This recent poll done by pen sean and burr land. Robert green joining us to talk about it. Mr. Green, thanks for your time. Thank you, sir. Up next on cspan3, a look at the dodd frank Financial Regulations five years after they were signed into law. Well hear from House Financial Services chair Jeb Henserling on the law. And thomas perez talks about regulating retirement financial advisers. Later, a discussion on islamic extremism. When congress is in session, cspan3 brings you more of the best access to congress with live coverage of hearings, news conferences, and key Public Affairs events. And every weekend its American History tv traveling to historic sites, discussions with authors and historians, and eyewitness accounts of events that define the nation. Cspan3, coverage of congress, and the American History tv. President obama signed the dodd Financial Regulation into law five years ago. Up next, a panel talks about the different provisions of the law including the creation of the Consumer Financial protection board, and the Financial StabilityOversight Council. The American Enterprise institute hosted this event. Good afternoon ladies and gentlemen. Im alex pollack. Its my pleasure to welcome you here on july 21st the unhappy fifth birthday of the dodd frank act to our conference on what should be done to reform it. 100 predictable feature and financial cycles is after a crisis theres political and regulatory overreaction. Always. So with the dodd frank act which, as you know a truly remarkable 6th flores sense of regulatory bureaucracy and deadweight costs. Unchecked and unbalanced authority to bureaucrats. All the while utterly failing to address the blunders which were so important. Are we stuck in the bureaucratic mire and can we fix it . If so, how in particular . Youre about to hear how from our expert panel. Let me introduce them in the order they will speak. As we proceed through the panel, we will be working our way through the various titles of dodd frank. First will be my colleague, Peter Wallison, who is arthur f. Barnes chaired fellow at aei. Peter codirects a program on financial studies and Pew Financial Reform Task force and served on the Inquiry Commission where he wrote a very enlightening and highly controversial descent. He was White House Council to president reagan, general counsel of the Treasury Department and practiced Corporate Law. Financial crisis was spawned by the financial the financial crisis spawned dodd frank. But do you understand what spawned the financial crisis . Buy peters book hidden in plain sight in case you havent yet. Our second speaker, senior director of Global Affairs strategy and Public Policy at bloom berg, where he covers policy issues in europe, asia, and the u. S. Equity fixed income and derivatives markets and the impact of capital or the lack thereof, i assume. On market structure. Chris is special counsel and policy adviser of the commodity futures trading commission, including the time of the implementation of title vii of dodd frank and worked for the house committee. Next will be j. W. Whitt at george mason university. Senior scholar on federal markets. Previously j. W. Was on the staff of the Financial Services committee in washington, d. C. He has written extensively on Corporate Law with his Academic Work appearing in the journal on regulation, journal of Corporate Law, and university of pennsylvania journal of business law and other journals. Our concluding panelist will be Mark Calabria director of Financial Regulation studies at the kato institute. Previously mark spent seven years on the staff of the Senate Banking committee where he drafted significant portions of the housing and economic recovery act of 2008. Thats the act that established a new Regulatory Regime for fannie mae and freddie mac, just in time to put them into conservatorship. Mark also worked at the department of housing harvards joint center for housing studies, the National Association of Home Builders and the National Association of realtors, as well as the census bureau. As you can see he is very experienced in the Government Housing complex. And therefore well prepared to reform it. Each panelist will speak for 12 to 15 minutes, after which we will give them a chance to react to each others comments or clarify points. After that well open the floor to your questions until about 2 30. At that point, Peter Wallison will address our key note speaker of the House Financial Services committee. So on to our panel. And, peter, you have the floor. Thank you very much, alex. Im going to start with just a little bit of background on the act and then cover titles one and two all in 12 to 15 minutes. Reforming the dodd frank act will be difficult because most of the public has never heard of it and continues to believe that the financial crisis was caused by in sufficient regulation of wall street. In reality, the financial crisis was caused by the governments own housing policies, which forced a major reduction in mortgage underwriting standards. By 2008 more than half of all mortgages in the United States, that was 31 million loans, were either subprime or otherwise riski. And