In late 2010, Bart Chilton, one of three Democratic commissioners at the U.S. Commodity Futures Trading Commission (CFTC), walked into an upper-floor suite of an executive office building to meet with four top muckety-mucks at one of the biggest financial institutions in the world.

There were a handful of staff members present, but it was a pretty small gathering—one, it turns out, that Chilton would never forget.

The main topic Chilton hoped to discuss that day was the CFTC’s pending rule on what are known as “position limits.” If implemented properly, position limits would put a leash on speculation in the commodities market by making it harder for heavyweight traders at places like Goldman Sachs and JPMorgan Chase to corner a market, make a killing for themselves, and screw up prices for the rest of us. Position limits are also one of many ways to tamp down the amount of risk big institutions can take on, which keeps them from going belly up and minimizes the chance taxpayers will have to bail them out.

The financial institution Chilton was meeting with that day was a big commodities exchange, which is like a stock exchange except that instead of trading stocks they trade derivatives based on the value of actual products, like oil and gas. Chilton wouldn’t say which major commodities exchange he was meeting with that day, but suffice it to say two of the biggest—the Chicago Mercantile Exchange and Intercontinental Exchange—have a lot to lose from federally administered position limits. To them, the more derivatives traded, the better. They’ve been fighting the CFTC’s attempts to establish position limits for years.

The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010 seemed to promise meaningful reform on this front. The law includes Section 737, which explicitly directs the CFTC to establish position limits and lays out detailed guidelines on how they should do so. “The Commission shall by rule, regulation or order establish limits on the amount of positions, as appropriate,” it reads.

Still, even with the strength of the law behind him, Chilton waited until the end of the meeting to broach what he knew would be a tense subject. He began diplomatically. Now that the CFTC was required by law to establish position limits, his commission wanted to do so “in a fashion that made sense—one that was sensitive to, but not necessarily reflective of, the views of the exchange,” he told the executives.

Chilton’s gracious overture fell flat. His hosts, who had been openly discussing other topics moments before, were suddenly silent. They deferred instead to their top lawyer, who explained that the exchange’s interpretation of Section 737 was that the CFTC was not required to establish position limits at all.

Chilton was blindsided. While other parts of Dodd-Frank were, admittedly, vague and ambiguous and otherwise frustrating to those, like him, who were tasked with writing the hundreds of rules associated with the act, Section 737 didn’t exactly pull any punches. The Commission shall establish limits on the amount of positions, as appropriate.

“You gotta be kidding,” Chilton told the executives. “The law is very clear here. The congressional intent is clear.”

But the executives stood their ground. Their lawyer quietly referred Chilton to the end of the sentence in question: as appropriate. Those two little words, the lawyer said, clearly modify the verb “shall.” Therefore, the statute can be interpreted as saying that the commission shall—but only if appropriate—establish position limits, he explained.

Anyone with a passable command of the English language should, faced with that argument, feel both dismay and a grudging sort of admiration. After all, given the context in which that sentence appears, the sheer brazenness of such a linguistic sleight of hand is, in a way, inspired. It’s the kind of thing that would make Dick Cheney and John Yoo proud. Joseph Heller has written books on less.

But it’s still, rather obviously, just that: a linguistic sleight of hand. The words “as appropriate” have appeared in statutes governing the CFTC’s authority to implement position limits for at least forty years without challenge. In fact, the CFTC used the authority of that exact line, complete with its “as appropriate,” to establish position limits on grain commodities decades ago. Even those who drafted Dodd-Frank later weighed in, saying they had intended for the language to explicitly instruct the CFTC to establish position limits at levels that were appropriate. The summary of Dodd-Frank, drafted by the Congressional Research Service, doesn’t quibble either: “Sec. 737 Directs the CFTC to establish position limits,” it reads. No ifs, ands, or “as appropriate”s.

“But this kind of thing”—manipulating the minutiae—”is how the game is played,” said Bartlett Naylor, a financial policy advocate at Public Citizen, one of a handful of public interest groups tracking the rule-making process for Dodd-Frank. Since the law passed, the financial industry has been spending billions of dollars on lawyers and lobbyists, all of whom have been charged with one task: weaken the thing. One strategy has been to carve loopholes into the language of the law, Naylor said. A verb. An imprecise noun. A single sentence in an 876-page statute. “With a thousand lawyers on your payroll, that’s nothing.”

In the meeting that day, Chilton couldn’t believe what he was hearing. He pointed out to the executives that, in Dodd-Frank, Congress had not only directed the CFTC to establish position limits, it had also imposed a deadline asking the commission to do so months before almost any other rule. It was obvious, he argued, that it was a matter of when position limits would be in place. Not if.

But the executives refused to discuss the matter further. The meeting ended abruptly, and Chilton wandered out into the hallway, dazed and reeling. One of the muckety-mucks from the meeting walked with him to the elevator. While they waited, away from the rest of the group, Chilton turned to his host. “You guys have got to be kidding about this ‘as appropriate’ stuff, right?” he said.

“I know,” the muckety-muck replied, admitting it was a stretch. He let out a little chuckle—”but that’s what we’re going with.”

“He laughed,” Chilton told me recently, remembering that day. “He was laughing about how ludicrous it was.”

A couple of months after that inauspicious meeting, the CFTC released a proposed rule establishing position limits on oil, gas, coffee, and twenty-five other commodities markets. They received about 15,000 letters during the public comment period and spent the next six months reading through all of them, incorporating the suggestions into the draft, meeting with industry and consumer groups, and revising the rule. Fearful of being sued, the CFTC held off voting on the rule several times and agreed to delay its implementation for a year to help financial institutions comply. Finally, in October 2011, the CFTC issued a final rule. It was a victory, but a short-lived one.

Two months later, two powerful industry groups, who together represent the biggest speculators in the world, hired Eugene Scalia, the son of Supreme Court Justice Antonin Scalia, as their lead counsel, and launched a lawsuit against the CFTC. The Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association were suing on the same grounds that the exchange executives’ lawyer had cited in that meeting with Chilton a year earlier: the CFTC had not demonstrated that establishing position limits was necessary and appropriate, they claimed. They also argued that the commission had not sufficiently studied the economic impact of the rule.

House Democrats and nineteen senators, some of whom had drafted Dodd-Frank, petitioned the court to rule in favor of the CFTC, a handful of op-eds beseeched judges to do the right thing, and financial reform advocates called foul.

