Columbia University’s Calomiris criticizes Dodd-Frank

Charles Calomiris

Charles Calomiris, a professor of financial institutions at Columbia Business School and a financial historian, recently said in an interview that the Dodd-Frank Act does not address the issues that fueled the 2008 financial crisis.

“I don’t know anyone who understands what happened who would say that Dodd-Frank solves the problems that created the financial crisis,” Calomiris said, according to Barron’s. “The legislation runs 2,300 pages, and so it would take some time to explain what Dodd-Frank got wrong and what it should have done instead.”

Calomiris also spoke on the Volcker Rule ban on proprietary trading, saying that proprietary trading had nothing to do with the financial crisis.

“Even Paul Volcker practically admits that,” Calomiris said, Barron’s reports. “We all have our laundry lists of what we would like to see done. Paul Volcker is somebody who has been around for a long time, and has a long laundry list. Proprietary trading…is just something he doesn’t like, and Barack Obama wanted to hear Volcker’s ideas. So basically he gets a free pass to bring his laundry list to the Dodd-Frank bill.”

Calomiris added that Dodd-Frank does not address bad mortgage lending, one of the driving forces in the housing and financial crisis of 2008.

“There is no attempt in Dodd-Frank to address the key problem of government subsidization of mortgage risk, and the exposures of Fannie Mae, Freddie Mac and the Federal Housing Administration are still growing,” Calomiris said, according to Barron’s. “There is a powerful political interest that wants real-estate lending to be sponsored by the government.”

Calomiris said that regulators, now charged with preventing another financial crisis, were actually a reason for the 2008 financial crisis.

“The regulators are willing accomplices. That’s why you shouldn’t even be allowed to talk about regulatory reform unless you can answer two important questions,” Calomiris said, Barron’s reports. “First, how will the regulated banks not be able to get around it? And second, why will the regulator have an incentive to enforce it?”

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