News Release

Ten Years After Dodd-Frank, Another Crisis, Same Pattern: Big Banks First


Dodd-Frank was signed into law ten years ago today. Edward Kane, a leading expert on banking, argues that contrary to the praise heaped upon it, it’s an “example of counterfeit reform” that was “designed principally to benefit very big banks and it has helped these banks to increase their market share greatly during the last ten years” — and that it set a dangerous, elitist precedent that is operating today with government action since the pandemic.

EDWARD KANE, edward.kane at
Professor of finance at Boston College, Kane has held a number of notable positions including past president of the American Finance Association. He just wrote the paper “Immaculate Deception: How and Why Bankers Still Enjoy a Global Rescue Network” for the Institute for New Economic Thinking.

Kane writes: “Today, as during the Great Financial Crisis, the Fed’s policy strategy has been to prevent open insolvencies at U.S. megabanks by making subsidized loans to U.S. megabanks’ insolvent foreign counterparties (and to the foreign taxpayers that would otherwise have been asked to rescue them). At the same time, Fed leaders have resisted a broad-based bailout of insolvent U.S. homeowners and landlords. During the GFC, they stood by as U.S. banks foreclosed on all but a few privileged categories of distressed mortgage borrowers. Although households are receiving some help in the current go-around, forbearance is not forgiveness. Unpaid rents and mortgage payments are still mounting up.

“The overwrought praise that Wall Street and the media subsequently heaped on Treasury and Federal Reserve leaders for being willing to punish lower-income households to get the rich through the Great Financial Crisis established a nasty precedent that is guiding monetary policy today. This unspoken precedent is ‘Bankers and Brokers first.’ …

“The 2008 troika of [Ben] Bernanke, [Timothy] Geithner, and [Henry] Paulson congratulated themselves for having the ‘courage’ to put the interests of foreign bankers and major U.S. financial institutions (including a few of its automobile makers — think the airlines and tourism industry today) ahead of ordinary U.S. citizens. The victory laps that Barney Frank and Chris Dodd are taking this week for passing Dodd-Frank not only celebrate this approach, but provide opportunities for them to claim that they rescued rich and poor alike from complete and utter ruin.

“This portrait of distributional neutrality is propaganda of a high order. Current and former Fed and Treasury officials cannot fail to understand that, in accepting so much adulation, they have cemented a series of dangerous precedents. …

“Aggressively devising creative, nontransparent, and arguably extralegal ways to transfer massive amounts of U.S. taxpayer resources to wealthy stakeholders in zombie megabanks around the world is a dangerously elitist strategy.

“Experience teaches us that corporate-level reforms do not and cannot hold their effectiveness over time. Rules beget regulation-induced innovations and these burden-reducing innovations become more and more successful over time. The difficulty governments face in devising and enforcing appropriate punishments for individual bankers that knowingly exploit safety-net protections converts national and regional safety nets into what amounts to a global Protection Racket operated by — and for the benefit of — thieving megabankers.”

Kane concludes: “Genuine reform will require changes in fraud laws and an effort to post on a continuing basis the value of the safety-net subsidies individual megabanks enjoy.” See PDF of the paper.