In a predictable scramble to capitalize on the 2008 U.S. financial crisis, the Democratic Congress and the President acted swiftly in accordance with their creed not to let any dark moment in history go to waste, and sold the American public on the notion that their version of the legislation would fix the cause of the financial collapse.
Seeking political points for bashing their own political donors on Wall Street, and without consideration for the adverse impact that mandating 400 yet-to-be-written regulations would have on Main Street, former Senator Chris Dodd, Rep. Barney Frank, and President Obama preyed on the opportunity that would allow them to historically expand financial regulations with nominal political risk. They blamed the financial crisis on private-sector misconduct and insufficient regulation, and pursued an avalanche of new, incomprehensible, punitive regulations on one of our largest, most dynamic, and most complicated American industries.
The bill, commonly known as “Dodd-Frank” – or as it should be called “The Jobs and Housing Destruction Act” – represents the regulatory equivalent of blaming your child for eating too much candy. Did Wall Street exploit a deeply flawed regulatory system? Absolutely. Should the practice of leveraging of toxic assets be addressed? Absolutely. But Dodd-Frank accomplishes neither goal and should be viewed as a hollow promise to the American people that a sequel to the implosion of our financial system will never happen again. As a member of the House Financial Services Committee, I was the first to introduce the bill’s repeal because of the paralyzing effect the bill will have on the U.S. economy.
"Did Wall Street exploit a deeply flawed regulatory system? Absolutely. Should the practice of leveraging of toxic assets be addressed? Absolutely. But Dodd-Frank accomplishes neither goal.""
The federal government’s own housing policies and overbearing mortgage-market intervention caused the financial crisis, not the investment banks that exploited it. For 18 years leading up to 2008, politicians and bureaucrats, obsessed with maximizing home ownership at all costs, waged war against traditional, sound mortgage-underwriting standards. This relentless push to degrade mortgage-underwriting standards succeeded over time, but that “success” inevitably imploded, leaving us with a government-manufactured crisis that devastated housing and finance, along with jobs and the economy generally.
Yet the Democrats crafting Dodd-Frank did nothing to rein in those federal agencies and regulations – Fannie Mae, Freddie Mac, and the Community Reinvestment Act – that laid the groundwork for so many low-income Americans ending up with homes they could not truly afford. Bailing out Fannie and Freddie, these crony-capitalist government-sponsored enterprises, has cost taxpayers hundreds of billions of dollars with no end in sight.
With 74 percent of the rules mandated by Dodd-Frank yet to be written, the federal bureaucracies charged with crafting the rules have estimated that under the rules written so far, financial services firms will have to log, at a minimum, 11 million man-hours annually to comply with only one quarter of the rules that have thus far been crafted. For context, the construction of the Empire State Building required seven million man-hours over a period of 13 months. Even Federal Reserve Board Chairman Ben Bernanke admits that regulators cannot know Dodd-Frank’s cumulative costs.
Despite this regulatory burden and the fact that federal activism was and remains the cause of the financial crisis, President Obama and congressional Democrats promised that Dodd-Frank would strengthen the financial services industry, permanently end taxpayer bailouts of private institutions, and improve investment, and promote economic recovery and job growth.
Fifteen months later, Dodd-Frank has not delivered on any of these promises, and instead has aggravated financial sector instability, restricted credit availability, reduced business investment, kept unemployment high, and degraded economic growth. Moreover, Dodd-Frank has badly burdened American business to the permanent advantage of their foreign competitors.
Some highlights from Dodd-Frank support these points:
- The new Consumer Financial Protection Bureau (CFPB) has created uncertainty that has prevented the housing market from finding a bottom, and limited consumer choice and bank soundness. President Obama and Democrats ensconced CFPB within the Federal Reserve, siphoning off profits to cover its costs and shielding it from congressional oversight.
- Inter-change regulations – the so-called Durbin Amendment – predictably have resulted in higher checking account and debit-card fees. Despite creating the problem, Democrats have demonized companies like Bank of America for doing what they were forced to do.
- The law enables regulators to impose unlimited “assessments” on financial companies, which are estimated by the bipartisan Congressional Budget Office to result in an additional $30 billion extracted from American businesses, a cost that will be passed to consumers.
- Taxpayer-funded bailouts are institutionalized for any failed company that regulators deem “too big to fail.” Instead of impartial bankruptcy courts subject to appellate review, government regulators accountable to the President will pick winners and losers.
- New “risk-retention rules” limit consumer choice in home finance because of requirement of 20% down payment litmus test.
President Obama knows fully the paradox of marching with those who he has hurt, while accepting millions in campaign donations from those against whom he protests. He knows that to truly fix Dodd-Frank and address the heart of what actually caused the financial collapse, he must first square with the American people by acknowledging that its text was borne in haste and out of political expediency, and that nothing short of its complete repeal and thoughtful bipartisan replacement will protect this country from a repeat of the 2008 crisis.