The unworkable Volcker rule is emblematic of the Dodd-Frank Act as a whole. The Democratic Congress that passed this law — and the Democratic administration that largely drafted it — interpreted the financial crisis of 2008 as a failure of regulation. Accordingly, the Volcker rule and dozens of other provisions thrown into the act are commands to the regulators to impose harsh and in some cases punitive regulation on the financial institutions that were seen as taking advantage of the freedom of action they were imprudently given. The true cause of the financial crisis — the housing policy of the U.S. government, implemented through Fannie Mae and Freddie Mac — was completely ignored. It will take an election to undo the Dodd-Frank Act and address the real cause of what happened in 2008.
Peter J. Wallison is the Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute.