The New Financial Deal Understanding the Dodd-Frank Act and Its (Unintended) Consequences

by Skeel, David; Cohan, William D.

• ISBN13: 9780470942758
• ISBN10: 0470942754
• Edition: 1st
• Format: Hardcover
• Copyright: 2010-12-07
• Publisher: Wiley

Summary

What can we expect from our era's New Deal? To answer this question, The New Financial Deal will begin with an inside account of the legislative process, then outline and access its key components: the new framework for regulating derivatives, the regulation of banking and systemic risk, and the new resolution regime. It will explain the implications of the new framework, and propose correctives that would better align its ostensible objectivessuch as preventing future bailoutswith the new regulatory structure. The legislation's key theme is government partnership with and regulation of large concentrated institutions in order to reduce their risk and manage their failure. In place of the decentralized pre-crisis regulation of derivatives, the new legislation will require that most derivatives be cleared through a clearing house and traded on exchanges. The stability of the derivatives market will therefore depend on a small number of potentially enormous clearing houses. For large financial institutions that encounter financial distress, the legislation gives bank regulators sweeping new authority to step in and take over the institution. Regulators, rather than negotiations among the parties themselves, will determine the outcomes. These epochal reforms are posed to change Wall Street forever, but whether they help to regulate supermarket banks or create even more moral hazard is worthy of serious debate.

Author Biography

DAVID SKEEL is the S. Samuel Arsht Professor at the University of Pennsylvania Law School. He is author of Icarus in the Boardroom: The Fundamental Flaws in Corporate America and Where They Came From; Debt's Dominion: A History of Bankruptcy Law in America; and numerous articles on bankruptcy, corporate law, and other topics. His commentary has appeared in the New York Times, Wall Street Journal, Weekly Standard, Books & Culture, and elsewhere.

Table of Contents

Foreword	p. ix
Introduction	p. xi
A Few Major Characters	p. xv
The Corporatist Turn in American Regulation	p. 1
The Path to Enactment	p. 3
The Two Goals of the Dodd-Frank Act	p. 4
A Brief Tour of Other Reforms	p. 6
Two Themes That Emerge	p. 8
Fannie Mae Effect	p. 11
Covering Their Tracks	p. 12
Is There Anything to Like?	p. 14
Relearning the Financial Crisis
The Lehman Myth	p. 19
The Stock Narrative	p. 20
Lehman in Context	p. 23
Lehman's Road to Bankruptcy	p. 26
Lehman in Bankruptcy	p. 29
Bear Stearns Counterfactual	p. 31
Road to Chrysler	p. 33
Chrysler Bankruptcy	p. 35
General Motors "Sale"	p. 38
From Myths to Legislative Reality	p. 39
The 2010 Financial Reforms
Geithner, Dodd, Frank, and the Legislative Grinder	p. 43
The Players	p. 44
TARP and the Housing Crisis	p. 47
Road to an East Room Signing	p. 49
Channeling Brandeis: The Volcker Rule	p. 54
The Goldman Moment	p. 56
Derivatives Reform: Clearinghouses and the Plain-Vanilla Derivative	p. 59
Basic Framework	p. 61
Derivatives and the New Finance	p. 63
The Stout Alternative	p. 66
New Clearinghouses and Exchanges	p. 68
Regulatory Dilemmas of Clearinghouses	p. 69
Disclosure and Data Collection	p. 74
Making It Work?	p. 75
Banking Reform: Breaking Up Was Too Hard to Do	p. 77
Basic Framework	p. 78
New Designator and Designatees	p. 79
Will the New Capital Standards Work?	p. 82
Contingent Capital Alternative	p. 84
Volcker Rule	p. 85
What Do the Brandeisian Concessions Mean?	p. 91
Office of Minority and Women Inclusion	p. 93
Institutionalizing the Government-Bank Partnership	p. 94
A Happier Story?	p. 95
Repo Land Mine	p. 96
Unsafe at Any Rate	p. 99
Basic Framework	p. 100
Who Is Elizabeth Warren?	p. 102
Toasters and Credit Cards	p. 105
The New Consumer Bureau	p. 106
Mortgage Broker and Securitization Rules	p. 109
Consequences: What to Expect from the New Bureau	p. 111
What It Means for the Government-Bank Partnership	p. 114
Banking on the FDIC (Resolution Authority I)	p. 117
Does the FDIC Play the Same Role in Both Regimes?	p. 118
How (and How Well) Does FDIC Resolution Work?	p. 122
Moving Beyond the FDIC Analogy	p. 126
Bailouts, Bankruptcy, or Better? (Resolution Authority II)	p. 129
Basic Framework	p. 130
The Trouble with Bailouts	p. 132
Who Will Invoke Dodd-Frank Resolution, and When?	p. 135
Triggering the New Framework	p. 137
Controlling Systemic Risk	p. 142
Third Objective: Haircuts	p. 145
All Liquidation, All the Time?	p. 148
The Future
Essential Fixes and the New Financial Order	p. 155
What Works and What Doesn't	p. 156
Staying Derivatives in Bankruptcy	p. 158
ISDA and Its Discontent	p. 163
Other Bankruptcy Reforms for Financial Institutions	p. 168
Plugging the Chrysler Hole in Bankruptcy	p. 170
Bankruptcy to the Rescue	p. 173
An International Solution?	p. 175
Basic Framework	p. 176
Problems of Cross-Border Cases	p. 177
Scholarly Silver Bullets	p. 181
Dodd-Frank's Contribution to Cross-Border Issues	p. 182
New Living Wills	p. 185
A Simple Treaty Might Do	p. 186
Risk of a Clearinghouse Crisis	p. 188
Reinvigorating the Rule of Law	p. 189
Conclusion	p. 191
Notes	p. 195
Bibliography	p. 205
Acknowledgments	p. 211
About the Author	p. 212
Index	p. 213
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