Four Years Since Takeover of Financial Services

Monday, July 21st, 2014 and is filed under Blog, Economy

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In many respects, Dodd-Frank is the forgotten leviathan of the Obama administration – one that is dragging down the economy just as much as Obamacare, even though it hasn’t received the same scrutiny or provoked as much outrage.

The 2300-page bill, which turns four years old today, contains hundreds of new mandates and rules that distort the credit, financial, and housing markets, impose onerous and time-consuming burdens on small businesses, and limit consumer choice.  The regulations are so complex that many of them have not been formally drafted, causing thousands of businesses to halt their expansions and new hiring until the government provides them with some clarity.  It is nothing short of a wholesale takeover of the financial services and banking industries, much like Obamacare is to the healthcare industry.  As House Financial Services Committee Chairman Jeb Hensarling (R-TX) recently said, Dodd-Frank is “more appropriate for a Soviet-style command-and-control economy than a system of free enterprise.”

There are a number of serious problems with this bill.  Here are some of the worst aspects:

  • Too Big to Fail: – Title I of the bill created a new permanent bailout regime, the Financial Stability Oversight Council.  This institution would vitiate the bankruptcy process and allow the government to take over any entity that it deems vital to the rest of the economy.  In other words, it consummates “too big to fail” as a permanent policy, the very policy this bill was supposed to fix.
  • Volcker Rule – The Volcker rule ostensibly prohibits regular banks from investing their own money by engaging in bond trading.  It also prohibits banks from holding more than a 3% stake in private equity funds.  Just this part of the bill is 300 pages long!  It will take hundreds of new Keynesian jobs just to enforce, interpret, and comply with the rule.
  • CFPB – The bill created the Consumer Financial Protection Bureau (CFBP), which will limit the choices of consumers in financial markets, making it harder and more expensive to obtain credit.  This unaccountable agency will operate autonomously within the Federal Reserve and will not be subjected to congressional appropriations or oversight.  It is essentially the “death panel” of the financial sector, with control over bank accounts, mortgages, and student loans.
  • Derivatives Trades – Some key restrictions on derivatives trades only apply to banks with assets above $10 billion.  This has created a perverse incentive for banks to limit their expansion, and by extension, creation of jobs, for the purpose of staying below the limit.
  • Debit Card Fees – The new limitations on bank charges for processing debit card submissions from retailers has caused an increase in user fees for customers, most notably, for opening checking accounts.  It has also prompted banks to eliminate debit card rewards programs.
  • Freddie/Fannie – Dodd-Frank did nothing to privatize or even reform these two behemoths that are responsible for the housing crisis and the recession.

It’s no wonder such an odious law was conceived by two of the most corrupt members of Congress – Barney Frank and Chris Dodd – who were largely responsible for the housing crisis and ensuing freezing of the credit market.  Sadly, three Republicans joined with Democrats to give opponents of free enterprise 60 votes in the Senate to pass the bill.  And with energy to repeal even Obamacare is gradually waning, it’s becoming harder to rally Republicans against this un-American law.

While we are all focused on the more imminent threats of open borders, Obamacare, and our weak national defense, it’s important to remember that Dodd-Frank, rather than preventing a financial crisis, will serve as the foundation for the next financial meltdown.  Any Republican candidate for president must unequivocally pursue full repeal of Dodd-Frank.