of those 76 were on the books of government agencies, primarily fannie mae and freddie mac, the two Government Sponsored Enterprises that dominated the mortgage market. That chart, which some of you were close enough can actually see, gives you a visual representation of what it looked like. Everything on the left, blue, is fannie and freddie. Above that is fha federal housing administration. Above that other agencies also doing the same thing, v. A. , and some of the Agriculture Credit agencies also make loans. On the right the black, is the private sectors contribution, which is about 24 . And well get to that in a minute. The remaining 24 , and thats the black on the right of these mortgages were on the books of the private sector. And when all of these mortgages began to default that is the ones fannie and freddie made or bought and the ones that the private sector bought when all of them began to default in unprecedented numbers fannie and freddie became solvent, as we know. And many of the Financial Firms that bought these mortgages also got into trouble. And some failed. Now, instead of reforming the governments housing policies, which would have seemed to have been the right way to proceed here, the Obama Administration sought to punish the private Financial Sector with the dodd frank act, which was one of the most restrictive regulatory laws since the new deal. In effect the congress and administration were attack the symptoms rather than the disease. I dont have time to discuss all the details. But if you have interest in really understanding why we had a financial crisis as alex suggested, it is in my book, called hidden in plain sight, published in january. This is an historically slow recovery from the recession that followed the financial crisis. And we can see the slow recovery here. Again, if you can see it from where youre sitting. You can see that the red line which is the recovery from the 2009 recession that followed the financial crisis, is a real outlier in terms of all the other recoveries from financial crises we have had before. Now, why would this be . Supporters of the administrations policy argue that slow rovers generally follow a financial crises. But recent Academic Work has disproved this. Two respected academics looked at all 27 recessions. The u. S. Encountered since the 1800s and found that those that followed financial crises actually recovered faster than those that were originated for other causes. There were three exceptions to this rule. The great depression, the period from 1989 to 1991 when the s l industry collapsed and the most recent period which of course followed the great financial crisis. These three periods had much in common. And we studied them carefully. There were all periods when the government adopted new regulations and controls over the economy, those in the new deal are of course legendary as is the endless depression they produced. Those in 1989 to 1991 included two regulatory laws. Reform, recovery and enforcement act known as firea and the fdic known as fidicia. Now we have the granddaddy of them all dodd frank act. This strongly suggests that the dodd frank act is responsible for the slow recovery from the 2009 recession. Just like its predecessors. Moreover, because of the huge costs that it has imposed on the Financial System, it is likely the dodd frank act wet blanket will stifle Economic Growth in this country for many years to come. Unfortunately, dodd frank seems to have become something of an icon for progressives led by Elizabeth Warren. They will not agree to any changes, even small ones. Now, most lawmakers have heard enough from their constituents to know that the act has been destructive and impeded Economic Growth. But democrats are very reluctant to support any changes for fear of rousing the progressive base. In todays conference, my colleagues and i here on the platform will discuss some of the most problematic provisions of the dodd frank all. Not all but the most problematic ones. The title one authority from the Financial StabilityOversight Council, which i will call fsoc. That designate systemically important Financial Institutions which most of you, if you follow this, know as i sifiss. The Liquidation Authority in title two, the volcker rule in title six, derivatives in title 7, utilities in title 8, Enforcement Powers for sec in title 9. And the qualified Residential Mortgage rating agencies and the Consumer FinancialProtection Bureau in titles 9 and 10. But i will start with titles 1 and 2. Title 1 gives the fsoc authority to designate certain large nonbank firms as sifis. The sifi idea is based on the notion that all large Financial Firms were are interconnected. Youll hear this all the time. Youll read it in the papers. Theyre all inter connected. And if one fails, this is the theory, it will drag down others. Thats why sifis have to be specially regulated by the fed under dodd frank to reduce their risk of failing. However, we can see from looking at what happened after Lehman Brothers, and this may seem counter intuitive, after Lehman Brothers failed, that this idea is wrong. No other Large Financial Institution