The Patriot Post® · Dodd-Frank Is Too Big and It Has Failed
With President Donald Trump’s recent executive order directing the Treasury Department to conduct a review of the Dodd-Frank financial reform law, Democrats have, unsurprisingly, reacted with feigned horror and outrage. They claim Trump is turning Wall Street loose to do as it pleases; an odd claim considering Dodd-Frank was signed into law by Barack Obama, who raked in more Wall Street cash than any politician in American history.
Initially, Trump’s call is only for a review of the law, and it makes few, if any, systemic changes. But it does establish a set of principles upon which Trump administration policy shall rest. Namely:
- Empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;
- Prevent taxpayer-funded bailouts;
- Foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis;
- Enable American companies to be competitive with foreign firms in domestic and foreign markets;
- Advance American interests in international financial regulatory negotiations and meetings;
- Make regulation efficient, effective and appropriately tailored; and
- Restore public accountability within federal financial regulatory agencies and rationalize the federal financial regulatory framework.
The Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into law in July 2010 following one of the worst economic meltdowns in U.S. history. The goal of the law was ostensibly to put tighter regulations on U.S. financial markets in order to discourage risk and avoid another meltdown.
Yet this was a classic case of the fox guarding the henhouse. The law was named after Democrats Senator Chris Dodd (D-CT) and Congressman Barney Frank (D-MA), who were among the primary catalysts behind the Wall Street bailouts, shoveling hundreds of billions of taxpayer dollars to financial institutions deemed “too big to fail.”
During George W. Bush’s administration, Republicans repeatedly warned that government-run Fannie Mae and Freddie Mac, the country’s largest mortgage-backers, were extremely overleveraged and at risk of causing a financial catastrophe. Frank dismissed those concerns before the House in 2005, going so far as to say that, even if a housing bubble did exist, he was willing to “roll the dice.”
Dodd and Frank rolled the dice, alright, and tens of millions of Americans paid the price with the near collapse of the American banking system. In October 2008, Bill Clinton admitted some Democrat culpability in the meltdown, stating, “I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress … to put some standards and tighten up a little on Fannie Mae and Freddie Mac.”
Sadly, Democrats were largely successful in blaming Bush for a failure of their own making, even though none other than The New York Times warned of dire consequences as far back as 1999.
The end result of Dodd-Frank was the exact opposite of what its architects claimed. Rather than ending “too big to fail,” it gave the federal government power to take control of financial institutions deemed to be “systemically important,” signaling to investors and financial institutions that they could take greater risks with the tacit guarantee of another taxpayer bailout. The law furthermore created an agency, the Consumer Financial Protection Bureau, with massive powers to interfere in the financial industry, but completely detached from any oversight or control by Congress.
One of the most damaging aspects of Dodd-Frank was that not only did it make the biggest banks even bigger, but it destroyed thousands of community banks and credit unions, drying up credit lines for small businesses. Without the lifeblood of credit from the community banks that knew them, and unable to get the time of day from the mega-banks, these small businesses withered and died, along with their millions of jobs.
It is high time this law is repealed. As the Cato Institute’s Mark Calabria recently wrote, “We are almost a decade past the last financial crisis. Despite much scurrying around and endless amounts of paper produced, Washington has actually done little to avoid future bailouts and improve the stability of our financial system. Unfortunately, what has been done has come at great economic cost. We can have both a strong economy and a more stable financial system. Reforming Dodd-Frank is a critical step along that path.”
House Financial Services Committee Chairman Jeb Hensarling (R-TX) has already proposed a bill, the Financial CHOICE Act, which would replace the most damaging provisions of Dodd-Frank.
This will not be an easy fix, though. Dodd-Frank has been law for nearly seven years, with thousands and thousands of pages of regulations birthed from it. Democrats will fight repeal or revision tooth and nail because it takes power away from the federal government, and from some of Democrats’ biggest donors. They will use every tactic at their disposal to block changes to the law, and will use the media to paint it as Republicans getting in bed with Wall Street to the detriment of the little guy — when, of course, the exact opposite is the case.
Congressional Republicans and Trump should work together, and take a page out of the Democrat playbook by telling the stories of some of the millions of Americans hurt by this atrocious law.
Along with the repeal of ObamaCare and true tax reform, repeal of Dodd-Frank will go a long way toward improving the lives of everyday Americans, jumpstarting the economy, and furthering us on the road to making America great again.