Dodd-Frank Two Years Later, Part I

I spoke recently at the annual conference of the National Association of State Treasurers (“NAST”).  The panel I was on was directed to Dodd-Frank and the impact of its financial reforms two years after the Act became law.  I’m going to write on this experience in multiple parts, because I have multiple thoughts on the subject, and they don’t all get along.

As one would expect, the anxiety of speaking on such a significant subject to an audience with specific interests caused me to focus my preparation on how Dodd-Frank has affected State financial issues.  It was impossible, however, to keep that focus.  The more I refreshed my memory and read about what has transpired, the more I realized the law is fairly toothless.  There were serious concerns that led to its passage, but those concerns aren’t addressed.   Lip service is given to important subject areas, but few rules of conduct are laid down.  Instead, on the whole, the Act instructs regulators to study issues, propose regulations, take public comment, study some more and maybe, just maybe, somewhere down the line a regulation will be announced.

This is a recipe for an ultimately ineffective law.  If you ever saw the movie Who Killed the Electric Car, you will know what I mean.  The documentary showed how, in 1991, GM, on its own, developed an electric car with a cutting edge battery system that was invented in someone’s garage.  The car was fast, sleek and good looking.  Its only drawback was its range – 120 miles on a battery charge.  It was great for commuters, though, who could just plug the car in overnight, and it would be ready to go with a full charge the next day.

After GM announced it had developed this car, a California regulatory board issued a mandate that, in two years, if someone wanted to sell their cars in California, 2% of the cars they offered had to be zero emissions, like GM’s electric car.  In five years, the percentage of zero emissions cars offered for sale in the state would increase to 5%, then 10% some time down the line.

GM and others who manufactured electric cars complied with the initial 2% mandate, but they refused to sell the cars; they would only lease them. The car and oil companies then set out to lobby for the elimination of the regulation.  They sued the State of California and the regulatory board; they spent huge amounts of time and money for the sole purpose of returning to 100% polluting, greenhouse gas-causing combustible engines.

Guess what happened?  After about ten years, the regulatory board repealed the regulation.  An oil company – I think it was Mobil – bought out the battery manufacturer.  GM repossessed all the leased cars.  My memory is that the movie ended with the filmmaker capturing the cars being demolished somewhere in the Arizona desert.  To think how advanced our electric car technology would be if this hadn’t happened is heartbreaking.  But we will never know.

So what has happened, and what will happen, with the passage of time that Dodd-Frank mandates before anything is even regulated?  I’ll have more statistics in another piece, but some 93% of the lobbying of the agencies charged with developing regulations under Dodd-Frank has come from financial institutions, the ones that are supposed to be regulated.  Like in the movie, these financial institutions are obviously using everything within their means to influence financial reform so there is as little reform as possible.

We just experienced first-hand what the problems are with our financial system.  We need laws directed to eradicating the abuses and rectifying these problems.  To spend more time and money “studying” what we already know such a colossal waste.  It’s just a shame that Dodd-Frank didn’t make abusive conduct illegal and let that be that. Instead, it punted the whole problem and created a brand new mess.

More to come.

Photo Credit: Who Killed the Electric Car?