Or can we fix it . And if so how in particular . Youre about to hear how from our expert panel. Let me introduce them in the order in which theyll speak, as we proceed through the panel well be working our way through the various titles of dodd frank frank. First will be my colleague peter wallacen. He co directs aeis program on financial studies, was co chair of the pew Financial Task force and served on the Financial Crisis Inquiry Commission where he wrote a very enlightening and highly controversial dissent. Previously peter was White House Council to president reagan. General council of the treasury department. Financial crisis was spawned by the financial crisis spawned dodd frank, 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 Government Affairs strategy and Public Policy of bloomberg, where he covers policy issues in europe, asia and the u. S. Equity, fixed income, and Derivatives Markets and the impact of capitol or the lack thereof i assume on market structure. Chris was special council and paul is the adviser of the commodities trading commission. Also woulded for the House Committee on Financial Services and its subcommittee for government markets and enterprises. Next will be an assistant professor of law at george mason university. Also directs the corporate federalism initiative. Previously jw was on the staff of the Financial Services committee in washington, d. C. , hes written extensively on Corporate Law with his Academic Work peering in the journal of Corporate Law and other journals. Our concluding panelist, the director of Financial Regulations studies at the cato institute. Previously mark spent seven years on the staff 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 conserve toreship. Mark worked at the department of housing, harvards joint center for housing studies. The National Association of Home Builders and National Association of realtors. He is very experienced in the Government Housing complex and will prepare to reform it each panelist will speak for 12 to 15 minutes. After which well 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 will announce our keynote speaker of the house Financial Services committee. 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 the background in the act and cover titles 1 and 2. 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 insufficient regulation of wall street. In reality, the fine crisis was caused by the governments own housing policies which forced a major reduction in mortgage underwriting standards. More than half of all mortgages in the United States were either sub prime or otherwise risky 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 can see gives you a visual representation of what it looked like everything on the left is fanny and freddie, above that is fha and then just above that other agencies also doing the same thing the va and some of the Agricultural Credit agencies also make loans and on the right, the black is the private sectors contribution which is about 24 . The remaining 24 thats the black on the right these mortgages were on the books of the private sector when all of these mortgages began to default and the ones that the private sector bought when all of them began to default in unprecedented numbers fanny and freddie became insolvent as we know and must of the Financial Firms that had bought these mortgages also got into trouble. And some failed. Now instead of reforming the governments housing policies which seems to have been the right way to proceed here. The Obama Administration punished the private sector with the doddfrank act. Which was one of the most restrictive regulatory laws since the new deal. They were attacking the stocks rather than the disease. If you have any interest in really understanding why we had a financial crisis it is in my book, which is called hidden in plain sight, published in january by encounter books. The result of all this unnecessary regulation is an historically slow recovery from the recession that followed the financial crisis, and we can see the slow recovery here you can see the red line which is the recovery from the 2009 recession that followed the financial crisis is a real outlier in terms of the other recoveries in financial crisis weve had before now why would this be . Slow recoveries generally follow a financial crisis recent Academic Work has disproved this. Two respected academics looked at all 27 recessions the u. S. Has encountered since the 1800 and found that those that followed financial crisis recovered faster than those originated for other causes there were three exceptions to this rule the Great Depression, 1981 and the most recent period which followed the great financial crisis, these three periods had much in common and we ought to study them carefully. They were all periods when the government adopted many new regulations and controlled over the economy those in the new deal are, of course legendary as is the seemingly endless depression they produced. Those in 1989 to 1991 included two major regulatory laws the Financial Institutions reform recovery and enforcement act, and the fdic improvement act known as fudicia. And now we have the granddaddy of them all. The doddfrank act. This history strongly suggests that the dodd frank act is sponlsz for the slow recovery from the 2009 recession just like its predecessors. Because of the huge costs its imposed on the Financial System, its likely the dodd frank act will stifle Economic Growth in this country for many years to come. Doddfrank 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 democrats are reluctant to support any changes for fear of rousing the base. My colleagues here on the platform will discuss some of the most problematic provisions of the dodd frank act. Not all, but the most problematic ones. The title one authority for example of the financial Oversite Council which i will call fsoc, and that ability to designate systemically important Financial Institutions. The Orderly Liquidation Authority, the volcker rule the Financial Market utilities Enforcement Powers for the set in title 9, the qualified Residential Mortgage rating agencies and the Consumer Protection bureau entitles 9 and 10. I will start with titles 1 and 2. Title 1 gives fsoc the idea to designate firms as sifys. Theyre all interconnected, youll hear this all the time theyre all interconnected. If one fails this is the theory, it will drag down others, thats why sifys have to be specially regulated by the fed to reduce their risk of failing, however we can can see from looking at what happened after lehman procedures, this may seem counter intuitive, this idea is wrong, no other Large Financial Institution failed as a result of lehmans failure. This is true even though lehman was one of the largest nonbank Financial