OTR Interviews

The Dodd-Frank Bill: A Cure or 'Horror Movie' for the Economy?

A look at the Dodd-Frank bill and why some critics think it is ruining the economy


This is a rush transcript from "On the Record," August 9, 2011. This copy may not be in its final form and may be updated.


SEN. RON JOHNSON, R-WIS.: The thing that would really get our economy going again is if we would repeal the entire Obama agenda -- I mean, "Obamacare," Dodd-Frank, all the regulations that he is shackling our economy with! That's what's keeping our economy from moving forward!

SEN. RICHARD SHELBY, R-ALA.: Well, it tells you that what Dodd- Frank basically is, is a horror movie, a horror movie for the American economy, a horror movie for -- if people are interested in taking risks and creating jobs.

CHRIS DODD, D-CONN., FORMER SENATOR: In addition to all the pieces of this bill that make up the pages, I think our goal, our common goal was to contribute to that restoration of confidence and optimism and trust that the American people can once again believe the financial system is going to work for them and not against them.

REP. NANCY PELOSI, D-CALIF., MINORITY LEADER: This legislation is one of the pillars of President Obama's building a new foundation for a stronger economy and a fairer society.


GRETA VAN SUSTEREN, FOX NEWS HOST: Well, is Dodd-Frank a cure-all? If so, how come we're still in the soup? The verdict on Dodd-Frank, obviously, from those soundbites is mixed. And what exactly is the 2,300-page document?

Joining us is financial and economic policy reporter with The Washington Post, Zachary Goldfarb. And here it is!


VAN SUSTEREN: That is, in the word of -- of Leader Pelosi, is that -- this is meant to -- that's the pillar.

GOLDFARB: Well, it was thought of as the great panacea for the financial crisis of 2008. And it does correct some of the problems that we saw in the financial crisis of 2008. But obviously, it doesn't correct everything. And the past few weeks and months of volatility show there's a lot more work to be done before Congress and the White House are able to figure out what to do to fix this economy.

VAN SUSTEREN: All right, but is -- in former senator Dodd's words, it was to contribute to the restoration and confidence and -- and confidence and trust of the American people. I mean, has that happened, do you think?

GOLDFARB: Obviously, the American people do not trust their government leaders to figure out what's wrong with the economy. This bill identified specific problems that occurred before 2008 and tried to come up with ways to fix them.

VAN SUSTEREN: All right, I went through some of this -- one of was -- one aspect of it -- it creates a new independent watchdog for consumers, basically so the consumer didn't get cheated, right?


VAN SUSTEREN: In the old days, you know what we used to do for cheaters? We used to refer them to the Justice Department and they'd get prosecuted! Why -- you know, that still works.

GOLDFARB: Right. So the Justice Department is still supposed to do that. And clearly, they've not -- they have not went after any of the big investment banks or companies involved in this crisis.

But what this agency is supposed to do is to make sure that the mortgage documents we sign, the credit card loans we get are easy to understand, that we're not tricked. And that wasn't being done by other regulators. Regulators failed at that, and this agency...

VAN SUSTEREN: But see, that's -- but that's just ... is when other regulators fail or when people aren't doing their jobs, we suddenly roll out at 2,300-page -- another document for people -- for new people not to do their jobs! I mean, virtually nothing has been, you know, truly accomplished. All the sort of, you know, good hopes and wills of the people in 13 months, you know, that just -- I mean, that hasn't happened. So now we've got another set of failed expectations with another -- another statute.

GOLDFARB: Right. Well, I think it's a little early to tell what will this law -- what impact it will have because it's just coming into effect now. They signed it a year ago. It took a year to sort of set up, and now it's being rolled out. There are 300 rules.

VAN SUSTEREN: One of the things it talks about is to prevent us from these huge bailouts. In the old days, before this, is that if there was a problem with a company, the company would go into a bankruptcy, not a complete bankruptcy, but a semi-bankruptcy, and the bankruptcy court handled it and you got trustees and you did the restructuring. We didn't - - we didn't need this.

GOLDFARB: Well, we had a bankruptcy in the financial crisis, and it was called Lehman Brothers, and it scared the chickens out of everyone. And so when the Fed and the Treasury got scared, they went to bail out and they learned that they have to bail out if a financial institution is going to crash and bring down the entire financial system with it.

VAN SUSTEREN: But this doesn't -- this doesn't stop them from doing this, or help them from doing this? We had a mechanism. That's the problem.

GOLDFARB: Right, but regulators didn't trust it and worried that the mechanism we had wasn't effective. And so they have a new system that they say will prevent bail-outs. There's a lot of doubt about whether that's the case. If a big bank is suffering and about to collapse, I think a lot of people think that the government will still step in and rescue that bank, even if it involves taxpayer money.

VAN SUSTEREN: What -- I mean, what is this -- what is the big selling point -- you know, sale point on this today?


GOLDFARB: Two points. One, it's supposed to -- and I'm not saying it does, it's supposed to protect you and me and average people who can get cheated by financial institutions. And it's supposed to go into the guts of the financial system and figure out what's wrong and put patches on those to make sure what we had in 2008 doesn't happen again. We won't know until we have another financial crisis.

VAN SUSTEREN: Is this the least bit plain speaking and understandable?

GOLDFARB: Of course not. The legislation is very complicated. It has many rules. And of course, that's one of the risks that businesses point out. You throw 300 rules at us when we're trying to rebuild our businesses during a recession, and you can expect it's going to cost money, we're going to pass the cost on to customers. And it's going to take a long time to get back to business.

VAN SUSTEREN: And I think -- I think -- I read a good bit of this bill ...it's incomprehensible.

GOLDFARB: Of course. It's very hard to understand. And it reflects many personal points of view of lots of congressmen and senators. But I think the overall goal is to try to make the system stronger because in 2008, we clearly saw that the system was broken, was flawed. And this is an attempt to fix it.

VAN SUSTEREN: Zach, thank you.

GOLDFARB: Thank you.