Dodd-Frank

Former Fed Chair Alan Greenspan in today’s Financial Times:

The financial system on which Dodd-Frank is being imposed is far more complex than the lawmakers, and even most regulators, apparently contemplate. We will almost certainly end up with a number of regulatory inconsistencies whose consequences cannot be readily anticipated. Early returns on the restructuring do not bode well.

Greenspan goes on to note: “The act may create the largest regulatory-induced market distortion since America’s ill-fated imposition of wage and price controls in 1971.”

For those who have watched the financial reforms, this judgment (and much of the Greenspan’s comments) comes as no surprise.

Far more surprising:

Bill Murray has been cast to play FDR (brilliant choice)

Christine O’Donnell has a book contract (insert punch line here)

2 thoughts on “Dodd-Frank

  1. Financial Reform need not be so damn complicated. Take the issue of derivatives: anyone and everyone can own or sell them (under most circumstances) that the initial value from their creation has become perverted. They are a great hedging tool and can provide some stability, assuming that they are being used by the end users whom have actual and real risk to hedge, as oppossed to some bank or broker speculating on the movement of some financial asset. Simply outlawing the purchase of “naked” swaps and derivatives could eliminate this. That’s it.

    Instead, I can still speculate on the movement of something, it just has to be cleared on an exchange and I have to set aside Capital. Granted, these markets need more light, but that won’t completely do it. Derivatives pose an incentive by costing a fraction of the actual asset. Pushing up the price of holding them won’t do anything but hurt the end users more, whom only had the intent to hedge their risk, not speculate. Now, you have twice the cost with Dodd Frank and the same risk.

    A very weak bill indeed.

  2. I just got an email from a friend in the trade receivables industry. It was a forward from his boss, with three or four sections from Dodd-Frank, containing their lawyers’ analysis as to whether an how the impact them (the question was whether Federal “risk-retention” law now coerces them to keep certain receivables they would otherwise have sold). My impression was that the lawyers really weren’t sure what parts of the law impacted them.

    So here’s my question: if expensive, $600/hour corporate lawyers can’t figure this bill out, how do you expect me to believe that Barney Frank has even actually read the damn thing?

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