In July 2010, President Obama signed the Dodd-Frank financial-reform bill. Thanks to the law, "no firm is ... protected because it is 'too big to fail,'" the chief executive said. Three years later, nobody — including the regulators who are supposed to implement it — knows quite what Dodd-Frank does.
Now, Obama faces pressure from left and right to fix his financial fix. And in 2016 —eight years after Lehman Brothers failed — reining in Wall Street could lurk again as an election issue.
Dodd-Frank is 848 pages — but that was just the start. The law directed regulators to make 398 rules. By July 1, according to the David Polk law firm, only 38.9 percent of these rules were final. (Regulators have yet to propose 31.9 percent.)
The missing rules are not arcana. Consider the "Volcker Rule," one of Obama's signature Dodd-Frank achievements. Named after the former Fed chairman who suggested it, the Volcker Rule prohibits "banking entities" from speculative trading. The idea is that banks that benefit from some sort of guarantee — such as federal deposit insurance for customers or recourse to Fed's lending programs - should not be able to use that guarantee to speculate.
The Volcker Rule was supposed to take effect last year. But it's still not final — even as some banks, including Goldman Sachs, are reporting robust earnings from activities that sure look like speculative trading.
The rule has been blinded by its own small print. Regulators are unable to figure out what kind of trading constitutes reducing risks (allowed under the law) and what trading is speculative (not allowed).
The problem is the law, which offers no clear definitions.
Regulators can't come out and criticize lawmakers, so top officials at the Fed, the Securities & Exchange Commission, and the Commodity Futures Trading Commission have been mysteriously quiet.
Bart Chilton, a Bush holdover on the CFTC board, offered a recent clue. He said in a June speech that the rule, "frankly, might be on life support."
What Chilton said after was intriguing. "A weak Volcker Rule would be big trouble" for banks, he warned. "People are mad as hell. ... Some want to go back to Glass-Steagall" — the Depression-era law that outright separated deposit banking (considered safe) and investment banking (not safe).
Enter Elizabeth Warren, the freshman Democratic senator from Massachusetts. Earlier this month, Warren, together with Arizona Republican Sen. John McCain, Washington Sen. Maria Cantwell, a Democrat, and Maine Sen. Angus King, an independent, unveiled "the 21st Century Glass Steagall Act."
The act would do what the first Glass-Steagall did — hive off commercial-deposit banks from high finance.
The new Glass-Steagall bill comes months after Sen. David Vitter, a Louisiana Republican, and Sen. Sherrod Brown, an Ohio Democrat, introduced a bill that would require big financial institutions to keep 8 percent capital cushions - no matter what.
Their bill, the "Terminating Bailouts for Taxpayer Fairness Act," or TBTF, could shrink large banks as Warren's would, as the new penalty for size could outweigh the benefit.
The bills aren't panaceas. But are they theater? Not really.
First, they're indications that Obama has failed in financial regulation. One might expect such criticism from Vitter and from the Republican-controlled House. But Warren?
Remember, she got herself elected — so owes Obama nothing.
A Warren-Vitter team-up on a compromise bill could pose a real threat to Big Finance.
Second, the bills are a fair warning shot to mainstream presidential candidates of both parties: Voter anger about too-big-to-fail continues to burn. Mitt Romney lost partly because he didn't grasp this mood. Northeastern moderates of both parties, in particular, beware.
Third, the bills are stark protests against unnecessary complexity. Warren's bill, the longer of the two, is just four percent of Dodd-Frank's length. That's good, because too-big-to-understand is no weapon against too-big-to-fail.
Nicole Gelinas (@nicolegelinas on Twitter) is a contributing editor to the Manhattan Institute's City Journal.