None of it made a difference. In September 2012, the U.S. Court for the District of Columbia Circuit overturned the CFTC’s rule. In the decision, the court wrote that the commission lacked a “clear and unambiguous mandate” to set position limits without first demonstrating that they were necessary and appropriate. And with that, more than two years after the passage of Dodd-Frank, there were still no federally administered position limits for any commodities except grain, and the CFTC was back to square one. The muckety-mucks at the exchanges rejoiced, as appropriate.

Welcome, dear readers, to the seventh circle of bureaucratic hell.

As Obama begins his second term, all the talk in Washington is about whether ongoing congressional gridlock and soul-crushing partisanship will block the administration from achieving significant legislative victories, be they immigration reform, a big fiscal deal, or an infrastructure bank. But at least as important to the future of the country and to the president’s own legacy is whether that potentially game-changing legislation he signed in his first term—like the Affordable Care Act and Dodd-Frank, as well as a slew of other landmark bills—is actually implemented at all.

It may seem counterintuitive, but those big hunks of legislation, despite being technically the law of the land, filed away in the federal code, don’t mean anything yet. They are, in the words of one CFTC official, “nothing but words on paper” until they’re broken down into effective rules, implemented, and enforced by an agency. Rules are where the rubber of our legislation hits the road of real life. To put that another way, if a rule emerges from a regulatory agency weak or riddled with loopholes, or if it’s killed entirely—like the CFTC’s rule on position limits—it is, in effect, almost as if that part of the law had not passed to begin with.

As of now, there’s no guarantee that either Obamacare or Dodd-Frank will be made into rules that actually do what lawmakers intended. That’s partly because the rule-making process is a dangerous place for a law to go. We might imagine it as a fairly boring assembly line—a series of gray-faced bureaucrats diligently stamping laws into rules—but in reality, it’s more of a treacherous, whirling-hatchet-lined gauntlet. There are three main areas on this gauntlet where a rule can be sliced, diced, gouged, or otherwise weakened beyond recognition.

The first is in the agency itself, where industry lobbyists enjoy outsized influence in meetings and comment letters, on rule makers’ access to vital information, and on the interpretation of the law itself.

The second is in court, where industry groups can sue an agency and have a rule killed on a variety of grounds, some of which make sense and some of which most definitely do not.

The third is in Congress, where an entire law can be retroactively gutted or poked through with loopholes, or where an agency can be quietly starved to death through appropriations bills.

And here’s the really alarming part: rules run this gauntlet largely behind closed doors, supervised by people we don’t elect, whose names we don’t know, while neither the media nor great swaths of the otherwise informed public are paying any attention at all. That’s not because we don’t care what happens; we do. After all, millions of us spent the better part of a year closely monitoring the battles to pass Obamacare and Dodd-Frank. Remember? It was high drama! Every detail was faithfully chronicled in front-page headlines and long disquisitions on The Rachel Maddow Show; in countless posts by wonky bloggers, who dissected every in and out, every committee hearing, every new study about the public option or the Volcker Rule.

That kind of stuff is the Washington journalist’s bread and butter: the artful, insidious process by which a bill becomes a law. And since reporters know how the process works, how influence gets wielded and where the pressure points are, the rest of us were able to follow along closely. We knew what to root for, what to keep our eye on, and which decision makers in Washington we could remind to do the right thing.

But fast-forward a couple of years, and as the fate of those very same laws is being determined in the rule-making process we’ve found ourselves distracted by new shiny objects, like women in combat and how Pennsylvania will allocate its electoral votes in 2016. Part of the reason for that, no doubt, is that many Washington journalists, underpaid, overworked, and required to write a dozen blog posts a day, don’t have time to dedicate to following the rule-making process. Others simply don’t understand it.

Regardless, the result is that the rest of us haven’t followed the progress of these landmark laws in anywhere near the same way that we followed it during the legislative process. And in our inattention we’ve made it infinitely easier for industry lobbyists and members of Congress who voted against the laws to begin with to destroy them by subtle, nuanced, backdoor means. By quibbling over “as appropriate”s and misplaced verbs. By crafting crafty legal arguments and drowning understaffed rule makers in industry-funded hogwash. This is the way a law ends: not with a bang but with a whimper.

For purposes of illustrating the problem, this article will focus on just one of these landmark laws, Dodd-Frank. It passed more than two and a half years ago, in July 2010, but most of its rules have yet to make it through the rule-making gauntlet. While many liberals have already written it off as a total failure—some were, in fact, writing its eulogy the day it passed—it’s time we had some perspective. It’s true that it’s not as strong as many experts on financial markets had called for. It’s true that it doesn’t break up the big banks, nor fundamentally change the structure of our financial system. We may have been hoping for, say, a bulletproof SUV with state-of-the-art airbags; what we got instead are a few seat belts that need to be welded into our old rig. But as of now, those jury-rigged seat belts are the only thing we’ve got, and given the gridlock on the Hill they’re all we’re likely to get. And the truth is that they’re strong enough that the financial industry is willing to spend billions of dollars to keep them from being installed.

As of now, roughly two-thirds of the 400-odd rules expected to come from Dodd-Frank have yet to be finalized. That includes big, potentially game-changing rules governing inappropriate risk taking and international subsidiaries of American banks, and how exactly we’ll go about regulating derivatives. In the next year or so, the vast majority of these rules will be launched down the rule-making gauntlet. The necessary first step in assuring that they come out the other end as strong as they should be—or that they come out the other end at all—is to understand the challenges they’ll face along the way.

The Basic Rules of Rule Making

The rule-making process is governed by the Administrative Procedure Act, which became law in 1946, in response to the New Deal-era expansion of the federal bureaucracy. In the late 1930s and early ’40s, all the new agencies were dancing to their own beat; the APA established a system-wide metronome. Since then, a handful of other laws have been passed, including the Regulatory Flexibility Act, Paperwork Reduction Act, Government in the Sunshine Act, and Congressional Review Act, which also govern parts of the process; but for the most part the APA is the foundation.

Every stage in the rule-making process is guided by the APA. It begins the moment a law is passed and shunted off to the regulatory agency that will oversee its implementation. Once it’s in the agency, the APA governs the activities of a team of rule makers—researchers, analysts, economists, and lawyers—who do a bunch of fact gathering, perform studies, and hold a ton of informational meetings in an attempt to get a handle on how best to abide by the intention of the law and how to apply that intention to real life. Since big laws like Obamacare and Dodd-Frank deal with complex issues, Congress often makes the statutes deliberately vague, deferring to rule makers’ technical expertise and policy decisions, and giving them a significant amount of authority on how to interpret a law. All of that interpretation generally happens in the very beginning of the rule-making process, which is called the Notice of Proposed Rulemaking, or, in the acronymic parlance of the federal bureaucracy, NPRM.

