This week politicians and headlines trumpeted the Dodd-Frank Bill as the most comprehensive financial regulatory reform since The Great Depression.  The implied notion being that incremental regulation, especially when comparable to that of the 1930s, is a good thing. 

TheAMD.com observes the following:

The Reactive "Reform" Comes in Response to an Economic Calamity Created by Proactive "Reform" Implemented in the 1990s

The Housing Bubble was constructed by legislative and regulatory initiatives specifically designed to increase homeownership.  The Riegle-Neal Act, revisions to the Community Reinvestment Act and a myriad of Executive branch directive under the mantle of The National Homeownership Strategy artificially elevated Homeownership and Home Prices.

The Regulatory Infrastructure Created During The Great Depression Was Centrally Important to Manufacturing the Housing Bubble

Regulators

Banks have been heavily regulated since The Glass-Steagall Act of 1933 formed the FDIC.  The purpose of this regulation was to ensure the solvency of, and maintain consumer confidence in, those financial institutions. 

In the 1990s the role of bank regulators was tragically altered to also enforce the social mission of expanded access to homeownership for the uncreditworthy.  Regulators were used to enforce new lending directives and compel banks to make unsound loans.  This aggressive social agenda ran opposite to the goal of solvency and undermined the creditworthiness of the lending institutions.

HUD, Fannie Mae and the FHA

The modern framework for Government subsidization of the housing market was established during The Great Depression. 

• The Federal Housing Authority (FHA) was chartered under The National Housing Act of 1934
• Housing and Urban Development (HUD) established under U.S. Housing Act of 1937
• Fannie Mae was founded in 1938

These entities and their offspring wield significant influence within the mortgage industry and are today a functional monopoly.  Each was used during the 1990s to pressure banks to comply with subprime lending directives.  Additionally, hundreds of billions of dollars was funneled through this regulatory framework directly financing subprime mortgages, reducing the risk of investing in high risk loans, and creating a profitable source of deal flow for private sector participants willing to abandon lending standards.

The Housing Bubble and our current economic crisis would not have been possible without the gross misuse of Great Depression Era regulatory reform.

The Last Time We Passed Comprehensive Financial Reform

In the wake of Internet Bubble corporate scandals and investment banking abuses Congress enacted bold financial regulatory reform. 
 
This regulation was specifically designed to prevent the kind of fraud that transpired at Enron and WorldCom.  Sarbanes-Oxley was to create a new era of corporate responsibility.  Research product was to be independent by edict. 

6 years later Lehman Brothers, AIG, Bear Stearns, Fannie Mae, Freddie Mac and others would fail after committing varying degrees of fraud.  Bernie Madoff, R. Allen Stanford and other Ponzi Schemes would collapse.  Credit raters were exposed as issuing proxy investment grade ratings in exchange for lucrative deal flow.

The last time Congress adopted comprehensive financial regulatory reform was less than a decade ago.  It failed to prevent any of the abuses of the Housing Bubble Mania, but did impose incremental expenses on public companies and reduce the competitiveness of America's capital markets.

It is hard to believe that incremental regulation, authored by people who directly contributed to the ongoing Depression, will accomplish anything other than to further burden the hobbled U.S. economy and create new economic distortions layered on top of those institutionalized in the 1930s, 1990s and in 2002.