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E. J. Bean
The Dodd-Frank Act was far from perfect. Important reforms that Senator Levin and others fought for never made it into the law due to intense lobbying by the financial industry. For example, Senator Levin and Senator Byron Dorgan from North Dakota sought to ban synthetic financial instruments enabling banks and others to make casino-like bets on the value of stocks, bonds, and other investments.7 Allowing those bets diverted resources from the banks’ socially useful function of investing capital in business ventures viewed as likely to succeed. The senators also tried to ban “naked” credit default swaps that enabled banks and others to make bets on financial instruments they didn’t own. Senator Levin likened naked credit default swaps to taking out insurance on a neighbor’s house and making money when the house burned down, contending that U.S. markets had no use for a financial strategy that encouraged folks to root for failure rather than the success of investments. Other worthy reforms aimed at curing credit rating agency conflicts of interest, limiting highrisk investments by banks, and reducing market distortions also bit the dust. But that was par for the course in most legislative efforts; it didn’t undermine our support for the reforms that survived. While the Dodd-Frank Act didn’t fix all the problems that contributed to the financial crisis, it was a worthy response to many of the key causes of the crash. We were proud of PSI’s role in contributing to reforms that could help prevent another devastating market downturn.
Writing It Up While enactment of the Dodd-Frank Act addressed many of the ills targeted in our investigation, PSI’s work wasn’t over. Senator Levin decided we needed to issue a comprehensive report on the key causes of the financial crisis. He felt it was too important and PSI had invested too much time and energy to allow most of what we’d learned to fade away. Even four hearing records had failed to lay out the majority of the facts we’d gathered. So we spent another full year producing a 750-page bipartisan report, with 2849 footnotes. It nearly killed us, but it was worth every word, because it preserved everything we’d learned about the mortgage market, mortgage-related securities, and those who’d contributed to the financial crisis. Its most important message was that “the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.”8 In other words, the crisis had not been an unavoidable calamity, but the product of corrupt financial practices that could have been prevented.
