What’s Next for Dodd-Frank?

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Chip Somodevilla/Getty Images Photo: Bloomberg/2010 Bloomberg

Dodd's gone and Frank's leaving. And now, Politico reports, opponents of their controversial Wall Street reform package are planning to take it down in the courts. On all fronts, the future of the biggest piece of financial regulation in history is looking dicey.

Republicans and big banks have been buoyed by two recent victories over and within the Securities and Exchange Commission. Last summer, a D.C. circuit court ruled that the agency had "acted capriciously" by failing to take into account the "economic consequences" of enforcing Dodd-Frank. Second, in recent months, the SEC itself has moved to bolster a new, business-friendly internal division: Risk, Strategy and Financial Innovation.  A wave of conservative legal briefs focusing on economic costs could slowly chip away at key Dodd-Frank provisions. The SEC could be forced to "find cheaper alternatives to the newly mandated rules."

And Republicans have the SEC in a budget bind. It needs to expand its staff in order to effectively enforce Dodd-Frank's 2,319 pages of new rules. But a GOP-majority house will never vote to fund a regulatory agency. In losing Barney Frank, the agency and its massive bill have both lost their most wonkish, truculent defender, adept at cutting deals to eke out dollars. The next chairman of the Financial Services Committee is likely to be its next most senior member: Maxine Waters. The L.A. congresswoman would bring along a confrontational, often stubborn ideology, and the fiery hatred of every Republican ever. And she's under an ethics investigation, after a bank (in which her husband owned thousands of shares) got a special meeting on the Hill — and, eventually, $12 million in bailout money.

It gets worse. Dodd-Frank's enemies will be mounting their attacks on an already-weakened bill. Dodd-Frank itself was supposed to be a work in progress. The bill mandated that regulators write over 200 new rules on everything from derivatives to predatory lending. But in September, the Times reported that they were horribly behind schedule: The S.E.C. had missed 53 deadlines, and 77 percent of the rules had gone unwritten. And the most important Dodd-Frank provision, the Volcker Rule — which prevents banks from leveraging out personal deposits — has yet to be enforced and is being filled with new loopholes. As economist Paul Volcker himself, the rule's namesake, put it: "I’d write a much simpler bill."

On the bill's first anniversary in July, Republican congressmen celebrated; they had already pushed through a number of bills reining in Dodd-Frank, and are still planning more. Now, with Frank leaving, Waters at stage right, court challenges looming, the SEC floundering, and regulations going unenforced, the future of one of Obama's biggest first-term victories is looking bleak.

Not Wall Street's, though. According to a recent survey of hedge-fund managers, they've barely even noticed the new regulations. Always a silver lining.