On July 21, the Dodd-Frank Act turned three years old.
But, unlike most three-year-olds who can walk and talk, this one hasn't gotten out of the crib yet…
You see, the Dodd-Frank Act was a promise to protect Americans from the excesses and ruthlessness of Wall Street. It was meant to streamline the regulatory process.
But three years later, we are still waiting for its full implementation.
In fact, as of last week, only 155 of 398 rules required by this law are considered final.
That's because instead of focusing on the systemic problems that caused the crisis, the pen to write the bill ended up in the hands of disconnected agencies and lobbyists.
Instead of fixing the serious problems of current law, Dodd-Frank failed to curtail Wall Street – just a few years after a major financial crisis.
At a time when Sen. Elizabeth Warren, D-MA, and Sen. John McCain, R-AZ, have pushed for a new Glass-Steagall Act to reduce risk, some voices like Treasury Secretary Jack Lew argue that the Dodd-Frank bill will alleviate the problems of Too Big to Fail, systemic risk, and cronyism.
But we know that such arguments are spurious at best.
The Problems with the Dodd-Frank Act
Former Sen. Chris Dodd and former Rep. Barney Frank have repeatedly argued that "not only is there no legal authority to use public money to keep a failing entity in business, the law forbids it."
Just two weeks ago, Frank appeared on CNBC to say that "Too Big to Fail" is a thing of the past, mainly because the public appetite for more bailouts is at an all-time low.
Here's the problem with both statements: there is no guarantee from this legislation.
You see, Dodd-Frank attempts to create rules to address a crisis after it happens – rather than fully prevent it ahead of time.
Yes, it places some tighter restrictions on capital requirements and derivative activities, which would make them less likely to fail in a crisis.
The law also provides the FDIC with new powers known as "resolution authority."
This new government power (since it needs more, right?) would allow the government to create a bridge company that enables firms to maintain functioning operations while liquidating other branches of the company.
But, there's a big issue here…