Why Dodd-Frank Is Important–For Everyone

This week, Congress returned from  its holiday  break to confront a deep irony:  while millions are desperate for work, the place that brought down our economy is now on a roll.  On the first count, roughly 2.1 million US workers who still cannot find work have been going without unemployment benefits for the past several weeks because Congress allowed them to expire in early June.  Meanwhile,  the lead story in yesterday’s New York Times describes a surge in Wall Street’s hiring.  Amidst this perilous paradox, the Senate will decide whether to extend unemployment benefits, as well as approve sweeping financial reform legislation for Wall Street.  By Monday afternoon, Senator Scott Brown had signaled his intent to support the bill, which bodes well for its Senate passage.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, as approved by the House at the end of June, runs some 2,300 pages.  Although not without critics, it’s widely considered the most sweeping reform of financial regulation since the Great Depression.  Understandably, Americans probably are more concerned about joblessness and unemployment benefits than financial regulation, yet the two are intertwined.

Regulatory reform helps reduce collateral damage from a future crisis, especially for those who aren’t directly engaged in capital markets.  Dodd-Frank goes a long way toward protecting consumers and investors.  SEC Chairman Mary Schapiro described this in her remarks last Friday in Chicago to the National Conference of the Society of Corporate Secretaries and Governance Professionals.  Shapiro emphasized there is no one-size-fits-all approach to corporate governance, that the SEC will not define “good” or “bad” governance.  Rather, she said, the SEC’s job is “to ensure that our rules support effective communication and accountability among the triad of governance participants:  shareholders, as the owners of the company; directors, whom the owners elect to oversee management; and executives, who manage the company day-to-day.”  (A chronology of Tweets can be viewed at #Society2010.)

Meanwhile, on Sunday, Scott Hirst, co-editor of Harvard Law School’s Forum on Corporate Governance and Financial Regulation, posted the best overview I’ve seen yet of investor protection provisions contained within Title IX of Dodd-Frank.  Written by Washington attorney Stephen J. Crimmins, the article summarizes the effects of Dodd-Frank, including whistleblower provisions, fiduciary standards for brokers, investor advocacy (the creation of an “Investor Advocate”, as well as a permanent Investor Advisory Committee), and other operational improvements.  Future regulatory issues are mentioned, too, including financial literacy for retail investors; mutual fund advertising; better disclosure regarding financial intermediaries, financial products, and investment services; and regulation of financial planners.

Earlier today, UMass Amherst’s Jennifer Taub, who keeps close tabs on the developments and meaning behind Dodd-Frank, directed us to this gem of a resource.  It’s from the high-powered law firm Skadden, and provides 204 pages worth of commentary and insights.

While seemingly arcane, these regulatory changes – both pending and forecast – address many of the root causes of our current economic mess that affect innocent bystanders as well as market participants.  After celebrating America’s birthday, let’s see how well our elected representatives do their job and uphold our tradition of checks and balances.  Maybe then, the paradox of widespread unemployment juxtaposed with Wall Street opulence will give way to more sustainable economic structures, and greater trust in our markets and political system.