After spending months and months in the NPRM process, the agency eventually publishes a proposed rule, on which, the APA stipulates, the public gets an “adequate” amount of time to comment. Usually, that’s about sixty days, but it can be shorter or longer, depending on how complex or controversial a rule is. After that, the rule makers revise the rule again, taking into account concerns raised by regulated industries and the public’s comment letters.

From there, executive branch agencies like the Food and Drug Administration and the Environmental Protection Agency send their rules to the White House Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA), which reviews the projected costs and benefits of those agencies’ major new rules, as well as the suggestions of other agencies, before the final rule is published and implemented. At independent agencies like the Securities and Exchange Commission (SEC) and the CFTC, a bipartisan panel of commissioners publicly debates and votes on the rule—a process that often results in further revisions and compromises.

Like the rest of us, rule makers use the Track Changes feature in Microsoft Word, which assigns a different color font to each contributor. By the time a complex rule has made it through this whole process, it is “lit up like a Christmas tree,” said Leland Beck, who worked for various agencies for thirty years and practiced administrative law. “A rule becomes a decision on all the comments and revisions and compromises between agencies and all the individuals who got their hands on it.” Eventually the agency publishes a final rule, which is implemented and enforced. Voilá .

Or that’s how it’s supposed to work. But like many things in Washington, that’s just half the story. The rule-making process is actually a much messier, much more cacophonous affair, dictated to a large degree by lawmakers who voted against the law to begin with, and by industry groups who would often prefer that no rules be implemented at all. In the last decade, conservative members of Congress have built ever-higher hurdles that agencies must clear, and done so while cutting their staff and budgets.

Meanwhile, since the passage of Dodd-Frank, financial industry groups have also sabotaged parts of the APA’s carefully plodding process, overwhelming rule makers with biased information and fear tactics and threatening to sue the agencies over every perceived infraction. That’s a big reason why agencies have missed so many of their deadlines for implementing Dodd-Frank—a subtlety reporters frequently miss. (See “Why Agencies Are Always Missing Their Deadlines.”)

“It’s just this constant, never-ending onslaught,” a former SEC staffer told me. “You’re doing battle every day.”

The Gauntlet, Stage 1: Asymmetric Warfare in Rule Making

Public interest and consumer advocates tend to describe the fight over the rules of Dodd-Frank in martial terms. “It’s like World War II,” said Dennis Kelleher, the president and CEO of the nonprofit Better Markets. “There’s the Pacific theater, the Atlantic, the European, the African theater—we’re fighting on all fronts.” Former Senator Ted Kaufman, an outspoken advocate for financial reform, says it’s “more like guerrilla warfare.” The reformers are trying “to make it at the margins, but they’re totally outgunned,” he said.

The financial industry certainly has a spectacularly enormous arsenal. Since the passage of Dodd-Frank, the industry has spent an estimated $1.5 billion on registered lobbyists alone—a number that most dismiss as comically low, as it doesn’t take into account the industry’s much more influential allies and proxies, including a battalion of powerful trade groups, like the U.S. Chamber of Commerce, Business Roundtable, and American Bankers Association. It also doesn’t take into account the public relations firms and think tanks, or the silos of campaign cash the industry has dumped into lawmakers’ reelect-
ion campaigns.

“The amount of money and resources they’re willing to deploy to protect the status quo is unlimited,” said Kelleher. His company, Better Markets—one of the slickest and most vocal financial reform shops in town—has a $2 million annual budget, Kelleher said, which is about how much the financial industry spends on its lobbying team every day and a half.

While there’s no record of the total amount the industry has spent, it’s clear that there’s no shortage of money in its war chest. In the last quarter of 2010, just a few months after Dodd-Frank passed, the financial industry raked in nearly $58 billion in profits alone—about 30 percent of all U.S. profits that quarter. With that sort of bottom line, spending a hundred million or so to kill a single rule that could “cost” them a couple billion in profits is a pretty good return on investment.

In 2009, researchers at the University of Kansas and Washington and Lee University studied the return on corporations’ investment in lobbying for the American Jobs Creation Act, which included a one-time corporate tax break, and found that it was a staggering 22,000 percent. That means that for every dollar the corporations spent lobbying, they got $220 in tax benefits. Based on the billions Wall Street has spent to weaken Dodd-Frank, it seems that they have done similar math.

One thing all that industry money buys is a well-disciplined army. According to public records, representatives from the financial industry have met with the dozen or so agencies that regulate them thousands of times in the past two and a half years. According to the Sunlight Foundation, the top twenty banks and banking associations met with just three agencies—the Treasury, the Federal Reserve, and the CFTC—an average of 12.5 times per week, for a total of 1,298 meetings over the two-year period from July 2010 to July 2012. JPMorgan Chase and Goldman Sachs alone met with those agencies 356 times. That’s 114 more times than all the financial reform groups combined.

“For every one hundred meetings I have, only one of them is with a consumer group or citizens’ organization,” said Chilton. While it’s good that regulated industries have a chance to express their opinions and concerns to those who regulate them, he said, “the deck is just stacked so heavily against average people.”

It’s not just the quantity of meetings, it’s the quality, too. Kimberly Krawiec, a professor at Duke Law School, published a study last year analyzing the role of external influence during the NPRM period of Dodd-Frank’s Volcker Rule. (The Volcker Rule would ban proprietary trading, which is when banks trade for their own profits, and not on behalf of their customers, making them more likely to fail.) In her study, Krawiec found that while public interest organizations met with agencies in giant group meetings on the same day, head honchos from the industry often met with the agencies’ top staff alone. Former Goldman Sachs CEO Lloyd Blankfein, for instance, was not expected to share the floor.

That’s not an insignificant advantage, considering that the NPRM period is when “the majority of the actual agenda setting and rule making happens,” Krawiec said. Because APA stipulations require that the public get a fair shake at commenting on a rule before it is implemented, a proposed rule can’t be too different from the final rule or an agency can get sued, she explained. That has the effect of pushing most of the rule making to the very beginning of the process, which is also the least transparent, since agencies don’t have to publish what they’re up to or who their staff is meeting with during this time. Because of increased transparency efforts surrounding Dodd-Frank, agencies have been encouraged to publish all of the meetings that occur during the NPRM period—hence Krawiec’s study.

