In a classic main stream media puff piece, the New Yorker ran an article defending the Dodd-Frank Act and asserting its impact has been much bigger than is commonly appreciated.  Let’s grant this is true.  Unfortunately, what the article then shows is just how far we have to lower the bar to claim the Act is a success.  The article sets the bar for success at marginal change.  This is dramatically lower than where the bar for success for this Act is actually set.  The bar is set dramatically higher because the Obama Administration, politicians and financial regulators all claim the Act represents real reform.

My point in bringing this article to readers attention was not to spend a lot of time debunking the article, but to focus on one of its concluding paragraphs.

Dodd-Frank’s success is important in its own right. But it also teaches us an important lesson about regulation more generally. For decades, the debate over regulation in the U.S. has been dominated by those who believe that, in the words of the Chicago School economist Eugene Fama, “even the best-constructed regulation is bound to fail.” As Fama put it a couple of years ago, “Eventually, the regulators get captured by the people they regulate.” Regulatory capture is always a danger. But the history of financial reform after the crisis shows that it’s not inevitable: if you have well-designed rules, and if regulators have the resources and the public support to enforce them, industry does not always win. Before Dodd-Frank became law, Wall Street lobbied furiously to emasculate it, but the attempt failed. Likewise, the banks’ efforts at softening the bill’s provisions during its implementation have often been unsuccessful.

This paragraph tells the story of transparency and the Transparency Label Initiative.  After the Great Depression, Wall Street fought against the creation of the SEC to enforce transparency.  With the passage of time, Wall Street eventually captured the SEC and with this regulatory capture enforcement of transparency effectively came to an end.  The Transparency Label Initiative restores enforcement of transparency to the global financial markets and shows Wall Street doesn’t always have to win even when it captures the regulator.