Almost three years ago, the Dodd-Frank Act was enacted, a sweeping piece of legislation aimed at overhauling regulation of the financial system. And now our colleague Robert G. Kaiser is out with a book reporting the inside story of how the law came to be. Kaiser's "Act of Congress: How America's Essential Institution Works, and How it Doesn't" uses the long battle over Dodd-Frank--and the unique access to Christopher Dodd, Barney Frank, and their staffs that he was afforded--to show how 21st century legislating really works. Here, Kaiser, an associate editor and senior correspondent for the Post, explains what he found.
Neil Irwin: Your book uses the battle over the Dodd-Frank Act to explain how Congress works, when it works. On one hand, this seems to be a story of the American political system proving particularly resilient—U.S. financial regulation was deeply flawed in ways that contributed to a gigantic crisis, and legislation, imperfect as it may be, was enacted to try to fix those problems. But you see a darker lesson in the Dodd-Frank saga. Why?
Robert Kaiser: The lesson, sadly, is that something like Dodd-Frank can only happen when the stars align in an almost magical way, something that rarely happens. This required a national catastrophe, big Democratic majorities in both houses plus a like-minded president, and two highly talented legislators, Chris Dodd and Barney Frank. And even then the bill barely scraped through. So this example of Congress working also illuminated why it works so rarely.
NI: One of the basic tensions in your book is over whether this could be a bipartisan bill in the Senate that got 80 or 90 votes, or if it would be a more strictly partisan affair, which it ended up being. Major financial bills in the past like the Gramm-Leach-Bliley Act and the Sarbanes Oxley fit the first model. For the first 282 pages of your book, it looked like this financial reform could be the same. But Chris Dodd’s months of negotiations with Richard Shelby came to naught. Why? What has changed?
RK The biggest change in American politics in my lifetime has been the transformation of the Republican Party, still an ongoing process. The 2010 elections made the GOP still more conservative, still less inclined to reach compromises with today's Democrats. In this case, Shelby wanted to make a deal, I am convinced of that. But too many of his Republican colleagues did not. He couldn't do it without more support from them.
NI: Ironically, though, Republicans could have won a lot of policy concessions if they had been willing to throw their support behind the bill en masse (only Scott Brown, Susan Collins, and Olympia Snowe voted “yea”). Meanwhile, your book details how Dodd had to go to great lengths to keep every single member of the Democratic caucus on board, which pushed the final product to the left in a number of ways. So in the end, is Dodd-Frank a win or a loss for the no-compromise approach to governance?
A. I guess the real answer is, neither. It is a sui generis event, based on the special circumstances I mentioned before. I can't imagine any member today saying, "I'm going to do such and such because that's what worked in Dodd-Frank." In truth there are no usable lessons there.
NI: I’m struck by the power you show banking lobbies exerting on the legislation. You’ve been in this town a long time. Was it always thus? Or is the role the banks played in shaping the law that would govern them something new and troubling?
RK: The banking lobby has been influential for years. Revision of the bankruptcy code in 2005 was a remarkable victory for the banks, a classic lobbying triumph. In this case, encouraged by Frank, small bankers broke with the big banks and weakened the lobby's ability to influence Dodd-Frank. In the end, Frank boasted that the big banks "got nothing," only a slight exaggeration. It's a great story, and it's in the book!
NI: You show the centrality of congressional staff in drafting major, complex legislation like this. Most memorably, when Treasury officials were freaking out that Dodd might strike a deal while on a trip to Central America with Bob Corker, one of his staffers is amazed by their naivete, in that it would be impossible for two senators alone, without staff, to hammer out a deal on legislation like this. So how much of this is just the inevitable consequence of it being a complex world in which we need specialists to carry out a lot of the work of governing, and how much something that should concern us?
RK: I think what should concern us is the fact that so few of our senators and congressmen are policy experts or good legislators. The people who run for Congress now are much more likely to be political warriors for whom partisan warfare is the name of the game. Too few members know or even care about the details of policy, which of course empowers staff.
NI: Your book is more about how Dodd-Frank came to be than the details of how the financial sector ought to be reformed. But now that it’s been the law of the land for three years, what do you think? Do we have stronger, better financial regulation than we did pre-Dodd Frank, or have we not gained enough to offset all the bureaucratic hassle that the banks and others complain about?
A. I don't feel particularly competent to judge this. I do think the system is safer. I think the Dodd-Frank bill will force banks and other financial institutions to be a lot more careful than they were in the run-up to the great crash of 2008.