Joe Nocera's column today argues that the financial industry may have a legitimate complaint when it says that the Dodd-Frank financial reform bill is too complicated. While the law is complicated in many areas, it is important to recognize that in many cases the industry was the source of the complication.
For example, there was a widely held view following the experience of AIG, which had issued hundreds of billions of dollars worth of credit default swaps outside of the purview of any regulator, that derivatives should be traded either on exchanges or through clearinghouses in order to increase transparency. Rules to this effect were included in Dodd-Frank.
However, the financial industry wanted to preserve the option to trade some derivatives over-the-counter. Therefore they included a series of exemptions in the legislation.
These exemptions are quite complicated. In contrast, a blanket requirement that derivatives had to be traded through a third party would be relatively simple. However it was the industry that added the complexity.
There are many other areas where a similar story could be told. That is why it is hypocritical for someone like J.P. Morgan CEO to complain about the complexity of the legislation.
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