Krawiec has also found that after the Volcker Rule was proposed the vast majority of substantive public comment letters were from the financial industry, trade groups, and their various proxies—lawyers, lobbyists, and under-written think tanks—all of whom have the time and money to present extensive, if wildly biased, legal and economic arguments. Often, industry lawyers will simply rewrite entire paragraphs of the proposed rule, fashioning loopholes or limiting an agency’s scope with a single, well-placed adjective or an ambiguous verb. Whether a rule survives that change, whether it then can be effectively implemented and enforced, really does come down to such trivialities. In the rule-making process, the minutiae aren’t incidental to the rule; they are the rule. (Don’t believe me? The U.S. Supreme Court recently heard a case on a 1934 SEC rule on fraud that centered entirely on different definitions of the verb “to make.”)

Industry lobbyists are well aware that they don’t need to outright kill a rule; they need only to maim it, and it’s as good as dead. In fact, it’s better than that: it’s on the books, the newspapers cover it—it looks like a success for financial reform—but industry remains as unfettered as it was before. “That happens all the time,” said a former rule maker at the CFTC, who spoke on the condition of anonymity. “The public interest groups get the headline, but if you look at the details, the industry group has actually won. There’s an order of magnitude between the public interest groups’ and the industry groups’ attention to detail.” When I spoke to an industry lobbyist in mid-January, he put that another way. “We can’t kill it, but we can try to keep it from doing any damage,” he said.

Jeff Connaughton, a lobbyist turned crusader for financial reform, said that the “ubiquitous presence of Wall Street” goes beyond meetings and legalese in comment letters. In his book The Payoff: Why Wall Street Always Wins, he describes the tight-knit relationships between industry lobbyists and proxies and government officials as the “Blob,” which, in his experience, “oozed through the halls of government and immobilized the legislative and regulatory apparatus, thereby preserving the status quo.” Many in the Blob are married to one another and move fluidly from industry to government and back again, he told me. For example, CFTC Commissioner Jill Sommers, who recently announced her resignation, is married to Speaker of the House John Boehner’s top aide. She used to work at the Chicago Mercantile Exchange, one of the biggest exchanges in the world, which is overseen by the CFTC; she also worked at the International Swaps and Derivatives Association, the organization that later sued the CFTC to overturn the rule on position limits.

In this light, the traditional notion of “regulatory capture” doesn’t go far enough. Instead, we should think of it as “cultural capture,” writes the political scientist James Kwak. There may be no bags of cash exchanging hands, but that doesn’t matter when regulators, like many of the rest of us, have been steeped for so long in the idea that Wall Street produces the best and brightest our society has to offer. Regulators often look up to industry representatives, or know them personally, which begets “the familiar effect of relationships,” Kwak wrote in Preventing Regulatory Capture, a compilation of essays that will be published this year by Cambridge University Press in collaboration with the Tobin Project, a nonprofit research center. “You are more favorably disposed toward someone you have shared cookies with, or at least it is harder for you to take some action that harms her interests.”

Like many reformers, Connaughton points a finger at the so-called “revolving door,” which sends former bureaucrats into the private sector and vice versa, blurring the line between the regulators and the regulated. From 2006 to 2010, 219 former SEC employees filed 789 statements saying that they would be representing a lobbyist or industry group in front of the SEC, according to the Project on Government Oversight. A complex law like Dodd-Frank accelerates that cycle, Connaughton said, as industry has even more incentive to hire people directly from the agencies to help them navigate the new regulations. “Put your time in at one of these regulatory agencies while they’re doing the Dodd-Frank rule making and it’s a license to print money when you come out,” he told me.

Of course, the revolving door doesn’t explain everything. A lot of the agencies are packed with ten-, fifteen-, and twenty-year veteran rule makers, who are motivated by the esprit de corps and have no interest in leaving for industry. “Money isn’t everything. If you leave, there’s the feeling that you’re in the audience, and no longer on the public policy stage,” the former CFTC rule maker told me. “That, and at the agency you’re actually performing a public service. People recognize that. It’s a factor.”

Also, the revolving door revolves both ways. Industry leaders who are later appointed as commissioners sometimes provide a valuable asset to rule makers. In agency parlance, “they know where the bodies are buried.” In many instances, these former industry officials head agencies at the end of their careers and have no intention of returning to the private sector. CFTC Chairman Gary Gensler, for example, spent eighteen years at Goldman Sachs, eventually rising to partner, before becoming one of the most outspoken advocates in recent years for better regulation. (In 1934, President Franklin Delano Roosevelt appointed Joseph Kennedy to head the brand-new SEC for this exact reason.)

Another swinging mace in this stage of the rule-making gauntlet is what Kelleher, the head of Better Markets, calls the “Wall Street Fog Machine.” “They come at you with this jargon,” he said. “They want to make you feel like it’s too complicated for you to understand. You’re stupid, and they’re the only ones who get it—that’s the end game.” This is particularly true when it comes to financial products, like customized swaps, which traders on Wall Street have spent the last decade designing precisely in order to swindle their clients.

“That’s how you make money. You make it so complicated the clients don’t understand what it is they’re buying and selling, or how much risk they’re taking on,” said Alexis Goldstein, who worked in cash equity and equity derivatives on Wall Street for several years, first at Merrill Lynch and then at Deutsche Bank, before joining the reform movement. The more complex the product, the higher the commission you can charge, and the less likely it is that there will be copycats driving down your profit margins with increased competition, she explained. In other words, complexity “isn’t a side effect of the system—it’s how the system was designed.”

Partly as a result of that business model, the system really is complicated—extraordinarily so. But that doesn’t mean it can’t also be regulated in the right ways, reformers say. How exactly that should be done is often a bone of contention. Take those customized swaps, for example. Right now, they’re traded in the private “over the counter” market, which means that they’re contracted bilaterally, often between a single bank and a counterparty during a phone call, and they aren’t transparent. Dodd-Frank gives the CFTC the power to regulate them, and many suggest that all trades should be conducted in clearinghouses, where customers can easily compare prices and are therefore less likely to be fleeced. Banks claim they’re too complex to be traded in that way.

Kelleher says that’s “just plain false.” A customized swap is nothing more than a bundle of so-called “two-legged” swaps, he said. If you unbundle them, which the banks themselves do, for lots of reasons, like hedging, there’s no reason we can’t regulate them, he said. Just as Wall Street used the excuse of complexity to hoodwink their clients, they’re now using the excuse of complexity to hoodwink their regulators—”it’s the greatest coup they’ve managed to pull off,” Kelleher said.