Firms and a major player in the credit default swap market, its bankruptcy occurred at a time when Market Participants were very worried about market instability. This shows that nonlarge bank Financial Firms are not dangerously interconnected, if one of them were to fail, it would not drag down others theres no need to designate nonbank firms as sifys and no need to save them when they fail since designating them as sifys is unnecessary and extends the too big to fail beyond banking it 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 that 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 6 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 but up the necessary funds so lehmans bankruptcy became inevitable. Lehman lehmans bankruptcy 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 bungles, any opportunity to keep lehman operating under chapter 11 of the bankruptcy laws was lost. Still, while chaos resulted, no other Large Financial Institution failed. Now, there is one group whose fair our could cause a systemic event. These are the large banks, say in the trillion dollar category, because of their role in the payment system, the fact that they hold payrolls and form other Financial Services in the area, it could keep the largest banks from failing. It would do this through a process it called single point of entry. Spoe and which i will pronounce as spoe. Under its spoe strategy the fdis says it would use its dodd frank powers to take over the Holding Company of an operating bank and use the resources of the Holding Company to recap tallize the bank the bank would keep operating and no longer be a danger of creating a systemic default. Its attracted a lot of favorable attention but theres one big problem. As paul kupiak and i have shown in a recent paper it doesnt work for the largest 12 banks, the very ones that might actually be too big to fail. The fdic may have assumed that if a major bank fails its Holding Company would also become insolvent so the fdic could take it over under dodd frank. Unfortunately, none of the Holding Companys becomes insolvent if its Subsidiary Bank is wiped out completely. The investment in the capital of the Subsidiary Bank is completely wiped out all of them have other subsidiaries and activities that keep them insolvent insolvent. Dodd frank does not authorize the fdic to take them over. So the fdics spoe strategy will not work. This is important, the fdic will have to take over a failing bank in the Old Fashioned way and resolve it in the only way the agency 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 too 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 its proponents have claimed it would certainly do, and that is eliminate too big to fail for the very largest bank s banks. There is a way to solve this problem, the largest banks could be made virtually fail safe by loading them with contributions to Equity Capital from their Holding Company thats the best solution to the tbtf problem. To put it into effect title 2 would have to be 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, meter chris . Thank you, alex and peter very much for inviting me here today. Its a pleasure and an honor to be here im going to discuss the voccer ervolcker rule and the new derivative derivatives. I want everyone everyone to have a contest. Dodd frank directed regulators to make substantial changes to the structure of the Capital Markets without understanding the consequences of those, as, some have been good, some have been bad. Some of the good, you have Risk Management procedures that have totally changes the industry and the way it operates. The bad was that doddfrank is micro managing trading behavior, that is impacting liquidity. We no longer have freely functioning Capital Markets, what we do have is a Capital Market thats been centrally planned by washington regulators who are terrified of risk the volker rule was put into place by a third degree amendment on the senate floor the actual text was negotiated in conference committee. There was no hearing to discuss what this would do to our Capital Markets. The policy, although it may be designed to achieve good, is to prevent banks from using the deposits backed by the fdic. When you hear the term casino gambling mentioned this is what theyre talking about. But after 950 pages of rule making, what we have is a rule that prohibits prop Trading Investments in certain funds but it permits Market Making by banks for customer accounts through a myriad of rules. What we have to ask is if the policy was designed to stop prop trading, why are banks still doing it . Now, you have to step back and say, is that good for the system . Why is it that you can invest in a detroit Municipal Bond and not an imm Corporate Bond. The Practical Impact of the rule goes to the heart of what Market Making is, when washington chooses to micro manage decisions it makes compliance very difficult. Theres no way to distinguish between trading for a customers account and a banks own account. Any rule that limits prop trading must limit crop trading. Its forcing people to err on the side of caution and pull back black rock has come out and said the Corporate Bond market is broken. Its decreased 77 since 2007 and thats been aided by the volker rule and other rules to put in place by dodd frank. Title 7 was the derivatives rule this was highly politicized in congress and then when the implementation period occurred. Trading on swap execution facilities which are entirely new and margin on unclear trades. These rules were rushed, put through and forced down everyones throat at five rules a week, because the only way you can implement an ideology is to overrun people with all of the policy thats set forth in 200 and 500 page rule makings, this also revealed a tension that is there today, which is that the chairman wanted to overlay the swaps market in the mindset and mold of equities the staff only understood futures. Equities are a horizontal market with many trading platform. Theres a disconnect in the rules which made it confusing which caused over 100 no action letters to be issued and basically forced people to pull back from the market when trading first happened in 2012. Trading has gone up a little bit but there still isnt the substantial amount of liquidity people were hoping for, and youve seen a bifurcation of deals. Liquidity is in europe and you cant find it here. Some of these rules put in place were done outside of the apa like i said. Staff letters on the eve before a rule was going to come into implement were put into place that changes bee hair overand causes compliance officers to stop their traders from doing anything in the marketplace one of these policies was actually a good idea, it was called straight through processing, as soon as you execute t