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Allan Powell: A fifth-inning report on the Dodd-Frank law

June 28, 2013|By ALLAN POWELL

One can have but deep sympathy for the commissioners of the CFTC (Commodity Futures Trading Commission). They have a vital interest in what comes out as the final version of the Dodd-Frank law regulating our powerful financial industry. Ezra Klein is one of the few writers who is able and willing to keep the public informed about the ongoing events in the life of this momentous piece of legislation. In his April 13 Washington Post report, he deals with the prospect of breaking up our biggest investment banks because of their risk to overall financial stability. As the current mantra goes, “If they are too big to fail, they are too big to exist.”

What was of huge importance in Klein’s article was his recommendation to search for a 20-plus page study of the Dodd-Frank law written by Haley Sweetland Edwards, published in Washington Monthly. When my wife Joanie tracked down the document, it turned out to be a real gem.

Edwards uses a clever approach to introduce the complexity of trying to craft a law in the field of finance. Emotions ready to explode, egos daring a challenge and patience tested to the limit are at the surface at every meeting. Every sentence and word is held up for inspection.

Imagine a large conference room with a long table, able to support 15 to 25 specialists in finance. Included are lawyers, economists, commissioners, lobbyists and other guests. On one side are members of the CFTC, who are required by law to effectively regulate new, never-before-regulated financial products. On the other side are those with piles of reports supplied by the very industry they are pledged to regulate. Around them are the lobbyists and lawyers who want visibility to remind the hosts of their existence.

The heated exchanges endemic to such a gathering are almost certain to make each member get the feeling that they are being punished — confined to a very hot region in Hades. Before them are a heap of 400 rules presented to be part of the final Dodd-Frank law. They are keenly aware that it is February (2013) and only 150 rules have been finalized. Moreover, the financial industry had already spent an estimated $1.5 billion on registered lobbyists alone to influence what kind of a law should emerge.

How many of us would relish devoting the best years of our life as a fixed-wage lawyer for the CFTC being humored by top, high-salaried corporate lawyers who enjoy cutting our work to shreds? Furthermore, they stand ready to disarm all progress with the ever-ready threat of a suit.

The following is one example of their style of attack. Dodd-Frank has a provision that reads, “The Commission shall by rule, regulation or order establish limits on the amount of positions, as appropriate.” Position limits created a legal device to put a leash on speculation in the commodities markets — admittedly a needed goal.

If you reread the proposed rule on the position limits, you could surely conclude that the commission was empowered to set these limits. Not so, according to a corporate lawyer. He bluntly declared that sentence did not empower the CFTC to establish position limits at all. No amount of debate could alter his mind and he ended with the self-assured announcement of “that’s what we’re going with.” That ended further discussion.

The foregoing scenario is part of what Edwards calls the “Wall Street Fog Machine.” Wall Street lawyers always want to give the picture that they are fully in charge and are the only ones who understand how the financial market works. They use jargon to intimidate and cloud what they are doing. One lawyer was brazen enough to assert, “That’s how you make money. You make it so complicated the clients don’t understand what it is they’re buying and selling, or how much they are taking on.”

If all of this makes you uncomfortable, reflect on the fact that the U.S. Court of Appeals for the District of Columbia (said to be the second-most powerful court in the nation) is packed with appointees by Republican presidents who relish killing regulatory rules. Edwards closes with the wry thought, “We are in the fifth inning. The only way to guarantee you’ll lose is if you walk out before the end of the game.”

Don’t be naïve. There is no end to the game. Dodd-Frank will be weak. Lawyers, lobbyists (former congressmen) and conservative politicians will see to that.

Allan Powell is a professor emeritus of philosophy at Hagerstown Community College.

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