Others argue that customized swaps should be regulated but clearinghouses aren’t the answer. They worry that if all such trading is moved to clearinghouses, then those institutions will balloon, leaving them vulnerable to collapse, said Peter J. Ryan, a fellow at the University of California Washington Center whose research focuses on financial services policymaking. In other words, the clearinghouses themselves could become too big to fail.

The real problem here is not that rule makers can’t understand Wall Street’s complex financial products. It’s that they often don’t have enough information about those products or the systems that govern them to see the whole picture, and therefore to choose the best possible way to regulate. As it stands, rule makers, as well as the teams of agency researchers who help them, rely to a large degree on industry to provide data about things like banks’ internal trading. For proprietary reasons, only the banks have access to much of that information, and they have no incentive to share it. When regulators request data in public comment letters, industry rarely provides it; when they do, it’s often incomplete, one-sided, or missing crucial variables. “If there’s a datum that supports their argument, they produce it. If not, they don’t—why would they?” said Naylor of Public Citizen.

This is one of the main reasons the Volcker Rule has been such a mess. It requires that regulators determine what’s proprietary trading (when banks trade with their capital base for their own profit) and what’s market making (the backbone of a bank’s basic business model). A Credit Suisse lobbyist claimed recently that the metrics in the Volcker Rule were flawed since, in a test run, the bank found that proprietary trading and market making were indistinguishable. Credit Suisse’s claim will go into the rule makers’ record, which, in turn, can be used as evidence in court, should implementing agencies be sued. In that situation, rule makers and reformers are left without a card to play. “We can’t dispute [their claim], because Credit Suisse owns the data and won’t share it publicly,” Naylor said.

While Dodd-Frank provides rule makers with access to a variety of new information sources—the new Office of Financial Research, the SEC’s Consolidated Audit Trail, the CFTC’s Swaps Report—none of these tools do enough yet to keep them ahead of the financial industry’s constantly morphing business model, which changes every time an analyst invents a new product or a new way to trade it. “The regulators need to be able to pool all of this disparate information together into a complete picture of the financial system, which I’m not sure if they have the funding and coordination to do,” said Marcus Stanley, the policy director at Americans for Financial Reform, a coalition of consumer, labor, small business, and public interest groups. If a shape shifter shows up as a mouse, building a mouse trap will only get you so far.

It is in some ways a Sisyphean task. Here you have a group of rule makers—lawyers, economists, analysts, and specialists—sitting around a table. On one side, they’ve got the language of Dodd-Frank, which requires them, by congressional mandate, to effectively regulate new, never-before-regulated products in never-before-regulated markets that change by the month. On the other side, they’ve got a pile of reports, nine out of ten of which were provided by the same industry they’re trying to rein in. Meanwhile, industry lobbyists and lawyers are crowding into their conference rooms on a nearly daily basis, flooding their in-boxes with comment letters, and telling them that if they do something wrong, they’ll be personally responsible for squelching financial innovation and destroying the economy. “They’re scared to death,” said Naylor of Public Citizen, who compares the effect the financial industry has on rule makers to Stockholm syndrome. “No one wants to be the one who writes the rule that screws up the entire financial system.”

Wall Street is well aware of rule makers’ human vulnerabilities. Last year, when the SEC was writing rules governing money markets, the U.S. Chamber of Commerce, one of the financial industry’s staunchest allies, launched a public relations campaign in D.C.’s Union Station, which abuts the SEC building. They papered the place with dozens of bright purple and orange posters, billboards, and backlit dioramas on the train platforms and above the fare machines, asserting that money markets are strong: “Why risk changing them now?” It is not coincidental that a good number of rule makers began and ended their daily commute beneath those very banners. “We certainly want to get the attention of those who are capable of giving us the answers,” David Hirschmann, a Chamber of Commerce official, told Bloomberg at the time. One imagines him stifling a smirk.

Given the many whirling hatchets in this stage in the regulatory gauntlet, it’s a miracle any rules have emerged in the last couple years reasonably unscathed. But they have. When that happens, industry can appeal to the second stage in the gauntlet: litigation.

The Gauntlet, Stage 2: Cost-Benefit Analysis and a Conservative Court

On a sweltering summer day in 2011, the U.S. Court of Appeals for the D.C. Circuit—the de facto second most powerful court in the land, and the body that oversees the agencies—sent shockwaves through the regulatory apparatus.

In a now-infamous case, Business Roundtable vs. SEC, a three-judge panel decided in favor of two of the financial industry’s biggest backers and overturned the SEC’s so-called “proxy access” rule. The rule would have made it easier for shareholders to elect their own candidates to corporate boards, allowing investors to put the brakes on out-of-control CEO pay. In the past decade, it has attempted to establish a proxy access rule on three separate occasions, but each time it was cowed into submission by industry lobbyists claiming that the rule would destroy corporate growth. In 2011, emboldened by the language of Dodd-Frank, which explicitly authorizes the SEC to establish a proxy access rule, the agency tried once again.

Almost immediately after the final rule was published, the Business Roundtable and the U.S. Chamber of Commerce sued the SEC on the grounds that the agency’s cost-benefit analysis was inadequate. The judges agreed, marking the first time that the court had overturned a rule explicitly authorized by Dodd-Frank. But that’s not the part that sent shockwaves through the regulatory apparatus. The D.C. Circuit has overturned dozens of regulations over the years, including six SEC rules in the previous seven years, for lots of reasons, including inadequate cost-benefit analyses.

What sent the shockwaves was that this case didn’t seem to have anything to do with cost-benefit analysis at all. In the vitriolic decision, the panel of judges, all of whom were appointed by Republican presidents, lamented that due to “unutterably mindless” reasoning, the SEC had “failed once again” in its cost-benefit analysis. But the court never cited how exactly the agency’s twenty-three-page economic impact report could have done better. It simply appeared to disagree with the agency’s policy choice—and that, apparently, was grounds enough to overturn the rule.

“It was a shot across the bow,” said Michael Greenberger, a former regulator and professor at the University of Maryland Carey School of Law. The decision set a radical new precedent that would affect not only the SEC but all the independent agencies tasked with implementing Dodd-Frank, he said. It would also raise a powerful question: Should specific policy judgments be made by the agencies or the courts? “It upset the balance of the power,” Greenberger said.

