How Wall Street Strangled Dodd-Frank in the Womb

STRANGLE IT IN THE WOMB
The first advantage the banks had lay in the fact that for all Obama's bluster, Dodd-Frank was never such a badass law to begin with. In fact, Obama's initial response to the devastating financial events of 2008 represented a major departure from the historical precedent his own party had set during the 1930s, when President Franklin D. Roosevelt launched an audacious rewrite of the rules governing the American economy following the Great Crash of 1929.
Upon entering office, FDR was in exactly the same position Obama found himself in after his inauguration in 2009. Then, as now, the American economy was in tatters after the bursting of a massive financial bubble, brought on when speculators borrowed huge sums and gambled on unregistered securities in largely unregulated exchanges. This mania for instant riches led to an explosion of Wall Street fraud and manipulation, creating a mountain of illusory growth divorced from the real-world economy: Of the $50 billion in securities sold in America in the 1920s, half turned out to be worthless.
Roosevelt's response to all of this was to pass a number of sweeping new laws that focused on a single theme: protecting consumers by forcing the business of Wall Street into the light. The Securities Act of 1933 required all publicly traded companies to register themselves and offer prospectuses to investors; the Securities Exchange Act of 1934 forced publicly traded companies to make regular financial disclosures; and the Commodity Exchange Act of 1936 required all commodities and futures to be traded on organized exchanges. FDR also created the FDIC to protect bank depositors (through an insurance fund paid for by the banks themselves) and passed the Glass-Steagall Act to separate insurance companies, investment banks and commercial banks. Post-New Deal, if you put money in a bank, you knew it was safe, and if you bought stock, you knew what you were buying.
This reform strategy worked for more than half a century – and it offered Obama a clear outline of how to respond to the crash he faced. What made 2008 possible was that Wall Street had moved its speculative frenzy away from the regulated exchange system created by FDR, and into darker, less-regulated markets that had coalesced around brand-new financial innovations like credit default swaps and collateralized-debt obligations. It wasn't that the old system had broken down; Wall Street had just moved the playground.
All Obama needed to do to rescue the economy and protect consumers was to make sure that the new playground had some rules. That meant moving swaps and other derivatives onto open exchanges, making sure that federally insured banks that dabbled in those dangerous markets retained more capital, and coming up with some kind of plan to prevent the next AIG or Lehman Brothers disaster – i.e., a plan for unwinding failing companies that wouldn't require federal bailouts.
Matt Taibbi, Common Dreams