Madison Project’s Daniel Horowitz raises the corpse of the American economy to help ring in the the fourth anniversary of the Dodd-Frank law, a.k.a. the Wall Street Reform and Consumer Protection Act, a.k.a. the Restoring American Financial Stability Act of 2010.
The years since President Obama signed Dodd-Frank have witnessed the most anemic post-recession recovery in the U.S.A. in the last 70 years. Regulation is economically depressive, but theories differ on how heavily regime uncertainty factored into prior economic recessions, and it is even less clear how much responsibility surging bureaucracy bears for our continuing stagnation. And anybody peddling the idea that Obama-era regulation has hamstrung Wall Street is unlikely to find a buyer’s market given the performance of the Dow since 2010. From a street-level view, the last four years appear to have been a decisive victory for the Northeast Corridor over the rest of America.
Still, I think Horowitz is correct in calling Dodd-Frank “the forgotten Leviathan of the Obama administration — one that is dragging down the economy just as much as Obamacare.” I also concur with Horowitz that Dodd-Frank has not received as much attention as Obamacare, though I don’t think the costs of either law are terribly well understood. Horowitz writes:
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.
The Republican Senate votes for Dodd-Frank were Maine’s Olympia Snowe and Susan Collins, along with Scott Brown of Massachusetts.
Snowe retired from the Senate in 2013. Collins is expected to defeat Democratic challenger Shenna Bellows in November. Brown lost his Bay State Senate seat to Elizabeth Warren in 2012. He later changed his state of residence to New Hampshire and is seeking readmittance to the world’s greatest deliberative body in a November challenge to incumbent Democratic senator Jeanne Shaheen. He is expected to lose.