failed as a result of on lehmans failure. And this is true even though lehman was one of the largest nonbank Financial Firms and a major player in the credit default swap mark. And also its bankruptcy occurred at a time when Market Participants were very worried about market in stability. This shows that large nonbank Financial Firms are not dangerously interconnected. And if one of them were to fail it would not drag down others. So theres no need to designate nonbank firms as sifis and no need to save them when they fail. Since designating firms of sifis is unnecessary and extends the too big to fail to other areas beyond banking fsoc Designation Authority should be repealed. Title 2 of the act is called the orderly Liquidation Authority and provides extraordinary power for the fdic to resolve large failing Financial Firms, including banks and nonbanks. From what i said earlier about lehman, it should be clear there is no need for a special system for resolving or rescuing nonbanks. They can fail and be resolved in bankruptcy without harm to the rest of the economy. Lehmans bankruptcy caused chaos to be sure. But that was because it represented the governments complete reversal of a policy of rescuing large firms that Market Participants thought the government had established with the rescue of bear stearns about six months earlier. Until the sunday before lehman filed for bankruptcy, the treasury and the fed thought they had a buyer for the firm. When that fell through, the government had no plan b. It refused to put up the necessary funds so lehmans bankruptcy became inevitable. Although lehmans bankrupt lawyer was contacted earlier in the preceding week he was not authorized to draw any papers until late on sunday before the filing on monday morning. Because of this government bumbling, any opportunity to keep lehman operating under section chapter 11 of the bankruptcy laws, was lost. Still, while chaos resulted from lehmans bankruptcy, i want to repeat no other Large Financial Institution failed. Now, there is one group however, whose failure could cause a systemic event. These are the very largest banks. Say those in the trillion dollar category. Because of their role in the payroll system, and they perform other services in the financial area, it could be important to keep the largest banks from failing. The fdic suggested that it would do this through a process it calls single point of entry. Spoe. And which i will pronounce as spoe. Under spoe strategy the fdic said it would use dodd frank powers to take over the Holding Company of an operating bank and use the resources of the Holding Company to recapitalize the bank. Thus the bank would keep operating and would no longer be a danger of creating some sort of systemic default. The idea has attracted a lot of favorable attention. But theres one big problem. As pool kubiak, my aei colleague and i showed in a recent paper it doesnt work for the largest 12 banks. The very were ones that might actually be too big to fail. The fdic may have assumed if a major bank fails the Holding Company would also become insolvent so the fdic could take it over under dodd frank. Unfortunately, none of the Holding Companies of the largest banks becomes insolvent if its Subsidiary Bank is wiped out completely. If its investment in the capital of a Subsidiary Bank is completely wiped out, all of them have other subsidiaries and other activities that keep them solvent. If theyre not insolvent, title 2 of dodd frank does not authorize the fdic to take them over. So the fdics spoe strategy will not work. Now, this is important because the fdic will then have to take over a failing bank in the oldfashioned way and resolve it in the only way the agency apparently knows how. And that is by selling it to a healthy bank. The trouble with that is that in an era when people are concerned about too big to fail, that wont work either. It will just make the buyer bank that much bigger. Thus dodd frank does not do the one thing that proponents claim it would certainly do and that is eliminate too big to fail for the very largest banks. There is a way to solve this problem. The largeest banks can be made virtually fail safe by loading contributions of Equity Capital to their Holding Company. Thats the best solution to the tbtf problem too big to fail problem. But to put it into effect, title 2 would have to be essentially replaced. Even Elizabeth Warren and president obama will have to recognize that dodd frank must be amended in this way if it is to accomplish its most important purpose. Thanks very much. Thanks, peter. Chris. Thank you, alex and peter very much for inviting me here today. Its a pleasure and honor to be here. So im going to briefly discuss the volcker rule and the new derivatives rules. And i want everybody to have a political context. Because both were highly a little bit sized. Getting through congress and once they were put into implementation in the agency process. Dodd frank directed regularities to make substantial changes to the structure of the Capital Markets without understanding the consequences of those actions. Some consequences have been good and some