Part of the issue here is that the D.C. Circuit is packed high with conservative judges. Eight out of eleven on that bench were appointed by Republicans; despite four vacancies, Obama’s nominations have been stymied consistently by Republicans in Congress. The three-judge panel that decided Business Roundtable included two Reagan appointees, Judge Douglas Ginsburg and Chief Judge David Sentelle, a Jesse Helms protégé. (That’s the same Sentelle, by the way, who headed the panel that fired Whitewater independent counsel Robert Fiske, a moderate Republican, and replaced him with Kenneth Starr.) The third judge was George W. Bush appointee and consummate Ayn Randian Janice Rogers Brown. All three have made a bit of a name for themselves over the years as conservative activists, unafraid to mold precedent to fit their ideological ends. Their decision in Business Roundtable didn’t break that mold.

In one section, for instance, the judges ask why the SEC would have dismissed public comments suggesting that proxy access could exact a significant economic cost to corporations. Judge Ginsburg writes, “One commenter, for example, submitted an empirical study showing that ‘when dissident directors win board seats, those firms underperform peers by 19 to 40% over the two years following the proxy contest.’ ” But hold the phone. Or, better yet: WTF? Ginsburg fails to note here that the “one commenter” in question is one of the plaintiffs, the Business Roundtable. And as for that “empirical study”? It was conducted by an economic consulting group hired by that same plaintiff. In the rest of the decision, Ginsburg appears to ignore the precedent set by the foundational 1984 Chevron case, which, among other things, stressed that judges must afford “deference” to an agency’s interpretation of a statute, especially when it’s “evaluating scientific data within its technical expertise.”

Questionable judicial behavior aside, the Business Roundtable decision marked “the culmination of a trend empowering regulated entities to strike down regulations almost at will,” wrote Bruce Kraus, a former counsel at the SEC, in a subsequent report. For one, it established an inherent bias—reformers cannot, after all, challenge a rule in court to make it stronger. For another, it opened up the floodgates for future suits. If two of the industry’s most powerful organizations could sue the SEC and overturn a rule on such grounds, it was suddenly feasible for industry groups to sue any agency and overturn any new Dodd-Frank rule using the same arguments.

It was a point that did not go unnoticed by industry. “I would hope the agencies are taking to heart the potential consequences for Dodd-Frank rules,” said lead counsel Eugene Scalia, after the case was decided. (Scalia was also lead counsel on the case that overturned the CFTC’s rule on position limits a year later.) Industry groups have since brought a half-dozen more cases against agencies on practically identical grounds.

The Business Roundtable decision had the immediate effect of adding a whole new lethal section to the regulatory gauntlet, this time complete with flypaper and trapdoors. In the months following, the SEC’s progress through the Dodd-Frank rule making is estimated to have slowed by half as they struggled to “bulletproof” their rules from future lawsuits. (“They have to be more than bulletproof,” Chilton told me, when I asked him if that was a factor for the CFTC, too. “They have to be layered in Kevlar. We go way beyond the requirements of the law.”)

The decision also had the effect of tipping the balance of power at independent agencies. By making an agency’s cost-benefit analysis the centerpiece of the litigation, economic models now hold disproportionate weight. If a single economist at an agency produces a report, based on a single model, and “demonstrates” that a rule would exact steep costs from a given industry, it acts like a trump card, according to former staffers at the SEC and the CFTC. Even if the majority of that economist’s colleagues disagree with him, his report will enter the public record, where it can be cited in a subsequent lawsuit and end up determining if a rule is implemented or not. And economic models are like statistics; you can always find one that supports your position.

Along those same lines, in the wake of Business Roundtable a single commissioner—one of five on a bipartisan panel—now has the de facto power to torpedo a rule simply by questioning its economic impact in a public forum. For example, if a Republican commissioner disagrees with a rule, he will, under normal circumstances, be required to compromise with his fellow commissioners, or risk being simply outvoted. If at least three of his colleagues disagree with him, the rule will pass. The Business Roundtable decision seemed to suggest that a single commissioner’s verbal expression of disapproval could be used later as grounds for litigation and as evidence in court. Indeed, a year after the Business Roundtable decision, in the CFTC’s position limits case, part of Scalia’s argument rested on the fact that former CFTC Commissioner Michael Dunn has expressed misgivings about the rule.

“When a commissioner says publicly, ‘I’m concerned about the economic impact of this rule,’ that’s enough to lay the groundwork for a future case,” said Chilton. Several former rule makers and staffers at the CFTC and the SEC told me they would “not be surprised,” given the wording of these public expressions of disapproval, if these commissions were getting their language directly from industry lawyers.

The most profound weapon the Business Roundtable decision introduced into the regulatory gauntlet is stupefying uncertainty. “It has been paralyzing for the agencies,” the former CFTC rule maker told me. How extensive must their cost-benefit analyses be? What kind of costs must be measured? And costs to whom—the industry or the investors? What were the criteria? “It’s like going into a class and not having any idea how your professor grades,” he said. “Everyone is trying to figure out how to move forward without getting sued.”

In the past, when an agency has been sued over a rule, that litigation has often marked the end of the rule altogether. Most are never re-proposed, and those that are often emerge pitifully weak. It also has the effect of sending an agency back to the starting line, where it must run the gauntlet yet again, only this time with more attention from Congress—which is often the most lethal weapon
of all.

The Gauntlet, Stage 3: Congress’s Retroactive Attacks

Many of us think of Congress as passing a law, shunting it off to the agencies, then wiping its hands of the matter. Not the case. Lawmakers, and particularly those who voted against Dodd-Frank to begin with, have a number of tools up their sleeves, which they’ve been using consistently since 2010 in an attempt to retroactively weaken the act.

One way has been to go after the regulators personally, lambasting them publically, smearing their reputations, and wasting their time. In the wake of the Business Roundtable decision, for example, the House Financial Services Committee summoned former SEC Chairwoman Mary Schapiro to testify before Congress about why the SEC had failed in its cost-benefit analysis. The Senate Banking Committee, obliquely questioning her competency as a leader, also requested a series of investigations into why her agency’s cost-benefit analyses were falling short. While lawmakers have a legitimate right to ask the heads of regulatory agencies to testify, in the past few years Congress has seemed to blur the line between inquiries and something more akin to the Inquisition. All told, since 2009 Schapiro has been called to testify before Congress forty-two times.

“On one hand, those attempts to create a scandal don’t mean anything,” said Lisa Donner, the executive director of Americans for Financial Reform, referring to Congress’s harassment of Schapiro late last year. “But on the other hand, those performances waste an enormous amount of time. It plays a role. It’s intimidating.”

