Reform, watched

Introduction

Want to give an economist a fit? Insist that supply is “better” than demand. Or, as we recently discovered, ask for a quick take on the new financial reform law.

“You know, what’s really important about it?” we asked a half dozen or so prominent economists by phone recently.

They were polite enough not to sigh.

When it comes to evaluating the relative importance of the hundreds of new rules, procedures, and offices created under the sprawling Dodd-Frank Act, even economists don’t know where to begin.

It imposes new restrictions on the credit card and student loan industries. It affords new protections to whistleblowers. It regulates, for the first time, the enormous market for credit derivatives. It curtails proprietary trading by Wall Street banks. It forms a new “Super Friends” council of inside-the-Beltway heavyweights to stand guard against another financial meltdown.

It is also an audacious double-down on the ability of regulators to monitor Wall Street.

The law touches nearly every aspect of American financial life. It creates a new Consumer Financial Protection Bureau with a Fed-funded budget insulated from Congressional whims. For reasons of political expediency, lawmakers left hundreds of decisions to the same agencies that failed to sound the alarm on the insane risk-taking and abusive lending practices that fueled the 2008 financial crisis.

It is, in short, both a massively ambitious law, and a remarkably incomplete one. Even when it comes to provisions concerning the central, driving purpose of a reform bill — preventing another Lehman Brothers-like collapse from threatening the American financial system — there is ambiguity.

The Federal Deposit Insurance Corp. was given new authority to seize and dissolve big banks. Questions about when, under what circumstances, and at whose direction remain. Stanford economist Darrell Duffie wonders if the FDIC has the guts to take control of a “too big to fail” bank. “Just because you have the authority to put a big bank into receivership doesn’t mean you’re not scared stiff about pushing the button,” he said.

Economists aren’t the only ones who can’t wrap their heads around financial reform. Public opinion polls suggest that average Americans don’t really understand what it means, either. Neither, for that matter, do many journalists.

This series, Financial Reform Watch, is about what happens next.

A product of the Center for Public Integrity business and finance team, it will track how well the regulatory agencies carry out the new financial reform law, with a particular emphasis on accountability and transparency. Industry lobbyists aiming to weaken or delay new regulations will be keeping a close eye on the dozens of studies and hundreds of rulemakings mandated under the law. So will we.

Our coverage starts in Washington, but doesn’t end there. We will also investigate whether the law is doing what was promised. Are consumers being cheated when they buy a car or use a debit card? Are banks still failing? Are Wall Street banks skirting rules meant to safeguard the financial system?

We want to do this with your feedback. What questions do you have about financial reform and the accountability of regulators that we can try to answer? If you work at a federal agency, what problems or pitfalls are you encountering? Has the financial reform law changed your life?

You know, what’s really important about it to you?