The extra power given to the federal government through bypassing proven bankruptcy rules looms as the biggest challenge to meaningful reform. Experience shows that such power increases, not decreases, the likelihood of another crisis. You do not prevent bailouts by giving the government more power to intervene in a discretionary manner. You prevent bailouts by requiring adequate capital based on simple, enforceable rules and by making it possible for failing firms to go through bankruptcy without disruption to the financial system and the economy.
From First Principles by John Taylor
Dodd Frank is based on as poor diagnosis of the financial collapse. It extends federal powers to areas that had nothing to do with the crisis and singularly avoids the one institution, Fannie Mae, that was at the center of the storm.
John Taylor noted that the problem was not a lack of regulations but a lack of good judgment on the part of the regulators. Dodd-Frank responded by increasing the use of judgment on the part of the regulators. Legislators act as if incompetence in the private sector can be cure by incompetence in the public sector. Taylor argues for closer adherence to rules and less reliance on the uncertainty and judgment of regulators, who then become pawns of political and special interests. Our economic and political freedoms are dependent on rules and laws, not vague and discretionary human judgment.
A bad diagnosis can harm the patient much more than a bad solution to a proper diagnosis.