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The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences

ISBN: 978-0-470-94275-8
220 pages
December 2010
The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences (0470942754) cover image
The good, the bad, and the scary of Washington's attempt to reform Wall Street

The Dodd-Frank Wall Street Reform and Consumer Protection Act is Washington's response to America's call for a new regulatory framework for the twenty-first century.

In The New Financial Deal, author David Skeel offers an in-depth look at the new financial reforms and questions whether they will bring more effective regulation of contemporary finance or simply cement the partnership between government and the largest banks.

  • Details the goals of the legislation, and reveals that how they are handled could dangerously distort American finance, making it more politically charged, less vibrant, and further removed from basic rule of law principles
  • Provides an inside account of the legislative process
  • Outlines the key components of the new law

To understand what American financial life is likely to look like in five, ten, or twenty years, and how regulators will respond to the next crisis, we need to understand Dodd-Frank. The New Financial Deal provides that understanding, breaking down both what Dodd-Frank says and what it all means.

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Foreword.

Introduction.

A Few Major Characters.

Chapter 1 The Corporatist Turn in American Regulation.

The Path to Enactment.

The Two Goals of the Dodd-Frank Act.

A Brief Tour of Other Reforms.

Two Themes That Emerge.

Fannie Mae Effect.

Covering Their Tracks.

Is There Anything to Like?

Part I Relearning the Financial Crisis.

Chapter 2 The Lehman Myth.

The Stock Narrative.

Lehman in Context.

Lehman’s Road to Bankruptcy.

Lehman in Bankruptcy.

Bear Stearns Counterfactual.

Road to Chrysler.

Chrysler Bankruptcy.

General Motors “Sale”.

From Myths to Legislative Reality.

Part II The 2010 Financial Reforms.

Chapter 3 Geithner, Dodd, Frank, and the Legislative Grinder.

The Players.

TARP and the Housing Crisis.

Road to an East Room Signing.

Channeling Brandeis: The Volcker Rule.

The Goldman Moment.

Chapter 4 Derivatives Reform: Clearinghouses and the Plain-Vanilla Derivative.

Basic Framework.

Derivatives and the New Finance.

The Stout Alternative.

New Clearinghouses and Exchanges.

Regulatory Dilemmas of Clearinghouses.

Disclosure and Data Collection.

Making It Work?

Chapter 5 Banking Reform: Breaking Up Was Too Hard to Do.

Basic Framework.

New Designator and Designatees.

Will the New Capital Standards Work?

Contingent Capital Alternative.

Volcker Rule.

What Do the Brandeisian Concessions Mean?

Office of Minority and Women Inclusion.

Institutionalizing the Government-Bank Partnership.

A Happier Story?

Repo Land Mine.

Chapter 6 Unsafe at Any Rate.

Basic Framework.

Who Is Elizabeth Warren?

Toasters and Credit Cards.

The New Consumer Bureau.

Mortgage Broker and Securitization Rules.

Consequences: What to Expect from the New Bureau.

What It Means for the Government-Bank Partnership.

Chapter 7 Banking on the FDIC (Resolution Authority I).

Does the FDIC Play the Same Role in Both Regimes?

How (and How Well) Does FDIC Resolution Work?

Moving Beyond the FDIC Analogy.

Chapter 8 Bailouts, Bankruptcy, or Better? (Resolution Authority II).

Basic Framework.

The Trouble with Bailouts.

Who Will Invoke Dodd-Frank Resolution, and When?

Triggering the New Framework.

Controlling Systemic Risk.

Third Objective: Haircuts.

All Liquidation, All the Time?

Part III The Future.

Chapter 9 Essential Fixes and the New Financial Order.

What Works and What Doesn’t.

Staying Derivatives in Bankruptcy.

ISDA and Its Discontent.

Other Bankruptcy Reforms for Financial Institutions.

Plugging the Chrysler Hole in Bankruptcy.

Bankruptcy to the Rescue.

Chapter 10 An International Solution?

Basic Framework.

Problems of Cross-Border Cases.

Scholarly Silver Bullets.

Dodd-Frank’s Contribution to Cross-Border Issues.

New Living Wills.

A Simple Treaty Might Do.

Risk of a Clearinghouse Crisis.

Reinvigorating the Rule of Law.

Conclusion.

Notes.

Bibliography.

Acknowledgments.

About the Author.

Index.

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DAVID SKEEL is the S. Samuel Arsht Professor at the University of Pennsylvania Law School. He is author of Icarus in the Boardroom: The Fundamental Flaws in Corporate America and Where They Came From; Debt's Dominion: A History of Bankruptcy Law in America; and numerous articles on bankruptcy, corporate law, and other topics. His commentary has appeared in the New York Times, Wall Street Journal, Weekly Standard, Books & Culture, and elsewhere.
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January 03, 2011
The New Financial Deal

"While we wait and wonder what the true denouement of the Dodd-Frank Act will be, we are blessed with Professor David Skeel's timely, informative, and lucid explanation of the ins and outs of the new law. For readers trying to understand what Dodd-Frank will likely mean for Wall Street's future—and for ours—Skeel skillfully dissects the Act's nuances and intricacies and provides regulators a road map for how to make sure Wall Street doesn't double-cross us again anytime soon. It's a must-read."

—From the Introduction by William D. Cohan, bestselling author of House of Cards, The Last Tycoons and a book on Goldman Sachs to be published in 2011

What would have happened if the government hadn’t bailed out some of the country’s largest and most well-established institutions, such as Bear Stearns, AIG, Citigroup, and Bank of America, in 2008?  When President Obama signed the new Dodd-Frank Wall Street Reform and Consumer Protection Act last July, he proclaimed that bailouts like these would never be necessary again.  Is this true?  And what exactly does the new legislation do?

In The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences (WILEY; Hardcover; December 2010; $34.95; 978-0-470-94275-8), author, David Skeel offers answers to all of these questions and more.   Skeel analyses each of the main components of the Dodd-Frank Act, explaining how they will work and showing that the new regulatory framework depends on precisely the qualities that Americans found so offensive about the bailouts of 2008: special treatment of the largest financial institutions and ad hoc intervention in the event of trouble. 

Skeel’s assessment is not entirely pessimistic, however.  He argues that a few features of the Dodd-Frank Act are genuine improvements, such as its regulation of financial derivatives and the new Consumer Financial Protection Bureau, and he outlines several simple bankruptcy reforms that would curb the worst excesses of the new partnership between the government and the largest financial institutions.  Skeel also considers the international implications of the new law, concluding that its principal contribution to cross-border issues is a requirement that the largest financial institutions prepare “living wills” detailing how they would limit damage to the global financial system if they failed.

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