As any parent knows, two year old children create mischief and trouble because they are mobile and starting to express their developing personalities. Everyone looks at the two year old to see what they do next and the calamity that will ensue.

With the Dodd-Frank Act turning two this week, many have been focused on the growing pains of this landmark legislation.

However, I want look at what the Dodd-Frank Act does not do. 

The need for financial regulatory reform was apparent before the 2008 financial crisis. Over the last decade it became evident to many observers that the U.S. capital markets, the deepest and most efficient in world history, were slowly but consistently losing their edge.  This was making it more difficult and expensive for businesses to raise the capital needed to grow and create jobs.

The Chamber formed a bi-partisan commission headed by Bill Daley and A.B. Culvahouse to research the problem. After a year, they came back with two conclusions:  1) that our international competitors were competing using our game plan—not a bad thing; and 2) that our financial regulatory structure, which dates from the New Deal and in some cases as far back as the Civil War, was ineffective, inadequate, overly complicated and inadequate to deal with a 21^st century economy. Others, from Mayor Michael Bloomberg and Senator Charles Schumer to Harvard Professor Hal Scott reached similar conclusions at around the same time.

This antiquated static system froze regulators’ capabilities at the time they were created or endowed with their powers. At best, regulators were trying to regulate 2007 markets with 1975 regulatory tools. As a result, regulators had not kept pace with and did not understand the markets or products that they were trying to regulate. This lead to confusion amongst regulators, turf battles, regulatory gaps and dead-zones, layering of rules and difficulty for regulators to deal with cross-border issues on an international basis. As was evidenced by the Madoff and Stanford cases, regulators could not spot the bad guys and drive them out of the markets.

In short, businesses did not have clear rules of the road, regulators were inconsistent in enforcing those rules, and bad actors were not found or punished. This is not a formula for success.

Common sense solutions—streamlining the number of regulators, hiring the expertise needed to understand the markets, making the regulators accountable, forward-looking regulation—were  not considered in the Dodd-Frank debate. Instead, Dodd-Frank creates more regulators, exponentially increases layering and overlap, and does not hold regulators accountable. The Dodd-Frank Act adds more floors to a building sitting on a crumbling foundation.

We wouldn’t send soldiers into battle with Civil War or World War II era weapons, but we expect our financial regulators to do so. Dodd-Frank is missing the mark on many fronts, primarily because policy makers didn’t recognize the problem confronting our economy.

Growing pains, stubbed toes and bruised egos. Two year olds grow out of it; let’s see if our economy can.