Is Dodd-Frank Helping Financial Stocks Post-Lehman?
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into federal law by President Obama three years ago. Introduced by former Senate Banking Committee Chairman Sen. Chris Dodd (D-Conn.) and former House Financial Services Committee Chairman Rep. Barney Frank (D-Mass.), the Dodd-Frank Act set in motion the largest financial overhaul since the Great Depression — which is fitting, because the legislation is designed to address the largest financial disaster since the Great Depression.
For many, the bankruptcy of Lehman Brothers, once the fourth-largest investment bank in the world, marks the height of the crisis. The firm filed for Chapter 11 in September 2008, about half a year after Bear Stearns collapsed. A year later, headline unemployment in the United States would reach 10 percent. American gross domestic product contracted for five out of eight quarters in 2008 and 2009, and nearly 2.6 million homes were foreclosed on through 2012. The U.S. Treasury estimates that $19.2 trillion in household wealth evaporated.
While a number of factors came together to cause the crisis, the financial sector was at the heart of it. Major financial institutions and an opaque system of shadow banking, overambitious securitization, and negligent credit ratings cast a pall over the sector. Public opinion turned instantly and vehemently against Wall Street, and even the investing community turned away from the big banks.