Dodd-Frank Critical Analysis

Topics: United States, Financial crisis, Mortgage Pages: 5 (1599 words) Published: June 26, 2014
Dodd-Frank Critical Analysis 2
In 2008, a global financial crisis was in its prime and affecting the United States substantially. The government felt compelled to take immediate action to ensure the American people that they would never be subject to such financial vulnerability ever again (Smith & Muniz-Fraticelli, 2013). The response to this financial crisis was the Dodd-Frank Wall Street Reform and Consumer Protection Act. The act is complex and lengthy; it also states that its purpose is to promote the financial stability of the United States by improving accountability and transparency in the financial system, and most importantly to protect the American tax payer.

While the Act seems to have beneficial intentions, editors Hester Peirce and James Broughel seek to address the many flaws of the Act in the book “Dodd-Frank: What It Does and Why It’s Flawed”. Through extensive examples, the editors exhibit how the Dodd-Frank Act failed to complete its objectives in its attempt to solve the financial crisis. A major concern that appears to be reiterated throughout the book is the possibility that this Act could be laying groundwork for future financial crisis opposed to preventing one. Many of the flaws addressed throughout the book have confirmed that large consequences derive with the legislation of this Act and that it reinforces dangerous pathologies that were evident in the last crisis.

To extend further on the purpose of the Dodd-Frank Act and the crisis that led up to it, an essay written in the book by Lawrence White assisted in clarifying the event in detail. White suggests that it is imperative for the assessor to have a perspective on the cause of the crisis to further validate his/her point. One of the major contributing factors to the crisis was the housing boom that began in the early 90s. Housing prices Dodd-Frank Critical Analysis 3

fluctuated over the year but declined about 35 percent after 2006 and ultimately led to a $7 trillion housing-sector loss (Peirce & Broughel, 2012). Some other important numbers that led to the legislation of the Dodd-Frank Act include 10.9 million homes in foreclosure proceedings, an average decline of income around $5,800 per household, and 9.5 million lost jobs (Min, 2011). These are devastating statistics that make it apparent as to how legislation felt compelled to take some sort of actions to prevent future financial crisis such as this one, and the result of that was the Dodd-Frank Act.

An important part of the Dodd-Frank Act that is often overlooked as being flawed is the creation of the Federal Insurance Office (FIO) in Title V. One of the main complications with this section of the Act is that it is unrelated to the financial crisis. The key role of the FOI is to monitor the insurance industry and play an international coordinating role rather than exercising a direct regulatory role (Peirce & Broughel, 2012). Not only will they monitor these areas, but the FOI will also serve as the United States representative in international insurance matters. Challengers of the FOI fear these powers that the federal government now possesses and the influence that they carry over insurance matters. The Federal Insurance Office is also now responsible for deciding how and if insurance regulation should be reformed. When this discussion is brought to life, and a report on how to modernize insurance is issued, Americans will be able to easily determine the future of insurance regulation. Overall, there were barely any modifications to insurance regulation which indicates that the framers of the Act did not believe this played a vital role in the crisis.

Dodd-Frank Critical Analysis 4
Another major weakness in the Dodd-Frank lies within Title IX, containing information about the Securities and Exchange Commission (SEC). The SEC was originally created during the Great Depression of 1929 to protect investors affected by the crash and to maintain efficient...

References: Min, David, K. (2011). Associate Director; Center for American Progress Action, F. (n.d). Cost of Dodd-Frank Implementation. FDCH Congressional Testimony,
Peirce, H., & Broughel, J. (2012). Dodd-Frank What It Does and Why It 's Flawed. Arlington, Virginia: Mercatus Center, George Mason University.
Smith, L., & MUÑIZ-FRATICELLI, V. M. (2013). Strategic shortcomings of the Dodd-Frank Act. Antitrust Bulletin, 58(4), 617-633.
Taylor, E. Z., & Thomas, J. A. (2013). Enhanced Protections for Whistleblowers under the Dodd-Frank Act. CPA Journal, 83(1), 66-71.
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