Dodd-Frank Has Held Down the US Economy for Too Long

wall street dodd-frank economyCarefree, Arizona—population 3,363—is 2,400 miles from Wall Street. But that’s still not far enough away to escape the harm caused by Democrats’ supposed “Wall Street reform” known as the Dodd-Frank Act, which was signed into law seven years ago this month.

According to a local news report, a proposed housing project in Carefree was terminated because “the Dodd-Frank Act and its overreaching federal regulations” prevented the developer from obtaining financing.

In truth, citizens of every American community are losing economic opportunities due to Dodd-Frank. According to the Mercatus Center, Dodd-Frank places greater burdens on our business enterprises than all other Obama-era regulations combined.

Arguably, it is the prime contributor to our economy’s halting growth since the last recession ended. It has been particularly harmful to small businesses.

Even the former director of President Barack Obama’s Small Business Administration lamented that Dodd-Frank’s regulatory burdens on community banks “are getting in the way of their ability to make small business loans.” Thanks to Dodd-Frank, too many garages are full of old cars instead of new startup companies.

Dodd-Frank harms the very consumers Democrats claim to help. University of Maryland researchers concluded Dodd-Frank “triggered a substantial redistribution of credit from middle-class households to wealthy households.”

Since Dodd-Frank became law, the share of banks offering free checking has fallen by half, average monthly fees have tripled, and the ranks of the unbanked and underbanked have increased by 3 million. When it comes to many financial products, consumers are paying more and getting less.

Dodd-Frank also promised to end taxpayer bailouts, but cynically codified them into law instead. The law promised to make our financial system more stable, yet today the big banks are even bigger, the small banks are fewer, and corporate bond markets are seeing historic levels of illiquidity and volatility.

Fortunately, President Donald Trump is committed to “dismantling Dodd-Frank,”and congressional Republicans are working to help keep that promise to the American people.

Last month, the House passed our bill to replace Dodd-Frank called the Financial CHOICE Act, which stands for Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs.

It promotes faster and healthier economic growth by replacing bailouts with bankruptcy, complexity with simplicity, and bureaucratic micromanagement with free market discipline.

With the Financial CHOICE Act, banks will receive significant relief from Washington’s regulatory burden if they choose to maintain sufficient capital. This not only makes our financial system safer, it also helps ensure that if banks run into financial trouble, they will survive without relying on taxpayers.

As a group of Nobel Prize-winning economists, former treasury secretaries, and senior economic policy officials noted in their endorsement of our bill, “the more banks are financed by capital, the less dangerous they are to the financial system and to the taxpayer, and so need less regulation.”

As the Federal Deposit Insurance Corp. reported, 98 percent of banks that meet the CHOICE Act’s capital standard for regulatory relief survived the 2008 financial crisis. Of the miniscule percentage that failed, none posed a systemic risk.

What does pose a systemic risk is the troubling growth of the federal financial safety net under Dodd-Frank.

The Federal Reserve Bank of Richmond’s “Bailout Barometer” estimates that taxpayers are now on the hook for 62 percent, or $27 trillion, of the financial system’s liabilities because they are either explicitly or implicitly guaranteed by the federal government.

So long as market participants believe Washington will ride to their rescue, they will be tempted to engage in reckless behavior. This leads to less productive uses of capital, greater financial fragility, and the likelihood that our already unsustainable national debt will grow even more so.

The solution is to make clear in advance that shareholders, creditors, and counterparties alone will bear the consequences of the risks they choose to take, which is also known as market discipline. This is the approach of the Financial CHOICE Act.

Our plan prevents Washington bureaucrats from being able to designate companies as “too big to fail.” It also creates a new subchapter of the Bankruptcy Code tailored to address the failure of large, complex financial institutions.

The bankruptcy process is administered by impartial judges charged with guaranteeing due process in public proceedings under well-settled rules and procedures.

By contrast, Dodd-Frank’s “Orderly Liquidation Authority” places vast amounts of discretion in a handful of unelected bureaucrats to seize an institution and wind it down, paying off some creditors and imposing losses on others.

The bankruptcy process also provides clarity that Orderly Liquidation Authority lacks. Under Orderly Liquidation Authority, the best that anyone can do is to surmise what the Federal Deposit Insurance Corp. might do.

