Regulations are far too often created after the fact. After the damage has been done; after we’ve been crushed. That’s just the way it seems to work. Reform is reactive when it needs to be proactive, precautionary, and visionary.
Barney Frank, House of Representatives, and Chris Dodd of the Senate Banking Committee proposed the Dodd-Frank Wall Street Regulatory Reform and Consumer Protection Act in 2009. It was signed into law by President Obama in 2010 after a ten year “bubble in the making” cascaded the United States toward financial Armageddon.
The sentiment behind the Act was inspired by a desire and interest to create a system that was accountable and transparent. We had lost sight of checks and balances. The Act’s moral compass focused on protecting the American taxpayer, the consumer and shareholders and investors from bailouts, and a myriad of abusive financial practices, products and methodologies. Imporving investor relations can only improve a company's performance and bottom-line.
Risk management is essential for transparency and accountability. We, the people, are entitled, on the most basic human and business levels, to protection, consideration and respect. The Volcker Rule attempts to control the behavior of depository banks, as well as monitoring and limiting equity and hedge fund investing within reasonable limits. The SEC had the courage and wherewithal, for example, to rule on proxy access which allowed shareholders to promote from within for board of directors positions. This is a clear step toward shareholder empowerment.
Where are we now? Risk is currently being managed more effectively. Leverage is modulated. We have come a long way since Long Term capital Management touted their “system” that frequently leveraged at ratios of up to 300 to 1. Our current crisis has been nearly 20 years in the making, and the collapse of LTCM may well have been the initial catalyst.
The Dodd-Frank act appears to have built in new controls, methodologies, protections, disclosures, and reforms that will ideally serve the American taxpayer, and the voiceless investor. Going forward the playing field should be more level in spite of inherent bumps and endless excitement.
Bottom-line: Treachery can lurk beneath the floor boards. The markets must be maintained and respected. Adverse market actions wreak havoc, and we all pay beyond human comprehension for transgressions whether we have actually perpetrated them. History, especially recent history, has hopefully taught us well. Shareholder education is of paramount importance. At the most basic level, policy reflects philosophy and regulation is the methodology to monitor it effectivley.
To contact Christopher Bayer directly, please email Christopher.Bayer@TheShareholderActivist.com.