One year after the passage of Dodd-Frank, Roosevelt Institute Fellow Mike Konczal invited experts and those on the front lines to weigh in on what's happened so far and what's to come on financial regulation. He caught up with Roosevelt Senior Fellow Robert Johnson, who served as Chief Economist of the US Senate Banking Committee under the leadership of Chairman William Proxmire and before that Senior Economist of the U.S. Senate Budget Committee under the leadership of Chairman Pete Domenici.
MK: It's been one year since the Dodd-Frank Act passed. There are dozens of articles saying it's going terribly, dozens saying we don't know how it's playing out, and even a handful saying progress is being made. How has the past year gone for financial reform and Wall Street?
RJ: For Wall Street, it has gone swimmingly. They have the process tied in knots and at the same time can complain about the muddle to further weaken government. For the rest of us, a weak bill is getting diminished further. It is the fate of money/lobby-driven political machinations to make everyone disenchanted with government.
MK: Bringing the over-the-counter derivatives market to the light is a major part of reform. How is that battle going?
RJ: As Bob Dylan would say, "It's not dark yet but its gettin' there."
MK: Worst case scenario: We wake up in November 2012 to President Bachman and a Republican controlled House and Senate. Alternatively, the GOP just takes the Senate. Will enough of the muscle of Dodd-Frank be put into place so that it holds, or will a lot of it be able to be compromised quickly under any future Republican administration?
RJ: It will be compromised and weakened regardless of whether Democrats or Republicans hold power.
MK: What international reforms are necessary?
RJ: Cross-border bankruptcy harmonization, huge amounts of data collection, and sharing in real time across regulatory jurisdictions.
MK: Is the financial sector changing in response to the crisis and the implementation of the Act?
RJ: They are whining more. They are acting more burdened by regulation. They are doing whatever they please as they did before the bill.
MK: A decade from now, how will Dodd-Frank have changed the political economy of the country? Is it way too early to tell, or is it just not relevant to how Dodd-Frank is working?
RJ: It will have been a reflection of how powerful the financial sector was. Finance is too strong in politics, bailouts, and corporate governance imperatives. They are like a tax that descends upon society, collected for the bonus pool and used to defray the losses from past carelessness. The social contract between the financial sector and society is a pendulum rocked very far to one side. This tepid set of reforms in the aftermath of a colossal crisis will underscore how far the power of finance dominates our political economy. Inside Job indeed!