wall Street has become some sort of progressive shibboleth that as misleading as it is short-sighted and self-defeating.
Polling shows the American public believes strong financial regulation is critically needed (74 percent of Democrats, 56 percent Independents, 46 percent Republicans, 64 percent all voters). Polling has also shown that 66 percent of Americans are either “not very familiar” with or have “never heard of” Dodd-Frank. It is difficult for reasonable dialogue to be conducted in an environment made up of strong support for regulatory reform on one hand and a lack of knowledge of what is in DFA on the other.
Any public debate on DFA is hampered by the complexity of the issues involved. Additionally, there is a perception that it has failed in its objectives. Beyond the fact that the law isn’t even fully implemented, major financial institutions have already begun restructuring in ways that indicate the law is working properly. But how many voters know this?
Has Dodd-Frank Worked?
The Great Recession and the resulting Dodd-Frank Act changed the trajectory of the financial industry. The law isn’t perfect but it is having a stabilizing effect. Some of the biggest firms on Wall Street — MetLife, CitiGroup, General Electric — have shrunk since the law was enacted and as a direct result of its regulations. Those that haven’t shrunk are under even more pressure to break up or reduce their size now than they were before Dodd-Frank.
The candidates are split concerning whether or not DFA is an full and sufficient model for regulating financial markets. While HRC wants to preserve and protect the progress made by DFA while bolstering certain parts of the law, while Sanders considers the law to be well intentioned yet deeply flawed. However, questions should be raised about judging the DFA’s efficacy right now – each candidate is forming an opinion on the act despite the fact that DFA hasn’t even reached maturity yet – only about 70 percent of DFA provisions have been implemented. Beyond the implementation gap is the issue that the results of financial reform cannot be seen overnight. A piece of legislation as large and multifaceted as Dodd-Frank might take a decade to ripen.
Even as the greatest effects of DFA remain to be see, recent events indicate that DFA is working as it was intended to. Any candidate who claims that DFA is in need of major overhaul needs to answer this question: What pressing need is there to overturn a law that has, to this point, largely accomplished its overarching objectives?
2016 Candidates and Dodd-Frank
The candidates in this year’s primaries have given voters two choices: stick with Dodd-Frank and add some tweaks or repeal it/change it fundamentally. There is only one candidate in the former group – HRC. Every other candidate, including Bernie Sanders, intends to greatly change Dodd-Frank, or get rid of it all together, if elected. With that choice in mind, it is necessary to remember how monumental Dodd-Frank was and the political climate that it was passed in – one with a Democratic majority in both houses.
DFA enjoyed widespread support in the years immediately following its passage; Clinton needs to ring the alarm bells that her opponents intend to kill off an effective tool for regulating Wall Street for the sake of trying out unproven strategies that are built more on ideology than policy.
Obviously, most Republican candidates would prefer to do away with Dodd-Frank completely as it is greatly disliked by their biggest supporters. Bernie Sanders proposes something similar to Glass-Steagall, but also wants to create a list of the banks that are “too-big-too-fail” and “break them up.” He outlined his intentions in legislation he proposed to Congress back in May 2015. Bloomberg Politics notes, “Similar to legislation he introduced in previous years, when Democrats controlled the U.S. Senate, the bill has little chance of advancing.”
So voters can decide on strengthening a law that is already working to reign in Wall Street’s risks or abandoning it for either less regulation or poorly aimed regulations. Considering the historical record of these other reform ideas, how can voters be expected to take those suggestions seriously?