Tags: Lew | Dodd-Frank | reform | Bair

Secretary Lew Updates Dodd-Frank 'Limplementation'

By    |   Thursday, 12 December 2013 09:22 AM

Treasury Secretary Jack Lew delivered a major speech Dec. 5 before an audience in Washington at the Pew Charitable Trusts on the status of the implementation of highly touted rules under the Dodd-Frank Act of 2010 that are supposed to strengthen banking regulation so that the next episode of the ongoing financial crisis might not be as damaging as past episodes, such as the one that occurred in 2008.

Lew was introduced by Sheila Bair, former chairman of the FDIC who now heads a private group with an official-sounding name called the Systemic Risk Council, which is jointly sponsored by Pew and the CFA Institute.

It is a reasonable conjecture that Lew's speech was prompted by an exchange he had with Sen. Elizabeth Warren, D-Mass., in which Warren suggested that legislation might be needed to fix flaws in Dodd-Frank, and she asked Lew how long the Senate should wait for Lew to be able to say with a straight face that the policy of "too big to fail" has ended. Lew responded that it would happen by the end of the year.

This speech appears to be the deliverable that Lew promised, and in her introduction, Bair sought to bolster the defense against amending Dodd-Frank by charging preemptively that any legislation would be likely to weaken Dodd-Frank. She should know this is patently false with respect to at least three members of the Senate Banking Committee — Warren and Sens. Sherrod Brown, D-Ohio, and David Vitter, R-La. The latter two senators have co-sponsored legislation intended to raise capital standards for the biggest banks, with the stated purpose of ending too big to fail.

Most of the speech consists of a tedious recitation of the trope about how the financial crisis came about as a shock that no one could have foreseen, but now, thanks to Dodd-Frank, the authorities have new tools to deal with sources of systemic risk within the "shadow" banks.

Obama administrators are fond of using the phrase "let me be clear," as if it gives additional force to their remarks, and Lew did this countless times. He concluded that the job of putting in place the needed reforms "will never be finished," and the administration "will not hesitate" to take the necessary steps to prevent the next crisis from bringing about another Great Depression.

The problem with all this is that, first, the basic narrative is diabolically wrong. Not only did others see the crisis coming — I warned the administration directly in 1981 that it was already underway — but sometimes it seems that the only people who didn't see the crisis when it was right in from of them were the commissars and geniuses at the Treasury and Fed.

Worse still, the crisis was in fact caused by the actions and failures of the Treasury and Fed in order to postpone reckoning with the fact that the business model of the banking industry has been broken for many decades.

So now the authorities have all these new powers as a cover for the fact that they didn't use the power they already had. So when Lew says the process of implementing reforms will never be finished, the question remains, when will it start?

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Treasury Secretary Jack Lew delivered a speech Dec. 5 before an audience at the Pew Charitable Trusts on the status of the implementation of highly touted rules under the Dodd-Frank Act of 2010.
Thursday, 12 December 2013 09:22 AM
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