On yesterday's four-year anniversary of the Dodd-Frank Act, congressional Republicans fired out at the controversial legislation in a 100-page report, saying that the Act's purported purpose to end the government's "too big to fail" policy has itself failed, DSnews reported yesterday. The House Financial Services Committee yesterday released "Failing to End 'Too Big to Fail:' An Assessment of the Dodd-Frank Act Four Years Later," which asserts that the Act perpetuates a dangerous policy of bailing out lenders that fleece American taxpayers, under the presumption that not bailing them out would make matters far worse. GOP leaders say that Dodd-Frank was supposed to put an end to this policy, but instead makes sure that it continues. "In no way, shape or form does the Dodd-Frank Act end 'too big to fail,'" said Committee Chairman Jeb Hensarling (R-Texas). "Instead, Dodd-Frank actually enshrines 'too big to fail' into law." Moreover, Republicans charge, regulatory requirements imposed under Dodd-Frank create compliance burdens that distort the free market by making it harder for small-to-medium-sized financial institutions to compete with larger firms, further entrenching "too big to fail." While Republicans on the Financial Services Committee plan to introduce legislation "to repeal Dodd-Frank's bailout fund and take other steps to end 'too big to fail' once and for all," according to Hensarling, one of Dodd-Frank's architects, former Massachusetts Representative and FSC Chairman Barney Frank, will testify at a congressional hearing on Wednesday to assess the impact of the Dodd-Frank Act four years later. Click here to read the full article.
Ralph Nader has written a new book entitled, Unstoppable: The Emerging Left-Right Alliance to Dismantle the Corporate State. If one spends any time looking into the current state of affairs with the Dodd-Frank Act, one would have to say that he has a point, according to an Op-Ed in today's New York Times. There are many aspects of the law on which Democrats and Republicans disagree, but there is one area in which the two sides are largely in agreement: "Too Big to Fail" is still with us. Dodd-Frank was supposed to end "Too Big to Fail," the catchphrase for a financial institution whose collapse has the potential to bring down the entire financial system. That prospect is why, less than a month after the bankruptcy of Lehman Brothers, the government handed billions of dollars to the big banks to help stabilize them. In some ways, eliminating the possibility of future bank bailouts was the whole point of Dodd-Frank. Partly this was for populist reasons: Americans were outraged that the banks were bailed out, while the country got the worst of the Great Recession. But it was also just good public policy, according to the commentary. The Treasury Department insists that the days of "Too Big to Fail" are over. But the markets don't believe it, and neither do most people who pay attention to Dodd-Frank, according to the commentary. Click here to read the full commentary.
COMMENTARY: THE BENEFITS OF FAILURE
Four years ago, Dodd-Frank was enacted on the theory that some banks are too big to fail and that regulators have the wisdom to identify those that are. Today, the company that disproved that theory is back in the news, according to a commentary in today's Wall Street Journal. For most of the big banks that were bailed out during the crisis of 2008, the arguments can never be completely resolved over whether federal assistance was necessary, because taxpayers were not allowed to run the counter-experiment in which the big banks and their regulators were allowed to suffer the consequences of their decisions. However, in late 2008 commercial lender CIT Group Inc. received $2.3 billion in aid from the Treasury's Troubled Asset Relief Program (TARP), although it wasn't enough to save the firm from the risky bets it had made during the credit bubble. The company had more than $50 billion in assets, which under Dodd-Frank meant that its failure could be catastrophic. CIT was allowed to fail, however, and filed for chapter 11 bankruptcy protection in late 2009. The parent company soon emerged from bankruptcy and has been operating ever since. CIT today posted a 34 percent increase in its second-quarter profits and announced a deal to buy OneWest Bank, which operates 73 retail branches in Southern California that have $23 billion in assets. Unfortunately, this happy ending brings a new threat to taxpayers, thanks to Dodd-Frank, according to the commentary. The law says that a bank holding company with over $50 billion in assets is automatically considered "systemically important" and that the new acquisition will once again push CIT Group above that threshold the same threshold that CIT proved to be bogus as a measurement of systemic risk. Click here to read the full commentary.
