With the passage of the Dodd-Frank Act, has government done enough to avert another meltdown? This was one of the key questions addressed during a Reunion weekend panel discussion on the aftermath of the financial crisis.
Robert Hoyt L'89, G'89, former general counsel of the Treasury, said he thinks so. He said in time Dodd-Frank, a sweeping overhaul of financial regulations with consumer protections and provisions to prevent bailouts, will be a major asset in helping the government to obtain information about the activities of financial organizations – something it was unable to do when the economy began its freefall.
Heath Tarbert L'01, a former staffer in the Office of Legal Counsel in the White House, went further, calling Dodd-Frank "the most fundamental change in financial legislation since the Great Depression." Tarbert said areas of the law governing securitization and over-the-counter derivatives will be important in preventing future crises, as will the Volcker Rule, which would restrict banks from making certain kinds of speculative investments.
Alan Beller L'76, former director of the Division of Corporation Finance and senior counselor to the Securities and Exchange Commission chair, was more circumspect in his assessment.
"Whether Dodd-Frank will be an adequate solution to the next problem, I think any answer to that question is, until it happens, truly speculative. I think you absolutely can't tell," Beller said.
Beller criticized the SEC for what he called a "subpar performance" during the crisis and expressed concern that the agency has not made significant improvements. "There's been a lot of talk about tools. There's, I think, been a lot less talk in the public debate about information, but in my view that was at least as big of a problem," said Beller.
Hoyt agreed, citing the lack of information about regulated financial organizations in the days preceding the economic crisis.
"Before the Bear Stearns collapse, the government had all of about three days' notice before we had to get involved," he said.
Looking back, Hoyt said he is disappointed in the way in which TARP has forbidden the Treasury from using the exchange stabilization fund to rescue the money markets.
This was one of the few tools, he said, that was used successfully during the crisis.