Here is what [out-going chairman of the Federal Financial Institutions Examination Council Daniel] Tarullo actually admitted about Dodd-Frank’s fatal flaw. President Obama and Congress did not frame it as a coherent response to the perverse incentives that cause our recurrent, intensifying financial crises. Wall Street CEOs rigged our structures to institutionalize perverse incentives. Refusing to change those structures after a catastrophe was, of course, significantly insane. President Obama and Congress failed to engage in a rigorous, honest investigation of those structural causes and then refused to fix the structural defects.
The structures that institutionalize perverse incentives have in common the creation of conflicts of interest. CEOs do this primarily by creating perverse compensation systems, but they also do it through combining investment and commercial banking. Systemically dangerous institutions (SDIs) (“too big to fail”) create another conflict of interest. Politicians dependent on their contributions and pathetic regulators treat them as untouchable. Astonishingly, Obama and Congress refused to fix any of these three primary conflicts of interest that drive our recurrent crises.New Economic Perspectives
Dodd-Frank Was Designed to Fail – and Trump Will Make it Worse
William K. Black | Associate Professor of Economics and Law, UMKC