Secretary Geithner writes in today’s Wall Street Journal to remind us of the panic of 2008, because he fears that those of us who have the audacity to criticize Dodd-Frank might have forgotten how bad it was. This is the latest attempt by the Treasury Department to silence its critics during the implementation of Dodd-Frank.
Simply remembering that the crisis was bad does not tell us whether the purported Dodd-Frank solution is any good. Dodd-Frank was passed in haste, before Congress engaged in a process to understand the roots of the crisis. Knowing what went wrong would have better equipped Congress to design appropriate solutions. Dodd-Frank was passed without analysis because Congress wanted to appear to be doing something to respond to the crisis. Critics of the content of the legislation as it was winding its way through Congress were brushed off with arguments similar to the ones made by Secretary Geithner today.
The content of Dodd-Frank never got the serious scrutiny it deserved, and there are real reasons to question whether Dodd-Frank addresses the problems that gave rise to the crisis. The crisis revealed serious cracks in the country’s housing finance infrastructure, but Dodd-Frank did not even address the Government Sponsored Enterprises, the institutions at the heart of housing finance. The crisis revealed the dangers of too big to fail entities, yet Dodd-Frank sets aside a new class of systemically important entities. The crisis revealed a lack of regulatory coordination and accountability, yet Dodd-Frank added new regulators and made them less accountable.
In urging us to remember how bad things were in 2008, Secretary Geithner hopes we will forget how flawed the legislative response was, yet the content of legislative and regulatory responses matters. Maybe it will take the next financial crisis to remind us of that.
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