Financial Leaders Assess Dodd-Frank

Christopher Walsh
Among the Hamptons Institute discussions at Guild Hall over the weekend was “Women Rising in the World: Implications for Global Peace and Prosperity” on Sunday with Leymah Gbowee, a 2011 Nobel Peace laureate, center, Dina Powell, second from right, president of the Goldman Sachs Foundation, and Kati Marton, an author and human rights activist. With them were their children, from left, Arthur and Leemu Gbowee, Amber Mensah, and Ava and Kate Powell. Durell Godfrey

    The Department of the Treasury’s assistant secretary for financial institutions asserted at a forum at Guild Hall on Sunday that the Dodd-Frank Wall Street Reform and Consumer Protection Act, which became law in July 2010, is making significant progress toward curtailing the excessive risk-taking that brought on the financial crisis of 2008.
    Speaking at one of the programs sponsored by the Hamptons Institute over two days last weekend, Cyrus Amir-Mokri defended the act, while Joe Nocera, a columnist for The New York Times, Ken Miller of Ken Miller Capital, which invests in both private and publicly held businesses, and Joseph Perrella, chairman and C.E.O. of Perella Wieinberg Partners, an asset management firm, were less convinced that it was doing what it was intended to do.
    “We needed to strengthen the financial institutions, reform our regulatory structure, put in place reforms to improve some of the shadow banking system and how it works, bring the derivatives market into the light of day,” Mr. Amir-Mokri said.
    The cascade of financial-institution failures in 2008, the subsequent bailouts, and firms deemed “too big to fail” were soberly discussed by the panel.
    Mr. Perella, who said he believed in regulation, nevertheless took a skeptical view of regulation’s efficacy. “It raises a question in my mind, and that is whether or not the creativity and ingenuity and, in some cases, diabolical nature of certain kinds of individuals that exist in all walks of life can be kept up with by regulators. I come from the school that says these people are so smart and crafty and creative — many times in a very positive way — that it’s very hard for people that are sitting in a building reading e-mails and looking at charts to know what’s really going on and to prevent the next debacle.” He noted that he agreed with those who have said Dodd-Frank “enshrined ‘too big to fail.’ ”
    The problem with regulation, Mr. Miller said, “is that, as Joe said, it enshrines a certain protocol, and then people make it their job to get around that. But my basic problem with Dodd-Frank, and on balance I agree that it is a good step forward that it’s not going to solve the cycle problem. There will be additional panics, because it’s in the nature of banking to run businesses on leverage, which means they borrow 10 to 30 dollars for every dollar of equity that they can rely on.”
    While it is impossible to regulate greed, or to micromanage every firm, a change in Wall Street’s incentive structure would foster stability, Mr. Miller said. “In Dodd-Frank, there’s a clawback provision. That’s not quite enough to discourage risky behavior. The real problem is ‘short-term-ism,’ an excessive emphasis on speed. The culture of Wall Street needs to change.”
    But, Mr. Perella insisted, regulators will never keep pace with fast-evolving financial institutions. “I agree, you need to have rules of the road and then try and police them as well as you can. But ultimately, let there be a high price for failure. It ought to be a price that the managements pay, the boards of directors pay, the owners — shareholders — pay because that should modify or at least mold their behavior to achieving the objectives that policy makers want to achieve.”
    The Dodd-Frank act, named for Senator Christopher J. Dodd and Representative Barney Frank, established a Consumer Financial Protection Bureau within the Federal Reserve. Elizabeth Warren, who is now running for the Senate, was instrumental in establishing it.
    Other programs over the weekend included one on politics with Steve Kroft of “60 Minutes” interviewing New York Senator Kirsten Gillibrand, a panel with Paul Goldberger and others on New York City in the 21st century, and another on the status of women around the world. In a lecture sponsored in part by the Pollock-Krasner House and Study Center, Francis V. O’Connor spoke about the process and difficulties of authenticating fine art.