June 8, 2016

Of Wall Street and Main Street

The Republican plans to address both.

With Donald Trump focused on making outrageous statements and stirring controversy, the job of presenting substantive GOP policy positions falls to House Republicans. In two separate recent announcements that are part of the GOP’s Better Way Agenda, Speaker Paul Ryan (WI) and Financial Services Committee Chairman Rep. Jeb Hensarling (TX) presented some ideas to undo years of destructive leftist economic policies.

Hensarling, speaking at the Economic Club of New York, unveiled a plan to get of rid of the Democrats’ 2,300-page Dodd-Frank financial regulatory behemoth in favor of a more market oriented regulatory scheme.

“It wasn’t deregulation that created the great financial crisis of 2008,” Hensarling correctly noted. “It was mostly dumb regulation by the Washington elite.”

The Dodd-Frank law, named after two Democrats who promptly retired from Congress, passed along party lines and has done far more harm than good since it was signed by Barack Obama in 2010. Has anyone noticed our anemic “recovery” since this law was implemented? Yeah, there’s a correlation.

Dodd-Frank was the biggest federal overreach into the financial sector since the Great Depression, and it came fresh on the heels of ObamaCare. Democrats told us their financial “reform” was meant to make financial institutions more responsible for their actions — to end “too big to fail” — but in the end it merely created a bubble of protection around government-favored banking institutions, codifying “too big to fail.” And it did so by implementing a whole new scheme of fees and costs that were passed along to taxpayers.

“The ultimate goal of the Left,” Hensarling said, “is to turn our large, money-center banks into the functional equivalent of utilities so that Washington can politically allocate credit.”

The plan Hensarling presented Tuesday would give financial institutions a “market-based, equity-financed Dodd-Frank off ramp,” allowing them to opt out of the regulatory law if they can prove their financial stability.

The burden of proof includes a provision that banks hold a 10% leverage ratio, a measure of capital held against total assets that determine the amount of borrowing a bank can do. This is currently higher than banks currently enjoy under Dodd-Frank, and has therefore drawn the ire of some on Wall Street, but the tradeoff is a greater degree of independence from government influence in day-to-day and long-term decision making.

Hensarling also pointed out that many community and smaller banks could easily make the leverage threshold, which would stymie Democrats’ attempts to essentially nationalize the banking system under a few large “too big to fail” institutions.

While Hensarling focused on banks, Ryan turned his focus toward alleviating poverty. Speaking in the DC suburb of Anacostia, Ryan offered some details of the Better Way anti-poverty agenda. The plan seeks to put more control in the hands of state and local jurisdictions, allowing them to administer benefits, measure results on federal programs, and better police waste and fraud.

Ryan’s announcement was light on details, and it did not include his prior anti-poverty prescriptions like social service block grants or expanding the Earned Income Tax Credit. (And Heritage Foundation poverty expert Robert Rector has a list of ways to improve Ryan’s proposal.) This step, instead, was designed to start a conversation to find a new way to combat the problems that years of statist policies have failed to solve.

Not only have leftists not solved these problems, they have exacerbated them. In our view, that’s been their goal all along — a cynical power grab that also has the benefit of creating dependents who will always vote Democrat. Thus it was no surprise when Democrats shot down Hensarling’s and Ryan’s proposals without even listening to the details. Any plan that decentralizes power or takes away the federal government’s control over banks and taxpayers is, by definition, against “progressive” policy. Any substantive conversation to arise from these proposals is unlikely to include meaningful input from the Left.

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