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What We Can Tell About Dodd-Frank Now

This post was provided by Whistleblower Attorney Tony Munter

Pundit, Robert J. Samuelson provides us with a newish but fairly typical “time will tell” type of analysis of the Dodd Frank Financial reforms in the Washington Post today.  His opinion seems designed to appear well informed and balanced (he is a pundit that’s his job), and he gets started as a result of reading the new hot Washington Book “Act of Congress,” by Robert Kaiser.

OK no I haven’t read the book yet, I’m behind on my wonk reading this month. Obviously, even to get a cookie at a local coffee shop we have to read it now.  The book is a tell all about how the bill got enacted. Every financial commentator on every side of the issue of financial reform is citing it to make their own points about the Dodd-Frank financial law.

Samuelson notes that Dodd-Frank is 848 pages long and he states clearly the premise behind getting it passed:

Although hugely complicated, the law embodied a simple theory of the crisis. Banks and other financial institutions brought it on through bad judgments and ethically questionable practices. This justifies tougher rules and regulators to avoid future lapses.

Mr. Samuelson is right when he says that the only real consensus in Washington about the Banks now is that nobody wants to bail them out again.  After that it’s anybody’s guess what the policy should or will be.  Dodd-Frank is long and complicated and I don’t know anybody who even claims to know every line of it or how every line of it will affect anything.  Maybe Barney Frank would claim that but probably he wouldn’t.

So, maybe Samuelson is right that we just don’t know for sure how history will judge its impact, since we are just now learning how it even became law in the first place.

On the other hand, I do know two provisions of the law which do not get enough attention from the likes of the Washington Post and Mr. Samuelson. That’s right the whistleblower provisions.  Dodd-Frank provided authority for the Securities and Exchange Commission and the Commodity Futures Trading Commission to create whistleblower offices.  Both agencies now are receiving tips on securities fraud as a direct result of this law.

I think it is fair to say that the general impression in the press is that the banking industry had “mistaken judgments” or make “too risky” trades and that is what led to the financial crisis of 2007-2008.  All that is possible, but Even Samuelson cites “ethically questionable” practices as a problem at the cause of the crisis too..

Now that we have real whistleblower laws in action we may learn in advance of the worse kind of practices that in which some banks may be involved.  The only way to prevent these practices from getting out of hand is for the government to get the information they need to act and act quickly. Whether they have authority and ability to act are other issues, but they need the information to do anything at all first.

In the context of an overall 848 page reform of the financial sector, it is understandable how the press might miss just how important these particular sections of the law really are.  They represent something fundamentally important about financial regulation. Protection and incentive for whistleblowers to come forward could provide just he information the government needs to really learn what is going on in an otherwise opaque world of commerce.

In the future, as more successful cases are filed and the SEC and CFTC are able to clean out the worst abuses as a result, Dodd-Frank may prove to have a stronger legacy than Mr. Samuelson now contemplates.