Parts one and two gave a historical perspective about government actions that paved the way for the crises that brought the economic system to the brink of collapse in 2008. In the spirit of “never let a crisis go to waste,” Congress reacted by passing the Dodd-Frank law after accusations such as, “See what happens when businesses aren’t adequately regulated.” The Dodd-Frank law requires 387 rules to be developed by 20 different regulatory agencies. The regulators have finalized 24 rules and have missed deadlines on 28. An article in ProPublica by Jesse Eisinger and Jake Bernstein details what the law was intended to accomplish and the problems that are being faced in developing the regulations. A few things the law was intended to accomplish have been at least partially put in place. A Consumer Financial Protection Bureau has been created, although the Obama administration hasn’t appoint a person to head the agency.  Outrage over executives being rewarded for taking risks that pushed their companies near or to failure resulted in rules that give shareholders a say on executive pay. The larger problem is in the 363 rules that remain to be developed and imposed.

Baring “proprietary trading” was central to the passage of the Dodd-Frank law. Banks leveraged heavily to speculate in bundled packages of subprime mortgage-backed securities and derivatives. The collapse of the value of those securities was central to the crisis. However, the rulemaking process for regulating derivatives has generated wide opposition. The Treasury Department has proposed some to be exempted from the regulations and the Securities and Exchange Commission (SEC) has issued an initial rule that will allow derivative trades under certain conditions. The rulemaking process has been so flawed that it “…has sparked a barrage of opposition, even from previously supportive legislators.”

Some believe that erroneous credit ratings given to mortgage-backed securities by the rating agencies was the root cause of the crisis, and losses from investments that had been given high ratings resulted in billions of dollars in losses. The Dodd-Frank law created a new regulatory structure for credit rating agencies, but the SEC has not fully staffed the new office. They also have indefinitely tabled a provision that holds the credit rating agencies legally liable for their ratings.

Regulators are dealing with complex issues while facing severe budget constraints, and many are saying they may not be able to carry out some key provisions. Wall Street is lobbying to blunt provisions it failed to defeat in the legislature. “Some wonder if Congress ordered regulators to do more than they could feasibly and legally accomplish.”

It is tempting to hope that the budget problems of the regulators and the intensity of lobbying will succeed at blunting the effects of the law, since there is a growing chorus of warnings that the law could damage American competitiveness. I would argue with the phrase “could damage.” I would replace it with “has damaged.” To fully appreciate how effective the government is, I only need to quote Milton Friedman, “If you put the federal government in charge of the Sahara Desert, in five years there will be a shortage of sand.”