Also in the wake of Business Roundtable, Alabama Republican Senator Richard Shelby, as if on cue, wielded another of Congress’s favorite weapons to kill a law in the regulatory process. He introduced a bill suspending all the independent agencies’ major rules until they could be subjected to OIRA, the Office of Management and Budget’s subsidiary, which vets the cost-benefit analyses for new executive branch rules. Had that bill passed, it would have had the effect of stopping all Dodd-Frank rule making in its tracks indefinitely. It didn’t pass, but last summer a similar bill—this one bipartisan—the Independent Agency Regulatory Analysis Act, was introduced and passed in the House, before failing, in the nick of time, in the Senate.

In the two and a half years since Dodd-Frank passed, lawmakers have introduced dozens of other such bills, so-called “technical amendments,” that purport to change or clarify certain sections of Dodd-Frank but would actually gut, defang, or kill the act entirely. Because the bills are presented as mere tweaks to an existing law, and because industry cash is the only way many of these congressmen will get reelected, the bills are often voted on quickly, sometimes even coming up for a voice vote—a procedure usually reserved for uncontroversial issues.

Take the Swap Jurisdiction Certainty Act, for example. That bipartisan bill would have prevented the CFTC and the SEC from regulating derivatives trades conducted by American companies’ subsidiaries overseas. That’s insanity. First, if any of those subsidiaries—much less hundreds of them at once—were to fail, they would threaten and potentially take down the U.S. market. (Indeed, during the 2008 crash, U.S. taxpayer money was used to bail out those foreign-based subsidiaries too, for precisely that reason.) And second, if you only regulate the derivatives traded by American institutions on U.S. soil, American traders will simply scoot their business over to the thousands of subsidiaries abroad, making those unregulated markets even larger and more dangerous. In other words, had this bipartisan, innocent-looking bill passed, it would have undermined all the provisions in Dodd-Frank that attempt to regulate the derivatives market at all.

While the efforts of public interest groups and financial reform advocates, like Americans for Financial Reform, have succeeded thus far in keeping any of these bills from passing, they still have an effect behind the scenes. “There are instances where regulators say, ‘I know what we want to do with this, but if we go too far, Congress is just going to wipe out the whole thing, and I want what we’re doing to last,’ ” said Stanley, the policy director at Americans for Financial Reform. “That’s a calculation.”

A much more common weapon congressional opponents can wield after a law has been passed is a little less dramatic. By attaching riders to appropriations bills, Congress can simply forbid an agency from using its money to enforce one specific rule or another—and, of course, an unenforced rule is a dead rule. Lawmakers can do that even if Congress has passed another law that pointedly mandates that an agency take the action in question. In 2011, for instance, the House Appropriations Committee, which is dominated by Republicans, attached a rider to its funding bill preventing the U.S. Department of Agriculture from using its funds to finalize and implement a series of specific rules helping small farmers fight back against big livestock and poultry corporations. Despite the Obama administration’s attempts to get those exact rules implemented, the rider passed, tying the USDA’s hands and sending small farmers adrift. (For more on this, see Lina Khan, “Obama’s Game of Chicken.”)

Using the same mechanism, Congress also has the power to defund or severely underfund any agency that relies on congressional appropriations, including the CFTC and the SEC—a guillotine it has successfully used for decades. Just last year, for instance, the House Appropriations Committee cut the CFTC’s annual budget by $25 million, leaving it with an anemic $180 million. (For a sense of how little money this is, consider that San Bernardino, a county of about two million people in California, spends more than $180 million just on its public works department.) In 2011, congressional opponents of financial regulation blocked any increase in the SEC’s budget, despite or perhaps because of the agency’s massive new workload with Dodd-Frank. The Republicans’ argument against funding the independent agencies is delightfully absurd: since the agencies have not written and enforced rules fast enough, Congress should “punish” them, rather than “reward” them with adequate funding.

Yet another weapon Congress uses to retroactively kill bills in the rule-making process is to block presidential appointments. In January, another three-judge panel at the D.C. Circuit, led by the same conservative crusader who voted to overturn the SEC’s proxy access rule, Judge Sentelle, ruled that Obama’s recess appointments were unconstitutional. It was a radical decision that has the potential to invalidate rules and guidelines promulgated by the National Labor Relations Board and the Consumer Financial Protection Bureau for the previous year. The decision may be reconsidered (and, heaven help us, affirmed) by the Supreme Court, but in the meantime it brings the independent agencies further into Congress’s orbit.

Congressional Republicans are already using the decision to strong-arm Congress into weakening the CFPB’s independence. The only way Congress will allow Obama to reappoint CFPB Director Richard Cordray, or to install another head, Republican lawmakers say, is if the agency’s funding is brought under congressional appropriations controls. It’s an underhanded move that would eliminate the CFPB’s strongest asset—that it’s not subject to Congress’s manipulative purse strings—and may have the effect of gutting the entire agency, one of the strongest things that’s come out of Dodd-Frank thus far.

Gunning For the Finish Line

It’s true that Dodd-Frank started out as a compromise. “It was compromise on top of a compromise—a pile of compromises,” said Kelleher of Better Markets. And that’s what we can expect from the rule-making process too, he said. As it stands, how the law has fared in its journey down the regulatory gauntlet has been mixed.

Some rules have been spectacularly hacked to death. Take, for example, a joint rule by the SEC and the CFTC, which was intended to force swaps dealers into maintaining more capital and to prevent horrible scenarios, like the collapse of AIG, from ever happening again. When it was first proposed, the rule required that every dealer trading more than $100 million in swaps should be subject to regulatory oversight. A bill proposed by Illinois Republican Representative Randy Hultgren raised that threshold to $3 billion, but the agencies, intimidated by lobbyists’ doomsday scenarios and under the constant threat of litigation, raised it again: to $8 billion. The rule that eventually emerged now exempts about two-thirds of all swaps dealers from new capital requirements.

Scenarios like that can be deflating for reformers, but there have been wins, too. The CFPB remains a major success for consumer and investor advocates, and the SEC’s rule on whistleblowers appears to have emerged fairly intact. The CFTC’s brand-new Swap Data Repositories, which were designed to collect data about over-the-counter derivatives transactions, are also up and running, with the potential to shed some much-needed light on that shady industry. Whether the new repositories will be useful to regulators, or whether they will be undermined by a future lawsuit or lack of funding, is still unclear.

