Three years and 9,000 pages of legislation later, our economy has yet to see any benefits from the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). ...
So how exactly did this massive bill come to be law? Robert Kaiser, a 50-year veteran of the Washington Post, has the answer in his new book: An Act of Congress. The problem, he says, is Washington.
Although some have viewed Kaiser’s reporting as congratulating Washington for “doing something,” in fact, Kaiser's good reporting paints a picture of the Dodd-Frank legislation as a prime example of what happens when you mix an economic crisis with political ambition and lobby power: bad policy. The mixture of what he describes as “politics-obsessed mediocrities who know little about the policy they're purportedly crafting and voting on,” and outcry for action in Washington following the subprime mortgage crisis, created the perfect storm for Dodd-Frank to blossom; an immaculate “policy window” ripe for Congress to seize upon.
Kaiser is also not the first in his field to insinuate such a notion. In 2010, the same year Dodd-Frank was enacted, Professor Stephen Bainbridge (UCLA School of Law), suggested a similar hypothesis. In his research he compared Dodd-Frank to the Sarbanes Oxley Act of 2002, which was quickly enacted following the burst of the IT crisis in 1997.
Bainbridge defines both Dodd-Frank and Sarbanes Oxley as “Bubble Acts,” characterized by the following attributes: (1) enacted in response to a major negative economic event; (2) enacted in a crisis environment; (3) a response to a populist backlash against corporations and/or markets; (4) adopted at the federal rather than state level; (5) transfers power from the states to the federal government; (6) interest groups that are strong at the federal level but weak at the Delaware [corporation mecca] level support it; (7) typically, not a novel proposal, but rather a longstanding agenda item of some powerful interest group; (8) and the empirical evidence cited in support of the proposal is, at best, mixed and often shows the proposal to be unwise.
The academic work of Stephen Bainbridge and the compelling new book by Robert Kaiser make an unwittingly strong case for the repeal of Dodd-Frank and a drastic change in Washington’s legislative process away from “not letting a crises go to waste,” and moving toward the deliberative process of what used to be known as “regular order.” Voters, consumers, and the millions of Americans seeking jobs should demand that Washington scrap the massive Dodd-Frank regulatory scheme before it does any more damage to the recovery, and instead focus on the real problems facing the American economy.
If that's of interest, you may wish to consider the book in which I elaborate on the idea of quack corporate governance, Corporate Governance after the Financial Crisis:
The first decade of the new millennium was bookended by two major economic crises. The bursting of the dotcom bubble and the extended bear market of 2000 to 2002 prompted Congress to pass the Sarbanes-Oxley Act, which was directed at core aspects of corporate governance. At the end of the decade came the bursting of the housing bubble, followed by a severe credit crunch, and the worst economic downturn in decades. In response, Congress passed the Dodd-Frank Act, which changed vast swathes of financial regulation. Among these changes were a number of significant corporate governance reforms.
Corporate Governance after the Financial Crisis asks two questions about these changes. First, are they a good idea that will improve corporate governance? Second, what do they tell us about the relative merits of the federal government and the states as sources of corporate governance regulation? Traditionally, corporate law was the province of the states. Today, however, the federal government is increasingly engaged in corporate governance regulation. The changes examined in this work provide a series of case studies in which to explore the question of whether federalization will lead to better outcomes. The author analyzes these changes in the context of corporate governance, executive compensation, corporate fraud and disclosure, shareholder activism, corporate democracy, and declining US capital market competitiveness.
And you probably should also read Frank Buckley's The American Illness: Essays on the Rule of Law:
This provocative book brings together twenty-plus contributors from the fields of law, economics, and international relations to look at whether the U.S. legal system is contributing to the country’s long postwar decline. The book provides a comprehensive overview of the interactions between economics and the law—in such areas as corruption, business regulation, and federalism—and explains how our system works differently from the one in most countries, with contradictory and hard to understand business regulations, tort laws that vary from state to state, and surprising judicial interpretations of clearly written contracts. This imposes far heavier litigation costs on American companies and hampers economic growth.