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Dodd-Frank Scores an “A” for Increased Transparency and Regulation and “F” for Lack of Punishment

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Ark Law Group's Student Voices Scholarship Runner-UpOur Student Voices Scholarship Program resulted in a wide array of insights from students all across the country. One to recognize is Sean Rose, who reminds us that we better learn from the past before we doom ourselves to repeat it.

Sean Rose - Runner-Up in Ark Law Group's Student Voices Scholarship Program
Sean Rose

Initially proposed to make up for the gaps in the Glass-Steagall Act, Dodd-Frank was the idealistic way to truly create transparency in the financial world.

Acknowledging both the successes and the shortcomings, Sean urges the reader to a true call-to-action, highly underutilized by the average American: Call your congressman. Get involved in the conversation and share your stories and fears so that a voice in government can share what is still causing concern in your community.

In addition to being published on our website, Sean and each of our runners-up won a $50 gift card for their response to one of the following questions:

  1. The “Dodd-Frank” Wall Street Reform and Consumer Protection Act was passed in 2010 to promote the financial stability of the United States by improving accountability and transparency in the financial system and to protect consumers from abusive financial services practices. Six years later, do you feel that the goals of Dodd-Frank have been met?
  2. What else could the financial services industry do to support greater financial equality for Americans?

Sean's full essay can be read below, or you download the PDF here.

Bookmark our scholarship site and be sure to check back for updates on our next opportunity.

1. If we do not learn from the errors of our past, we are bound to allow the errors of the past to happen again in the future. The nation’s economy, as well as the world economy, has seen several recessions since the Great Depression in 1929. However, the global recession that started in 2007 saw financial institutions collapse, banks go bankrupt, people lose their homes, and a steep global unemployment rate felt around the world. Preventing this from happening again needs to be our top priority as a diverse nation of politicians, businesses, and people.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, was passed as a way of fixing the problems that led to the Great Recession, and was the most in-depth banking law passed since the Glass-Steagall Act, which was passed after the Great Depression. Dodd-Frank’s other purpose was to make the banking and financial industries more transparent. The Glass-Steagall repeal in 1999 allowed shady banking practices to continue which, in part, led to the Great Recession. Some states want Dodd-Frank repealed, and some Congressmen feel more needs to be done. It is important, though to understand the successes and shortcomings of Dodd-Frank.

Dodd-Frank has successfully ushered in the transparency goals it was passed to ensure. Hedge funds have been forced to register with the SEC, insurance companies are more closely watched, and banks are watched as to prevent them from owning or operating consumer hedge funds for the bank’s own profit. These goals have been successful, and the shady days of hiding money, concealing losses, and using ratings agencies to make sure things seem okay are hopefully behind us because of this law. The opposition of the law claims that it hurts smaller banks, while some think it either does too much on the regulation front or not enough to close certain banking and financial loopholes. However, bi-partisan legislation of any kind is rare these days, and it is important to keep pushing forward and not just take action after a severe crisis.

This brings up my next point. When politicians call for de-regulation, it sounds great. However, a mistake that keeps occurring is no longer a mistake. It is then intentional. Goldman Sachs has joined several other banks in now providing what they call “bespoke tranche opportunities.” US News says financial analysts are saying this is just another word for CDOs, or collateralized debt obligations, which helped cause the subprime mortgage crisis in 2007. People should be angry at the banks for causing them to lose so much. Politicians should be angry at the recession subprime mortgages caused. Banks should be mad at themselves for the terrible image they received after the crisis. However, their actions don’t show that. Dodd-Frank is a step in the right direction, but people need to pressure their Congressmen to stay on top of these industries that seem to take advantage of consumers more often than not.

2. There can only be so much change in the country without the federal government’s intervention. It is likely that significant de-regulation, coupled with several small laws that allowed banks to take on more debt and con consumers with subprime mortgages, adjustable rate mortgages the most common among them, led to the Great Recession almost a decade ago. Although the Dodd-Frank Wall Street Reform and Consumer Protection Act addressed many things, there is a lot the federal government still needs to do.

I believe that too much of just about anything can be detrimental to success, but a bi-partisan effort needs to happen right now, not just after a crisis happens. There needs to be a concerted effort to keep regulations in financial institutions, which is necessary in an industry where corruption seems inevitable, not just possible. Breaking up big banks is a topic of controversy, but consumers need to be put first. Separating investment and depository banking for good is a great start to protecting consumers, but the recent Wells Fargo controversy proves that it is easier said than done to stop banks from engaging in corrupt practices.

Another problem that exists is a lack of punishment for those that commit wrongdoing. Many top-level executives were prosecuted during the Great Depression, 1980s savings and loan scandals, and 1990s Nasdaq problems. Although patterns shown problems always seem to come back in the financial industry, the subprime mortgage crisis of the last decade yielded only one jailed banking executive. Nobody wants to see anyone’s lives ruined by going to jail. However, punishments for wrongdoing can, and does, make people think twice before committing wrongdoing in the future. The aftermath of this crisis won’t deter people from making millions as an executive, then walking away quietly as the market collapses.

I always feel that, at this point in our country, common-sense reform needs to be taken seriously. Unfortunately, this country has seen a lot of hardships. Hardships usually lead to reform. However, we are likely to slip back into our old ways, especially in easily corruptible industries like the financial and banking industries. Banks need to create realistic mortgages with easily understood and fair interest rates. They also need to educate consumers before giving them a mortgage. Assets need to be seriously analyzed, and an ability to pay back years down the line needs to be taken into consideration when deciding whether someone qualifies for a mortgage. A bank is not doing someone a favor when giving them a mortgage if that person can’t pay for it.

Ross Kilburn

Ross Kilburn

Ross Kilburn is the co-author of The Ark Law Group: Complete Guide to Short Sales.

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Dodd-Frank Scores an “A” for Increased Transparency and Regulation and “F” for Lack of Punishment