In some arenas, most notably the D.C. Circuit’s activist bench, reformers have faced crushing defeats. Yet all is not lost. In a case this past December, the U.S. District Court for D.C., a notch below the D.C. Circuit, handed the industry its first loss in years, deciding in favor of the CFTC’s rule requiring registration of mutual funds that engage in derivatives trading. It also marked the end of a five-case winning streak in lead counsel Eugene Scalia’s battle against agency rules. Judge Beryl A. Howell, an Obama appointee, decided against the U.S. Chamber of Commerce and the Investment Company Institute. (Both are now appealing that case to the D.C. Circuit.)

The Dodd-Frank rules that, against all odds, have emerged relatively intact underscore an important point: those who favor strong regulations are not without shields to protect rules against the many whirling weapons along the regulatory gauntlet. But in order to be effective, of course, those shields have to be used.

First and foremost, the White House has to get more involved in defending its own legislative achievements from being gutted in the rule-making process. In addition to appointing more judges to the D.C. Circuit (and that’s no guarantee of success; the judge who decided against the CFTC’s position limits rule was a Democratic appointee), the administration should deploy its best Justice Department lawyers to defend against the industry’s court attacks on Dodd-Frank rules. It should aggressively push to fill vacancies at the agencies with pro-regulation commissioners and other agency heads, and fight harder for bigger agency budgets. And the president himself should shine a spotlight on the process, and support the work rule makers do by paying personal visits to the agencies.

Second, the administration and its allies in Congress must address as quickly as possible the asymmetry of information in the agencies. In order to do their jobs, regulators must be armed with objective information to offset the biased or incomplete reports they receive from industry. This is particularly important for a small, underfunded agency like the CFTC, which doesn’t have the stable of researchers and economists employed by some of its brethren, including the Fed, the CFPB, and the FDIC.

The good news is that Dodd-Frank mandated the creation of a new office whose mission, in part, is to correct this imbalance of information. Housed in the Treasury and funded by bank fees, the new Office of Financial Research was conceived as a kind of giant weather station monitoring the financial industry in order to detect potential “storms” before they arrive. To that end, it’s statutorily authorized to gather, with subpoena power if necessary, granular-level data from financial institutions, including information about banks’ trading partners, positions, and transactions, and to make that data available to other regulatory agencies. The only question is whether the OFC will have the political backing it needs to fulfill those ends.

As of now, it has a very small budget and an advisory board heavily weighted with industry insiders. It’s also facing extraordinary political opposition, mostly from congressional Republicans, who have called for nothing less than its immediate abolishment, arguing that it compromises data security and encroaches on the private sector. Making sure that the OFC survives and overcomes any legal challenges to its ability to share key information with regulators should be a top agenda item for congressional Democrats and the new treasury secretary, Jacob Lew.

Third, reformers and reform-minded analysts, lawyers, and academics need to do a better job of making their voices heard in the agencies. The Administrative Procedure Act, which governs the rule-making process, painstakingly enshrines public commentary, but as of now the vast majority of the substantive comments are coming from industry groups and their proxies, including bought-and-paid-for think tanks, trade groups, and consulting firms, which have the time and legal expertise to dedicate to such things. Launching a counterinsurgency in kind will obviously require a pretty chunk of change. Perhaps it’s a place where foundations can make a real difference. If more individuals and groups weighed in with smart ideas and substantive research to counter industry, it could help strengthen the rule makers’ hands.

Rule makers read and make note of every comment letter, and those letters have a cumulative effect of pushing policy, staff members at the SEC and the CFTC told me. That’s particularly true in instances where a rule-making team believes the best public policy differs from what industry is advocating. “To the extent that there was already an argument for a given position, a public letter will give a team support. There’s a sense of ‘See? Other people think this too,’ ” a former SEC staffer told me.

Reform groups like Americans for Financial Reform, Better Markets, and Public Citizen have thus far done a heroic job writing substantive, evidence-based letters of concern and organizing public letter-writing campaigns. Groups like Occupy the SEC, which is run by people with direct experience in the financial industry, have also submitted long, well-informed reports to the agencies and engaged with rule makers personally. Those voices make a big difference. But they go only part of the way toward countering the overwhelming influence that industry has enjoyed.

Fourth, what’s needed is the vigilance of the wider public. That may seem unreasonable to expect—who has the time or inclination to follow the grammatical arcana of rule making as it moves through the process? But in an age of Wikipedia, when millions of people write and edit tomes on obscure and complex issues on a daily basis, there’s no reason in theory why more Americans couldn’t weigh in on regulations that most of them clearly favor. Nearly 75 percent of voters, Republicans and Democrats alike, support “tougher” rules and enforcement for Wall Street financial institutions, according to a 2012 poll commissioned by a coalition of consumer, reform, and public interest groups.

Those same citizens should also prod their members of Congress. The political scientist Susan Webb Yackee has found that the attention of lawmakers is one of the primary factors that can help curb industry influence in the regulatory process. In the stew of congressional power struggles, and with the financial industry furiously underwriting lawmakers’ reelection campaigns, members of Congress have a variety of reasons not to stick their necks out. Their constituents should insist that they do.

Finally, there’s no mystery about how to stir up public attention: the press needs to do a better job of covering the regulatory process. Again, that may seem unreasonable, especially in an age when for-profit news has lost its business model. But it needs to be done. Those same editors, reporters, bloggers, and wonky producers at The Rachel Maddow Show who followed the passage of Dodd-Frank so closely two and a half years ago should tune in again.

As of early February, fewer than 150 of the estimated 400 rules from Dodd-Frank had been finalized, according to Davis Polk & Wardwell, a law firm that keeps track of such things. Nearly the same number had not even been proposed yet. All together, almost 65 percent of the law, including potentially significant hunks, like rules on extraterritoriality and systemic risk, have yet to be finalized.

In the next year or so, the vast majority of these new rules will enter the regulatory gauntlet, while agencies and industry will watch carefully as those that have already been finalized are implemented and enforced. Industry and its allies in Congress will scream bloody murder and claim that Dodd-Frank rules are imposing an insurmountable burden on industry, the economy, and the American people. Meanwhile, the agencies either will attempt to hold the line or, without the glaring light of public scrutiny, they will allow industry to take the lead again. What happens in the next year or two will have a profound effect not only on Dodd-Frank, but on the future of our financial industry. “We’re in the fifth inning,” said Kelleher. “The only way to guarantee you’ll lose is if you walk out before the end of the game.”

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Haley Sweetland Edwards

Haley Sweetland Edwards, a Washington Monthly contributing editor, is the former deputy Washington bureau chief at TIME.