That lack of certainty recreates the dangerous ad hoc policies of 2008 that helped precipitate the financial crisis.

Most importantly, bankruptcy does not depend on taxpayer funds to bail out, liquidate, or reorganize a failing institution. The same can’t be said for Dodd-Frank’s Orderly Liquidation Authority, by which taxpayers could be called upon to finance potentially trillions of dollars in bailouts.

Finally, the Financial CHOICE Act will not just end bailouts and promote greater growth and financial stability, it will also safeguard us from an even more dangerous prospect of Dodd-Frank—politicized lending that enables Washington to allocate capital.

Dodd-Frank represents an alarming expansion of an unaccountable administrative state devoid of any reasonable semblance of checks and balances or due process.

Witness “Operation Choke Point,” through which the Federal Deposit Insurance Corp. and other Obama-era regulators sought to strong-arm financial institutions into denying credit to lawful businesses because they were detested by the Obama administration, such as gun shops and payday lenders.

Dodd-Frank’s equally frightening Financial Stability Oversight Council has been granted virtually unchecked power to name any large financial firm “too big to fail” under an opaque and standardless process.

Once designated, the firm could be forced to end capital distributions to shareholders, or even be forced to divest or break up.

This is not the rule of law—it is the rule of rulers.

Under the Financial CHOICE Act, all financial regulatory agencies will be placed on budget and subject to congressional oversight. Their rulemaking will require both cost-benefit analysis and congressional review.

The Chevron doctrine, which elevates government agencies’ interpretation of law over defendants’, will be repealed. In essence, the CHOICE Act restores the rule of law and due process.

It’s been seven years since Dodd-Frank became law, and all of its lofty promises to end bailouts, lift our economy, and protect consumers have proven false.

Congress should make sure this month’s anniversary of Dodd-Frank is its last. The Financial CHOICE Act, which holds both Washington and Wall Street accountable, offers a better way—economic growth for all and bank bailouts for none.

From - The Daily Signal - by Rep. Jeb Hensarling

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5 years ago

Congress can do it sadly…they wont do it. They get wealthy on the largesse of their patrons (donors) and so they are not inclined to cut off their noses to spite their faces. Welcome to the swamp. It appears that trump is damn near the only one trying to fight for us and the rest, to varying degrees are not inclined to change anything. The fact that paul ryan in the house and mitch Mcconnell in the senate are dragging their heels and stalling everything tells you all you need to know. Mccain is another example as well as flake. They said they needed the house, we gave em the house . They said they needed the senate, we gave em the senate. They said we needed the presidency, well we gave it to them and now they dont do (@#$$%^&^&*&*&^%$$^)!!!! You want to know where the swamp is? Look no further than washington D.C. The bureaucrats,they dont want change, the administrators, they dont want change, the sweet talking politicians, they dont want change. Perhaps a convention of states is really really needed as our forefather wrote into the constitution.
Doing the same thing over and over and expecting a different result is is the definition of insanity according to einstien. He is right, more of the same? It is not working. If we do the same thing we always did we will get the same thing we always got. The choice is ours, not someone elses.


5 years ago

The Big Banks need to be broken up into smaller Banks. There should not be a Chase Morgan Stanley there should be Chase, the Commercial Bank and then the Investment Bank of Morgan Stanley so that they are NOT ALL TOO BIG TO FAIL.

Ivan Berry
5 years ago
Reply to  Jim

They were never too big to fail, but should then as now be entered into bankruptcy court under prior law or new laws as applical. Why should the taxpaying public have ever been required to bail them out? I know, they claim it’s the government doing the bailing, but whenever the government spends money, one way or another it’s the public holding the tab.

Pete from St Pete
5 years ago

The Dodd-Frank Act is a perfect example of government trying to solve imagined problems by writing more legislation that only causes more productive time being wasted in filling out reams of paperwork. More laws and regulations is the Democrat/Socialist answer to all problems regardless of unintended consequences. IF IT AIN’T BROKE DON’T FIX IT!

David Campbell
5 years ago

“…and congressional Republicans are working to help keep that promise to the American people.”

That would be different.

5 years ago
Reply to  David Campbell

Wouldn’t though?

