Will Dodd-Frank Trigger a New Financial Crisis?

In the wake of the fiscal crisis of 2008, lawmakers in
Washington rushed to craft legislation to curtail risky practices
at the center of the financial collapse.

The product was the 2010 Dodd-Frank Wall Street Reform and
Consumer Protection Act, a massive slate of regulations that
expanded the role of government to police everything from debit
card purchases to insurance.

Now, a new book argues that the ongoing complexity and reach of
Dodd-Frank could plant the seeds for another collapse.


Dodd-Frank: What It Does and Why It’s Flawed
, produced
by the Mercatus Center of George Mason University, provides a
thorough dissection of the more than 8,800-page law.

“I think it really didn’t get to the problems we saw in the last
crisis. In fact, I think it made them worse in many ways,” said
Hester Peirce, a senior research fellow at Mercatus and,
with James Broughel, co-author of the book.

Peirce maintains that Dodd-Frank created an intricate web of
governance, producing uncertainty in many industries.

“There was this need to do something,” she said of the law’s
genesis. “Congress was more concerned about doing something than
about doing something right.”

By creating new agencies like the Bureau of Consumer Financial
Protection and expanding the role of existing entities like the
Securities and Exchange Commission, Federal Reserve and others,
Peirce said Dodd-Frank puts the nation’s financial health in the
hands of regulators while providing little clarity for the rules
they enforce.

Among the book’s key criticisms is the law’s underlying
philosophy, that some companies are so large and interconnected
throughout the economy that their default would result in
disastrous market contagion. The authors contend that Dodd-Frank
responds with the sort of regulatory overreach that guarantees
government protection for companies that, like insurance
giant AIG, are considered too-big-to-fail.

“In 2008, people weren’t

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