Letters

On the Dodd-Frank act and regulation in America, gays in the workplace, cowboys

In defence of Dodd-Frank

SIR – As America and the world struggled to recover from an historic economic crisis, Barney Frank and I were not concerned about the page length of our proposal or about more work for financial regulators. We were, however, concerned about the millions of Americans who lost their jobs, the $648 billion of lost income for American households, the millions of Americans who are still losing their homes, and the trillions of taxpayer dollars required to prevent a global meltdown.

Your analysis of the implementation of the Dodd-Frank act (“Too big not to fail”, February 18th) irresponsibly ignores that history. This is not 1864 or 1913, and a simple solution would not have fixed the myriad problems that led to this crisis.

A comprehensive overhaul of our regulatory structure was required to keep up with a 21st century global financial marketplace. To limit our response to 30 or 40 pages would have made easier reading, but that would have been the height of irresponsibility. You suggest that we would instead be better off repealing Dodd-Frank, returning to a world where taxpayers bail out failing financial firms, predatory lenders and unscrupulous brokers prey on vulnerable homeowners, the public absorbs losses because of Wall Street's risky behaviour, and regulators are left in the dark, unable to prevent another global financial meltdown.

Over the past two years critics of Dodd-Frank have had ample opportunity to craft changes to the legislation. Instead, they tried to kill it. Now, as its implementation begins, those critics have the choice of working with regulators to make the system safer, or simply to roll back sensible reforms, such as the creation of an agency to protect consumers from the kind of abusive practices that spawned this crisis in the first place.

Christopher Dodd
Former senator for Connecticut
Washington, DC

SIR – Does The Economist seriously contend that the grave, systematic and repeated errors of the ratings agencies were irrelevant to the causes of the financial crisis? Simply repeating the claims of a few in the industry, who fear that we are moving away from the disastrous era of light-touch regulation, falls short of the independent analysis that your readers have a right to expect.

Barney Frank
Former chairman of the House Financial Services Committee
Washington, DC

SIR – You took special aim at the Volcker rule, which was drafted by Senator Carl Levin and myself and places a firewall between hedge-fund style investing and the deposit-taking, loan-making banking that families and businesses rely on for credit. This is simple common sense. We wrote the provision because when high-risk investing blows up, it should vaporise only the funds of investors, not the credit essential for a strong economy.

However, while your general critique of the Volcker rule is misplaced, I share your criticism that the proposed regulations for implementing it are excessively lengthy and confusing. Under pressure from banks to create loopholes and exceptions to allow business as usual to continue, the regulators have created a convoluted tome. The appropriate remedy is to replace that tome with the clear, bright lines Congress intended.

Senator Jeff Merkley
Washington, DC

SIR – You quoted me as saying that the proposed Volcker rule “tries too hard”. Unfortunately, you omitted to mention that I was talking about regulators' attempts to accommodate exceptions sought by the industry. There is a difference between “over-regulating” and “over-complicating”. We have yet to complete the reforms needed to raise capital standards, improve liquidity, reform the securitisation process and regulate the OTC derivatives market.

In all of these areas we need simple, straightforward rules that the public can understand. The more that regulations are complicated by lots of exceptions to appease the industry, the more ammunition the industry will have to oppose them as indecipherable red tape.

Sheila Bair
Former chairperson of the Federal Deposit Insurance Corporation
Washington, DC

SIR – You asserted that the costs of the financial reforms are “staggering,” but provided no evidence to support that assertion. The sensible question to ask is: are the costs worth the benefits in reducing the risk of future crises? We believe they are. And by any measure, the direct costs themselves look quite small. If they were too punitive then credit would be much less available and much more expensive than it is today.

Furthermore, you used a JPMorgan chart that vastly overstates the complexity of our oversight system of multiple regulators. Our system is more integrated and modestly more simplified than it was before the reforms. It is hard to argue from the evidence of other recent financial failures, such as in Britain, that consolidating those specialised authorities in one agency produces better outcomes.

Counting the pages in a bill (or comment pages from an industry resisting reform) is a silly way to measure cost. The complexity of the rules is mostly the consequence of the complexity in designing exemptions that you seem to recognise are important. The fact that markets expect future earnings for the financial system to be lower than during the bubble is not surprising, and not principally the result of the costs of reform.

You also argued that the reforms do nothing to address the most important problems in our financial system. And yet they have already brought about a fundamental change in capital requirements, the most important source of vulnerability in any financial system. They establish comprehensive oversight and transparency of the $600 trillion derivatives markets. They provide a form of bankruptcy to unwind large banks that mismanage themselves into peril. And they consolidate consumer protection into one agency with stronger authority to extend those protections beyond banks, so that we can better prevent fraud and predatory practices at a range of consumer-finance companies. These reforms won't solve all our problems, but if they had been in place earlier this crisis would have been much less damaging to the United States and to the world.

Neal Wolin
Deputy secretary
US Treasury Department
Washington, DC

SIR – I have been a licensed commercial mortgage broker for 40 years. Dodd-Frank dictated that I would no longer be a broker but a mortgage originator. To sum up, thousands of commercial mortgage brokers like myself are now unemployed.

Barry Geller
Boca Raton, Florida

* SIR – Congratulations on hitting the issue square on, and having the wisdom to illustrate what our own politicians can't seem to fathom or deal with. The book “Death of Common Sense” published in the mid-1990s was an equally entertaining and frustrating treatise on how our legal system causes paralysis and thwarts good government. It is too bad that nearly 20 years has not seemed to move the needle in the right direction.

Greg Cory
San Francisco

* SIR – I was forced, by a Republican administration, to obtain a “physician microscopy permit” to use my own microscope when I practised medicine. Alexis de Tocqueville wrote in 1835 that it is “especially dangerous to enslave men in the minor details of life.” In America we are well along our path to servitude.

Harry Etter
Austin, Texas 

SIR – The painted F sign indicating the front of a train that you ridiculed as an excessive regulation is there for safety (“Over-regulated America”, February 18th). The front and rear ends of modern trains are identical. Traditional signals for moving the train, either by hand or by radio, are “Go forward” or “Go backward”, relative to the locomotive. Thus, everyone involved must have a common understanding of a train's front and back.

Harold Fuller
Volunteer
Colorado Railroad Museum
Golden, Colorado

Kids cost

* SIR – Schumpeter wrote about how being gay-friendly at work is good for businesses (February 11th). But if childless gays are perceived as being less distracted by family and kids and more willing to focus on their career, will straights therefore become less desirable to employers? In America, where health-care provision is often linked to your job, gay-friendly employers may think again about hiring people with spouses and children as being likelier to raise insurance premiums, by comparison with gays.

The real message that those family pictures on the cubicle walls broadcast is not “I have kids. Please don't sack me”; it's “I have kids. I'm driving costs”.

Chris Bordelon
Philadelphia

Much-maligned professions

* SIR – You referred to foreign investors who come to Africa just long enough to get what they can as quickly as they can, and pay officials for access to resources in the process, as “cowboys” (“More for my people”, February 11th). The actual cowboys I have encountered have spent decades working on the same ranch where their parents worked, and I have never heard of a cowboy paying a rancher for access to cattle.

Journalists, however, are known for rushing in just long enough to get the story they want as quickly as they can, some even paying for access to resource material. Perhaps the investors you describe should be referred to as journalists rather than cowboys.

John Edgington
Fritch, Texas

* Letter appears online only

This article appeared in the Letters section of the print edition under the headline "On the Dodd-Frank act and regulation in America, gays in the workplace, cowboys"

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