5 years ago

The Community Reinvestment Act in about 1998, also a Dodd and Frank brainchild, caused the 2008 crash by forcing banks to make subprime loans in order for them to be able to expand.

5 years ago

Wasn’t Maxine Dirty Waters involved in that too? I remember she had her dirty hands in the Fannie Mae debacle. She should also be in jail.

5 years ago

has everyone forgotten the collapse of the banks and the bailout of those greedy sob’s? really? Are you saying that there should be no over site over people who clearly only care about their own pockets? These people got caught with their hands in the empty cookie jar and sold Americans the story that the cookie jar would soon fill up when in fact the bakery was bankrupt! Have you forgotten how their greed cost many their opportunity to ever retire? Dodd Frank was put in place to stop these crooks from ever doing that again. Is it maybe a tad overboard or over reactive? sure…considering the times that it was put in play…but could you ever imagine a world where these people could freely do this again? believe me …they don’t learn lessons…

5 years ago
Reply to  sam

I think I heard about the Community Reinvestment Act being
The initial catalyst for
Sub prime mortgage crisis which
Lead to all the subsequent
Bundling and schemes that
Created the financial ctisis.
That would be Federal law & regs pushed by BJ Clinton and Waco TX. janet Reno.

5 years ago
Reply to  sam

The bank collapse was not caused the the banks.

The government housing policy, and not the banks or the private sector, caused the 2008 financial crisis.
The housing bubble was created by all this government-backed spending making the taxpayer holding the bag.
The Financial CHOICE Act, will holds both Washington and Wall Street accountable and not the taxpayer.

5 years ago
Reply to  sam

The banks loaned money to people who could not pay it back under the direct mandate and daily guidance of the federal government Sam. Banks were never “in-regulated” as the left would like you to believe. Compliance Officers from the various federal over-sight agencies were always on site and monitoring all activities being carried out on a daily basis. Banks were also scored on a quarterly basis as to how many loans they made to sub-prime borrowers and if they did not meet their assigned quotas, they faced a series of possible actions from their federal government supervisors ranging from monetary fines to restrictions on expanding their businesses to even the lose of the operating licenses. Which would have put them out of business. So instead of simply repeating the idiotic talking points you hear on MSNBC, NBC, CBS, ABC or CNN, try and actually learn the facts of what led up to the 2008 meltdown from the creation of the CRA up through a series of Democrat-led initiatives in the 1990’s and 2000’s in attempted social engineering policies, that culminated in almost wrecking our financial system.

5 years ago
Reply to  sam

Sam, the banking crisis was because of Jackass Jimmy Carter forcing the banks to provide “Affordable Housing Loans”. When the banks rose up and showed Jackass Jimmy that many of the banks would then fail, Jimmy guaranteed “that the government would back all the loans”. Well, guess what? When the banks realized they no longer had to worry about ANY of their loans, they got greedy since they now had no risks. So they lowered their regular standards and just gave anybody a loan. Then you know what happened, the crisis happened and no one went to jail. Especially the Jackass who caused it!!!

Ivan Berry
5 years ago
Reply to  Rik

Rik and PaulE, go to the head of the class. Well addressed as to how and who.

5 years ago

Part of Obummer’s Jihad against America – as he wanted it to fail in EVERY respect, from the economy thru the military- !

5 years ago
Reply to  CurtK

Seems that the more the Feds try to micromanage the economy
The more they create unintended consequences and mess up the free market
Making life more difficult for us.
Dodd Frank is one case brought to us by Mr. exPrez. OB economic ignorant
Only the Big banks and corporations and the rich have the resources to deal with the avalanche of regs that get dropped on our heads.
You think maybe all those federal regs might be part of the cause for that evil income inequality?

5 years ago

Tom Dodd Jr. and Barney Frank should be arrested, prosecuted and jailed for their roles in the destruction of small businesses and the economy. Both are Communist scumbags!!!

Ivan Berry
5 years ago
Reply to  Rik

Ditto, Rik.

5 years ago
Reply to  Ivan Berry

To Rik and Ivan,

Sadly the way Congress is performing this year, or should I say NOT performing, I wouldn’t hold my breath waiting for this **** to be repealed.

Ivan Berry
5 years ago
Reply to  PaulE

Sadly, PaulE, you are probably right about that, as on most issues. Truth does sometimes hurt.

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