This explanation correlates with economist and co-author of 13 Bankers Simon Johnson's assessment that intense debate over banking does not end with the signing of this bill. Now attention turns to whether regulators will push for more rules with tough language that can fit into the framework of the legislation.
I asked Perlow to explain what the enforcement mechanisms in the bill were. He explained how much of the bill will be implemented and enforced:
"The majority of the provisions of the Dodd-Frank Act are to be implemented and enforced by regulators that have been given strong and enhanced enforcement powers. So, derivatives, for instance, will be regulated by the Commodity Futures Trading Commission (CFTC) and the Securities & Exchange Commission (SEC), both of which already have strong enforcement programs, both of which have activist chairman who pushed strong enforcement actions and both of which have received enhanced enforcement power and larger budgets to hire more personnel under the Dodd-Frank Act. So, I believe both the SEC and the CFTC will be very vigilant watchdogs in enforcing the provisions under their purview the hedge fund rules, the derivatives rules, the credit rating agency rules, the securitization rules."
Perlow contended that the new consumer financial protection bureau would also have strong enforcement powers. He said that banks with more than 10 billion dollars would be subject to the agency's examinations.
"There will be a staff of examiners whose job it is to go on the premises and examine the consumer protection safeguards in compliance with the law that banks have on their products and services that they provide to consumers," explained Perlow. "And, if they find anything that is in violation of the law, they'll bring an enforcement action against them."
Finally, according to Perlow, "the industry believes that this is an agency that will have a lot of teeth." Although, for Perlow, he said it will not "touch investment products mutual funds, hedge funds, brokerage accounts" so it would appear the agency will mean little to many of the clients Perlow represents.
Currently, a battle over who will run the consumer protection bureau is playing out. The most popular candidate for the position is Elizabeth Warren, who developed the idea for the bureau and she served as the chair of the Congressional Oversight Panel that was created to investigate and monitor how banks were handling the bailouts given to them under the Troubled Assets Relief Program (TARP). But, banks with the help of Timothy Geithner are working to create doubt that Warren is the right candidate for the position.
Perlow concluded:
"This is a strong consumer protection law with a lot of teeth. It doesn't cover every area that it could have covered. But, something unusual happened with this law that doesn't normally happen, which is that laws this big that affect the financial industry usually as they make their way through Congress usually become more friendly to the industry as time goes by, as the legislative process works. Usually as the legislators meet with lobbyists, they start to accommodate more to the industry's views.
The reverse process happened in this bill. The longer that Congress considered it, the more time that it spent being deliberated on, the stronger and tougher the bill got, which I believe reflects both Congress' substantive desire to come up with a strong bill as well as the general popular sentiment toward the financial industry."
Dean Baker, Paul Krugman, Robert Reich, Nouriel Roubini, Joseph Stiglitz and other economists who track the economy and who actually in many cases predicted the economic collapse of 2008 all find the reform legislation to be lacking. They probably would disagree with Perlow's conclusion. However, if investment management advisors are finding they have to advise clients in the financial industry to shift their operations significantly in order to comply with the new law, I suppose that's a positive indication that this bill actually does something.
In the end, it depends on what you think the goal of the legislation should have been. If the goal was to ensure another financial collapse never occurs, well, then there's much more that could have been done (like, for example, re-instituting the Glass-Steagall Act). But, if it was to shake up the industry and force entities in the financial industry to follow a new set of procedures and rules that could potentially give more security to consumers in this country, than, as evidenced by Perlow, this bill succeeds.
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