This week, many Wall Street traders got caught on the wrong foot when the dictator of Russia, Vladimir Putin, decided to seize the Crimean Peninsula. On Tuesday, the U.S. Stock Market sprang back, but that does not mean that the crisis in Ukraine is over. 

There is growing danger to the U.S. economy, but not from the thuggish behavior of Russia in Eastern Europe. No, the big threat to American stability is homegrown, namely the 2010 Dodd-Frank Wall Street Reform law. We still don’t fully understand the scope of this enormous power grab by the Democrats who operate in Congress and on Wall Street, but let’s take a look at a couple of the highlights.

First and foremost is the limitation of risk taking by the nation’s largest banks. You may wonder why a critic of the Zombie Dance Queens is worried about limits on the “too big to fail” banks, but the fact is that legal idiocies such as the Volcker Rule have made a serious market breakdown more likely. Named after former Federal Reserve Board Chairman Paul Volcker, the Volcker Rule prohibits the largest banks from trading for their own accounts and moves the market risk from strong to weak hands. But the risk remains.

Craig Drill, who is one of the smartest and most successful money managers on Wall Street, wrote this week about how the banks are increasingly backing away from the markets and pushing risk onto their clients and the relatively untested ranks of “shadow banks.”  He warned:

As a cautionary note, with increased regulation, the banks are gradually pushing out risks to investors and shadow banks. This all looks good when markets are calm and the world is not overly volatile. But investors and shadow banks lack the access to stable sources of liquidity in difficult times. This may exacerbate volatility in bad scenarios, since dealers and banks are less willing to warehouse risks and intermediate. Regulators think by having the banks shed risks that this makes the markets safer. Well, the regulators may have made the banks safer, but the risks have to be placed, and they are often being placed in much weaker hands.

For the past two years, I have been warning about how Dodd-Frank prohibits banks from acting as market makers, a legacy of the London Whalen fiasco at JPMorgan. The fact that TBTF banks like JPMorgan can no longer support market prices is a major threat to the stability of the U.S. financial markets overall and increases volatility. The issue is not whether one likes or hates big banks, but the fact that the Volcker Rule takes the single biggest chunk of capital out of the markets entirely.

The second big risk to the U.S. economy comes from the housing market, which is in a free fall, thanks to the regulations in the Dodd-Frank law. As I noted in an appearance Tuesday on Bloomberg Television with my friend Mark Crumpton, the banks are retreating from the mortgage lending market.

Most housing indicators suggest that the overall rate of home price appreciation is slowing considerably, with just a handful of the more attractive markets around the U.S. accounting for most of the upward momentum still shown in measures like the Case-Shiller Index. Home prices probably peaked overall in the U.S. in the second quarter of 2013, but the time delay in most of the major data series on housing masks this reality.

On Tuesday, in response to a post I put on Zero Hedge earlier this week (“So You Want to be a Mortgage Banker? Really?“), one realtor told me:

I am a real estate broker in D.C. metro and can’t get a HELOC, despite an 821 credit score. Assets do not matter, either, nor does [loan-to-value] LTV ratio. I do know this: If action is not taken against the Qualified Mortgage rule in Dodd-Frank and also the income test, we are toast, particularly the self-employed–unless they want to renounce their tax deductions to qualify. What people are missing is this whole housing crises was a manufactured scam, and the intent is to close down the real estate industry to a large degree. A nation of renters, here we come. Housing prices will collapse if people can’t get financed, so Dodd-Frank either gets overturned or we are curtains.

While more and more analysts on Wall Street are starting to understand the dire situation facing the U.S. housing industry, there is still no willingness on the part of the banking, mortgage, or real estate industries to push back in Washington–at least not yet. The cries of desperation that come across my desk almost every day from real estate and mortgage professionals make clear that we have a problem, but it may take a serious crisis either on Wall Street or in the housing market before Washington is willing to take action to correct the hideous wrong of the Dodd-Frank legislation.