Dodd-Frank is the financial regulation enacted after the 2007–2008 housing bubble crisis, written or co-written by Barney Frank along with Chris Dodd. Across these episodes it is discussed less as a consumer-protection measure than as an illustration of regulatory capture — the situation, as Bob Zadek defines it, in which the regulated entities obtain control over the regulator so that the regulator does the bidding of the regulated. Who Wants to Buy a Politician? With Mike Munger (2015)
The capture argument
Mike Munger’s account is that Dodd-Frank “doesn’t regulate the activity of the large firms at all.” What it does, he says, is impose compliance and reporting requirements whose effect is to raise the costs of entry into the industry, so that large companies such as Goldman Sachs benefited enormously. Munger pairs this with campaign contributions: Barney Frank, whom he describes as year after year by far the largest recipient in the House of contributions from Wall Street corporations and finance companies, participated in writing the legislation, which Munger characterizes as protecting the large financial firms and making entry more difficult for new ones. Who Wants to Buy a Politician? With Mike Munger (2015)
Zadek frames the same episode as the “poster child” for regulatory capture, saying the big financial institutions to a large degree wrote the bill and that it was wonderful for them because it snuffed out any danger of competition from community and local banks and smaller banks. He calls it an industry-drafted, industry-sponsored bill marketed as one to protect against “too big to fail” but in fact a boon to too-big-to-fail banks. He also notes that Elizabeth Warren worships at the altar of Dodd-Frank. Who Wants to Buy a Politician? With Mike Munger (2015)
Munger generalizes the mechanism: there are two groups of value creators, existing companies and the companies that do not exist yet, and politicians can collect money only from the existing firms, so capture is always to be expected. Politics, on his account, rewards the value creators of the past while markets focus on the future. He places Sarbanes-Oxley, the previous regulation, in the same category of raising compliance and regulatory costs. Who Wants to Buy a Politician? With Mike Munger (2015)
Bank charters and the squeeze on community banks
Bill Frezza treats Dodd-Frank as one in a series of promises that a problem will never happen again, alongside Sarbanes-Oxley, and says no one knows what will happen next. He states that since Dodd-Frank was passed there have been a total of maybe three bank charters let in the entire United States, and that he thinks they were on Indian reservations. Innovation, in his account, moves to the edges — shadow banking, startups developing new consumer lending models — and he asks whether there will be an Uber of banking or of healthcare, citing Uber’s disruption of the taxi cartels as a positive model. Bill Frezza’s History of Telecom Innovation (and Not) (2015)
Stephen Moore supplies the numbers on the small-bank effect. Dodd-Frank, he says, imposed huge costs on lending institutions, but the big banks like Wells Fargo and Citi were very much in favor of it because they could absorb the cost of the higher regulations. The effect was to squash the small community banks in neighborhoods around the country; the count went down from 14,000 banks to 8,500 banks, and small businesses could not get loans. He calls it a perfect example of big business and big government pairing to create a cartel influence that makes it very difficult for small entrepreneurs to do business. Stephen Moore on Trumponomics (2018)
Moore’s broader point in that exchange is that government does not help the little guy but squashes him, illustrated by Jeff Bezos calling for a $15 federal minimum wage after Amazon raised its own starting wage, and by Zadek’s claim that Walmart supported Obamacare because it already paid such benefits and wanted to force smaller competitors to match. Stephen Moore on Trumponomics (2018)
Deliberation and the legislative process
Jeffrey Bergner places Dodd-Frank among the recent big legislation — with Obamacare, the tax bill, and the Consumer Finance Protection Bureau — that was run through by simply partisan majorities rather than by members who accommodated each other thoughtfully. He contrasts this with the early 1990s Nunn-Lugar Act, which he worked on for Senator Lugar, and with the Taiwan Relations Act that followed Jimmy Carter’s recognition of the PRC, as instances where Congress did something good; he says it has been roughly 27 years since that kind of deliberation. Redefining the “Deep State” (2019)
Zadek’s framing in that episode is that all of the recent big legislation is the work product of the leadership and perhaps the executive, not of deliberation, which he calls the very purpose of representative government. Bergner adds that loyalty to the president of one’s own party has trumped loyalty to the institution, and that Congress is the only institution with authority to change itself. Redefining the “Deep State” (2019)
Across episodes: the same charge, more numbers
The capture charge is argued in more than one episode, and what changes is the specificity. In the 2015 Munger episode the claim is structural — compliance costs raise entry barriers and the largest recipients of Wall Street money wrote the bill — with Goldman Sachs named as a beneficiary and Sarbanes-Oxley named as the precedent. Who Wants to Buy a Politician? With Mike Munger (2015) In the 2018 Moore episode the same claim is quantified: the bank count falls from 14,000 to 8,500 and Wells Fargo and Citi are named as supporters who could absorb the costs. Stephen Moore on Trumponomics (2018) Frezza, in the 2015 telecom episode, adds the charter figure of roughly three new bank charters since passage. Bill Frezza’s History of Telecom Innovation (and Not) (2015) Bergner, in 2019, shifts the ground from economics to process, listing Dodd-Frank with Obamacare and the tax bill as partisan products rather than deliberative ones. Redefining the “Deep State” (2019) The later treatments do not revise the earlier argument; they add figures and move it into a complaint about how legislation is made.
What the sources do not cover
The excerpts do not describe Dodd-Frank’s statutory provisions, its agencies, or its title-by-title contents, and they do not give the date of enactment. They do not state what any court held about the law, nor which constitutional provision any challenge turned on. The Consumer Finance Protection Bureau is mentioned only as one item in a list of legislation run through by partisan majorities. No source here reports the vote margins, the amendments, or the text of the bill.