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

Foreword ix

Introduction xi

A Few Major Characters xv

Chapter 1 The Corporatist Turn in American Regulation 1

The Path to Enactment 3

The Two Goals of the Dodd-Frank Act 4

A Brief Tour of Other Reforms 6

Two Themes That Emerge 8

Fannie Mae Effect 11

Covering Their Tracks 12

Is There Anything to Like? 14

Part I Relearning the Financial Crisis

Chapter 2 The Lehman Myth 19

The Stock Narrative 20

Lehman in Context 23

Lehman’s Road to Bankruptcy 26

Lehman in Bankruptcy 29

Bear Stearns Counterfactual 31

Road to Chrysler 33

Chrysler Bankruptcy 35

General Motors “Sale” 38

From Myths to Legislative Reality 39

Part II The 2010 Financial Reforms

Chapter 3 Geithner, Dodd, Frank, and the Legislative Grinder 43

The Players 44

TARP and the Housing Crisis 47

Road to an East Room Signing 49

Channeling Brandeis: The Volcker Rule 54

The Goldman Moment 56

Chapter 4 Derivatives Reform: Clearinghouses and the Plain-Vanilla Derivative 59

Basic Framework 61

Derivatives and the New Finance 63

The Stout Alternative 66

New Clearinghouses and Exchanges 68

Regulatory Dilemmas of Clearinghouses 69

Disclosure and Data Collection 74

Making It Work? 75

Chapter 5 Banking Reform: Breaking Up Was Too Hard to Do 77

Basic Framework 78

New Designator and Designatees 79

Will the New Capital Standards Work? 82

Contingent Capital Alternative 84

Volcker Rule 85

What Do the Brandeisian Concessions Mean? 91

Office of Minority and Women Inclusion 93

Institutionalizing the Government-Bank Partnership 94

A Happier Story? 95

Repo Land Mine 96

Chapter 6 Unsafe at Any Rate 99

Basic Framework 100

Who is Elizabeth Warren? 102

Toasters and Credit Cards 105

The New Consumer Bureau 106

Mortgage Broker and Securitization Rules 109

Consequences: What to Expect from the New Bureau 111

What It Means for the Government-Bank Partnership 114

Chapter 7 Banking on the FDIC (Resolution Authority I) 117

Does the FDIC Play the Same Role in Both Regimes? 118

How (and How Well) Does FDIC Resolution Work? 122

Moving Beyond the FDIC Analogy 126

Chapter 8 Bailouts, Bankruptcy, or Better? (Resolution Authority II) 129

Basic Framework 130

The Trouble with Bailouts 132

Who Will Invoke Dodd-Frank Resolution, and When? 135

Triggering the New Framework 137

Controlling Systemic Risk 142

Third Objective: Haircuts 145

All Liquidation, All the Time? 148

Part III The Future

Chapter 9 Essential Fixes and the New Financial Order 155

What Works and What Doesn’t 156

Staying Derivatives in Bankruptcy 158

ISDA and Its Discontent 163

Other Bankruptcy Reforms for Financial Institutions 168

Plugging the Chrysler Hole in Bankruptcy 170

Bankruptcy to the Rescue 173

Chapter 10 An International Solution? 175

Basic Framework 176

Problems of Cross-Border Cases 177

Scholarly Silver Bullets 181

Dodd-Frank’s Contribution to Cross-Border Issues 182

New Living Wills 185

A Simple Treaty Might Do 186

Risk of a Clearinghouse Crisis 188

Reinvigorating the Rule of Law 189

Conclusion 191

Notes 195

Bibliography 205

Acknowledgments 211

About the Author 212

Index 213