Next Financial Crisis? We're Not Ready, Says Ex-SEC Commissioner
The U.S. isn't prepared for the next financial crisis, according to former SEC Commissioner Daniel Gallagher, who said the Dodd-Frank financial law enacted after the Great Recession should be thrown out and lawmakers should start over.
Gallagher left the SEC in early October after four years as a commissioner, and was a vocal critic about the law.
"Having lived with Dodd-Frank for many years now as an SEC commissioner, it's largely just a series of wish list items that were sort of pent up by certain special interest groups over the years. And when they saw the ability to not let a good crisis go to waste, they unleashed Dodd-Frank," said Gallagher.
The former commissioner said Dodd-Frank has been beneficial to large banks and insurance companies, and has been a barrier to entry for smaller firms, creating a lack of competition. But according to Gallagher, the bigger issue with Dodd-Frank is that it didn't address what actually caused the financial crisis that began in 2007. He believes Congress rushed to address the problem without looking closely at what caused it.
"We were basically still in the middle of the crisis in 2010. We were still feeling strong impacts from it. And they decided to codify, in a rush, a series of mandates based on false narratives," said Gallagher. "It's the narrative that Wall Street greed caused the crisis. It's the narrative that regulatory failures caused the crisis."
"There's really nothing in Dodd-Frank about loose monetary policy. There's nothing in Dodd-Frank about failed federal housing policy. And those of us who have spent a lot of time around the policy world know that those of course are the actual causes of the financial crisis. Not that there wasn't Wall Street greed, not that there wasn't a series of regulatory failures, but those were more symptoms rather than the actual illness," he said.
According to Gallagher, Dodd-Frank should be "written off the law books" and lawmakers should start over and figure out now what could be done to stave off the next -- different -- crisis.
Gallagher, who was a Republican member of the SEC, said he is eager to see regulatory reform ideas put forth by the GOP presidential candidates. He praised Jeb Bush's regulatory reform ideas as "brilliant." Those ideas include rolling back Dodd-Frank and rethinking the regulatory system.
As for the SEC, Gallagher said the agency's role is to ensure transparency and disclosure, and ensure enforcement when necessary.
When asked if SEC can prevent the next financial market collapse or Wall Street crisis, Gallagher responded, "There's a limit to what government can do, and that's one of the things Dodd-Frank does to the detriment of American taxpayer and investing public. To lull them into a sense that the government can take care of everything."
Gallagher added that there has to be a high level of caveat emptor -- let the buyer beware -- in financial markets.