Happy fifth birthday, Dodd-Frank Act

Five years ago, in the wake of the worst economic crisis in U.S. history since the Great Depression, President Obama signed the Dodd-Frank act into law.

The Act’s purpose was simple: prevent the likes of the 2008 financial crisis from ever happening again.

The implementation of the act, however, is far more complicated.

Complaints can be heard from conservatives who say that these regulations stifle growth without adding any actual protections and liberals who say the law does not go far enough in preventing Wall Street from engaging in reckless risk-taking.

The act is immense and features regulations designed to limit banks from engaging in risky investments, protect consumers from predatory business practices, and force banks to remain financially sound with surplus funds available.

What it has not done is limit executive pay and reform it in such a way that they are not rewarded for engaging in risky behavior.

While I applaud the Act as an instance of government working to protect its citizens from the rampant greed of Wall Street, I share liberal politicians concerns regarding the Act not going far enough.

Jamie Dimon, the CEO of JP Morgan Chase, has been extremely critical of the Act and is one of the voices that claim it stifles economic growth.

Since 2008, Chase has paid $36 billion dollars in fines ranging from knowingly hiding Bernard Madoff’s ponzi scheme to rigging foreign exchange rates.

HSBC, to give another example, recently paid out $28 million in fines for knowingly doing business with organized crime.

These were not high-risk investments made recklessly.

These were criminal acts knowingly engaged in for profit.

Yet, since the implementation of Dodd-Frank, Chase’s stock price has risen 43percent.

So much for limiting growth.

Dodd-Frank rests on the naive belief that, due to a lack of regulation and oversight, banks engaged in risky, profit-driven behavior which resulted in economic disaster for the U.S.

The banks did made mistakes and Acts like Dodd-Frank must prevent these mistakes from happening again.

Yet, opening bank accounts for Madoff or rigging currency exchanges are not bad decisions or “mistakes” but criminal acts that were known to be illegal at the time.

The banks were not just acting irresponsibly but were profiting by colluding with criminals.

Banks, like most for-profit industries, will attempt to get away with as much profit-making behavior as they are allowed, whether it’s hiding millions of dollars in criminal proceeds (HSBC) or selling toxic mortgages as investments (Chase).

Moreover, there are numerous examples of banks being fined far less than the profits that their illegal acts produced or being allowed to claim fines as deductions on their taxes.

Fines become the cost of doing business rather than deterrents or punishments.

So punishing the banks with fines is like suing your car thief’s employer; it blames the insitution rather than the persons running it.

To be truly effective, legislation must be implemented that causes criminal acts, like the ones Chase engaged in, to be punished with jail time and censure that prevents the guilty parties from being employed in the financial services industry.

As a nation, our moral outrage is so severely provoked by acts like murder that we often demand the life imprisonment or even execution of the guilty party.

Yet those who caused the loss of life savings and homes through collusion with criminals and predatory loans are not held personally responsible.

The Dodd-Frank Act is to be praised as an attempt to protect Main Street from the limitless profiteering of Wall Street.

But let’s not rest on our laurels; there is still much work to be done to prevent the likes of another 2008.

Photo: Demonstrators protest the greed of banks.  |  Desert Peace blog