Chris Dodd and Barney Frank: Wall St. Reformers —The 2015 IA 35 for 35

The whistleblower [office] at the SEC is producing some incredible results. You can’t rely on well-intended regulators to find things out, but honest people working in the financial services sector, when they see something they think is terribly wrong, they can actually go directly to the regulator instead of going through the company where the likelihood that they’re not going to get much of a redress, in fact if not fired, has already demonstrated its value as well.

What I said from the very beginning in all of this [Dodd-Frank legislative process], I can’t pass a law to do this: How do I restore people’s confidence in something so critical, the element of confidence in our financial systems? People have to have that. To lose confidence is devastating and confidence was shattered through this [financial crisis].

Twenty-six million people lost their job, $13 trillion in wealth evaporated, iconic institutions disappeared, 5 million homes went into foreclosure—people have forgotten all of this. It was massive what happened. And the confidence was absolutely ripped apart in the country. If I could do anything at all in this [reform law, I wanted to] bring confidence back, where people trust the financial structures of our country; more than anything else, [that’s] what I tried to do with all of this. I think we did to a large extent, but I’ll never claim perfection.

MW: How do you feel about Securities and Exchange Commission Chairwoman Mary Jo White stating that she believes the agency should move ahead in crafting a uniform fiduciary rule? Do you see that as another step in restoring confidence?

Sen. Dodd: Well, I hope so. This is one area—there were a couple areas—that were just hard [in crafting Dodd-Frank]. This one was really complicated. I didn’t feel, with all respect to my colleagues, the 535 members of Congress could sort out in an amendment in a bill this important relationship [between the investor and advisor/broker]. So we deferred and left it to people who would spend the kind of time and listen through comment periods and so forth to sort this out.

I have a lot of confidence in Chair White; I think she’s competent, knows the subject and has good people. I trust her to come out with something that makes sense in all this. I was torn myself; I met with people on all sides of that equation, and I would have been hard-pressed to write some language that would have satisfied myself. I just didn’t feel competent. This was a tough call, that [fiduciary] issue; that’s why in the end we left it up to the SEC to sort through it.

[Dodd-Frank rulemaking] is down to a couple of issues. Most of the regulators have finished their work–we’re down to a handful of issues left, not insignificant ones—but  they are mostly done in terms of the work that had to be done by the regulatory bodies.

MW: How do you feel about Labor Secretary Tom Perez moving forward with the DOL’s fiduciary rulemaking under ERISA? That’s causing a lot of stir on the Hill.

Sen. Dodd: I understand entirely from those who provide the services where they’re coming from. The consumer’s side I’m not sure understands the distinction between fiduciary relationships. To the extent that we can provide more clarity for that solves a lot of it. I haven’t read the details; I know it’s controversial and there’s a lot of concern about it.

MW: Barney Frank said recently President Obama would continue to protect Dodd-Frank from rollbacks. Are you confident as well?

Sen. Dodd: Oh yeah. The president is not going to sign any legislation that’s going to repeal this. In fact, I just got off the phone earlier today with a bank, one you know very well, a large successful institution. They said: ‘This [Dodd-Frank law] is working. We’re a better bank today because of this. […] We feel we’re serving our customer base better because of our capital standards, our liquidity standards, strengthening our capital, eliminating moral hazards and so forth.’

MW: Where do you think the next crisis will come from?

Sen. Dodd: Here’s my worry: [During the 2007-2010] crisis, it was a European/U.S. type of thing. We’re now moving very quickly, […] and our closest allies are moving, in a global marketplace. The next crisis is going to involve India, Brazil, China, Japan and elsewhere, and getting that all together is going to be a lot more difficult than it was dealing with this [Dodd-Frank] bill and the European Union. That’s what I worry about, as you see the globalization of financial services and where finances can migrate at the speed of light; that’s what worries me.

MW: You mean their economies, products, oversight worries you?

Sen. Dodd: Products, how they deal with financial services, their regulatory oversight—all the things that go on. The appetite to attract capital in the places where the regulatory structures are weaker and the oversight is almost nonexistent, it gravitates and it moves [to these places]. I’m not talking about the Cayman Islands now or the Isle of Man. I’m talking the major global players—when they go wrong and go south on you, you could be in huge problems that make the fall of 2008 pale in comparison. That worries me.

MW: I’m sure you’re having more fun where you are now.

Sen. Dodd: Now the only thing that dies is a bad movie.

— More from The 2015 IA 35 for 35:

• Ben Bernanke: Professor Turned Policymaker
• Warren Buffett: A Different Kind of Owner
• Ken Dychtwald: Retirement Gets a Facelift