Dodd-Frank Bill Meets With Skepticism
While the Dodd-Frank Wall Street Reform and Consumer Protection Act heads to the Senate after being passed by the House early last week, there are vastly differing opinions on Wall Street as to what is likely to be achieved when the 2,000 page bill goes into effect. It is anticipated that the Senate will vote in mid-July, with President Barak Obama signing it into law soon thereafter.
Under the bill, publicly listed firms will experience major changes to issues such as corporate governance, executive compensation and level of disclosure and transparency required. A report in the New York Times has pointed out that the document fails to give specific clear-cut direction to the federal agencies and regulators being addressed, thereby allowing regulators to wield significant power and determine the level of impact the bill will have on markets.
Under the Dodd-Frank bill, regulators will have the broad-based authority to seize financial institutions they determine are in danger of failing and take steps to liquidate them. Some feel that the seizing of private property by government authorities may constitute a breach of the US constitution, especially as this action can be taken with what many consider to be insufficient judicial review. There are also concerns that the new Bureau of Consumer Financial Protection, which would be part of the Federal Reserve System while have autonomous powers, may make credit more difficult and more expensive for consumers to obtain.
Critics have also pointed out that, while much has been said about avoiding future bail-outs such as those that took place when the current economic turmoil began, the Dodd-Franks bill fails to address the two major recipients of federal bail-out funds – Freddie Mac and Fannie May. The two government-sponsored entities which were behind much of the housing market chaos, are currently in federal receivership, but nothing has been said about their future, fuelling the debate of whether the new bill will be effective in preventing this type of crisis from recurring. Accordingly to experts, these are only some of the weak points of the proposed bill and the call has gone out to Congress to re-consider the contents of the bill carefully before sealing the deal.