Daniel Isaacson

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The current presidential administration has expressed a concerted desire to “scale back” and even “get rid of” the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank). Focusing specifically on Dodd–Frank’s regulation of the credit default swap (CDS), this Article explores two timely queries. First, whether Dodd–Frank’s regulatory response to these financial instruments is a justifiable one, and second, what effect a repeal may have. This Article will show that the “perfect storm” CDS—which contributed so significantly to the 2007–2010 financial crisis—flourished in a regulatory environment that contained two key weaknesses: (1) few restrictions on excessive speculation; and (2) the allowance of significant leverage on the part of the institutions that created and sold such products. This Article will demonstrate that Dodd–Frank effectively addressed the excessive leverage weakness, for the most part, while largely ignoring the excessive speculation concern. In doing so, it preserved some degree of market volatility, yet prevented, at least in theory, another “perfect storm” combination. Accordingly, without suitable replacement legislation that addresses at least one of these two primary weaknesses, scaling back Dodd–Frank will surely invite a return to the conditions that lead to the great recession.

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