Appearing together in public for the first time since their retirement from Congress, former Sen. Christopher Dodd, D-Conn., and former Rep. Barney Frank, D-Mass., took a retrospective look at the landmark legislation bearing their names.
Speaking at the MarketCounsel annual conference in Las Vegas before an audience of 400, mainly investment advisers, the two ex-lawmakers reflected Wednesday on the politics of the legislation and at times defended controversial aspects of the law passed in July 2010, such as its 2,300-plus pages.
Dodd set the scene by noting the ad hoc nature of the government response in the early days of the financial crisis, when Federal Reserve Chairman Ben Bernanke advised a group of key legislators that “unless you act within a matter of days the financial system of this country and a large part of the world” was on the verge of collapse.
Because of the importance of the Troubled Asset Relief Program, Dodd said, he asked members to vote from their chairs — a formality reserved for wars, constitutional amendments and other such serious matters.
Dodd said he told some Republican colleagues he didn’t need their votes for passage, but some, like Gordon Smith of Oregon and Bob Bennett of Utah, voted for TARP anyway because they felt it was the right thing to do. They then lost their seats in re-election fights.
As the system stabilized through TARP and a more permanent solution was sought, the two legislators crafted a law that would today obviate the need for a TARP-style emergency measure. “Everything we did in fall of 2008 is (now) against the law,” Dodd said.
The senator emphasized that Dodd-Frank was not intended to punish anybody. While its mandate was broad — seeking to end "too big to fail" and bolstering consumer protection were some of its objectives — “the one key goal was ‘How do you restore trust and confidence in the system?’" Dodd said.
“Close to $13 trillion evaporated in a matter of months, most of which will never be recovered by those who lost it,” he added.
Net Page: Tracing the Controversy
Dodd’s congressional counterpart traced the controversy around the legislation to an intense and what he regarded as unprecedented level of partisanship. Noting that Republican appointees such as Bernanke, Bush administration Treasury Secretary Hank Paulson and FDIC Chair Sheila Bair all supported financial reform, Frank said that in 2009, “Barack Obama got behind it and the Republican party decided to go into opposition.” Previous financial reform acts such as Sarbanes-Oxley were bipartisan, he added.
The two men defended the massive size of their legislation. Frank compared it to the financial reforms of the New Deal era, such as laws creating the Federal Deposit Insurance Corp. or establishing the Investment Company Act. “We put in one package what they did in 10,” Frank said.
“Their bills (in the New Deal era) were 20 and 30 pages, but they were sweeping proclamations,” Dodd said. But he added that in today’s global financial markets, there was a need to provide more specific guidance and to harmonize U.S. laws with those of the European Union particularly. “I wanted my country to be a (leader) … rather than just follow along,” Dodd said.
A hot topic for MarketCounsel’s investment advisor audience concerned the law’s failure to draw clear distinctions between brokers and investment advisers.
Dodd was philosophical, and regretful, about that, saying “Taking on that issue could have killed everything else.”
The votes just weren’t there, he said, adding “Certain issues you can take on; certain you can’t.”
While the men stand behind the law, Frank has been critical of some of the proposals dreamed up in its implementation. Specifically, he has raised concerns about efforts to expand the range of institutions considered systemically important — and therefore needing further oversight — to include giant asset managers.
"I don’t think Fidelity and BlackRock will be next," he told the MarketCounsel audience.
The problem that Dodd-Frank was meant to address concerned financial "institutions that had accumulated debt that they could not repay," he said. "I don’t see Fidelity being in a position where it incurs debt that it cannot repay."
That said, Frank cautioned that in the unlikely event a large asset manager discovered some highly unconventional means of overleveraging, then the institutional ability to deal with such a systemic threat exists through the Financial Stability Oversight Council the law put in place.