ANALYSIS: AT THREE YEARS OLD, CFPB HITS ITS STRIDE
Lawyers who practice before the Consumer Financial Protection Bureau, which turned three years old yesterday, agree on one thing: "It's been good for law firms," said Ballard Spahr partner Alan Kaplinsky. Lawyers say that the CFPB, the agency created by the Dodd-Frank Act, has hit its stride since the confirmation of director Richard Cordray last July, bringing a series of big-ticket enforcement actions, according to an analysis in The National Law Journal today. "The bureau is starting to mature a bit as an organization, to get its sense of identity and purpose," said David Bizar, who co-chairs the consumer financial services litigation practice group at Seyfarth Shaw. Agency lawyers have filed at least 20 enforcement actions in the past year (compared with two in the CFPB's first year), racking up a series of major settlements. In all, the CFPB in its first three years has helped refund more than $3.8 billion to consumers, Cordray told the Senate Committee on Banking, Housing and Urban Affairs last month. Still, some lawyers complain that the CFPB has been overzealous when it comes to enforcement. Another criticism is that the CFPB has put enforcement ahead of regulation. "They have been picking their targets and hitting them hard, trying to get the rest of the industry to take notice and make changes," Bizar said. "They're often getting out front on enforcement first, and then trying to follow up with regulation." In recent months, the CFPB has moved against payday lenders, debt collectors and auto financers businesses that were not previously subject to federal oversight and where the rules of the road are less clear. On the rulemaking front, the CFPB has moved more cautiously. Click here to read the full analysis. (Subscription required.)
U.S. ECONOMY IS LUMBERING, NOT SOARING
The overriding market thesis is that the economy is getting better, the jobs market is getting better, corporate earnings are getting better, the proverbial morning in America is just around the corner, and even with stocks around record levels, even with chaos overseas, now is still the time to buy. There's only one problem with that thesis: It's starting to look like 2014 is going to be another disappointing year for the U.S. economy, according to the Wall Street Journal's MoneyBeat blog yesterday. The latest reading of the Chicago Fed's National Activity Index, which slipped in June, is the latest evidence of that. Even though it's a second-tier, or maybe even third-tier, data series, it's one that provides a good indication of the economic state of affairs, and it shows that despite fits and starts, despite grand predictions, the U.S. economy is still struggling to shake off the aftereffects of the recession. The index's June reading slipped to 0.12 from 0.16 in May. The three-month moving average fell to 0.13 from 0.28. While that is the moving average's fourth consecutive reading above zero, it remains below the critical threshold of 0.70, a level that indicates a sustained period of increasing inflation. At no point in the past two years, in fact, has the index moved into that range. Click here to read the full article.
NEW CASE SUMMARY ON VOLO: SPRADLIN V. RICHARD(6TH CIR.)
Summarized by Jason Stitt of Keating Muething & Klekamp PLL
The Sixth Circuit affirmed the district court's affirmation of the bankruptcy court's award of sanctions, and vacated the district court's reversal of the bankruptcy court's motion to extend time and deny the plaintiff's motion to dismiss the defendant's cross-appeal. The Sixth Circuit concluded that the defendant's motion to extend time to designate record for appeal, and the plaintiffs' motion to dismiss the defendant's cross-appeal, were moot by virtue of the bankruptcy court's lack of subject-matter jurisdiction over the defendant's cross-claims, and therefore the district court lacked, and the Sixth Circuit also lacked, jurisdiction over those issues.
There are more than 1,300 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.
NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: CONGRESS CAN FIX DODD-FRANK
A recent blog post proposes that Congress can fix Dodd-Frank's pursuit of financial stability at the expense of economic growth by amending the law so that regulators are required to balance both goals.
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