The nation is enthralled by an unusual presidential campaign season that has pretty much seen it all. One important thing that has thus far been lacking is a serious legislative agenda to get the economy moving again. For that we now have House Financial Services Chairman Jeb Hensarling’s sweeping reform of Dodd-Frank, a major roadblock to economic growth. Congress should make enacting his recently announced agenda a priority and force the issue onto the national campaign.
Before Obamacare there was another massive government overreach foisted upon the public by a Democratic controlled Congress. The 2,000+ page Dodd-Frank Wall Street Reform and Consumer Protection Act was portrayed as a means to prevent another financial crisis, but instead has saddled the economy with costly regulatory burdens and new unaccountable bureaucracies, all the while ignoring the many government policies that led to the housing bubble and subsequent financial collapse in the first place.
In a speech unveiling his reforms, Hensarling called Dodd-Frank “a breathtaking, unconstitutional outsourcing of legislative powers to the executive branch.” Not only is this the case, but Dodd-Frank has also failed to accomplish its primary objectives. Rather than address the roots of the financial crisis – easy money, government mismanagement, conflicting regulatory agendas, bad housing policies, and systemic moral hazards – it has only exacerbated what ails the financial sector thanks to pointless and destructive new regulations and government agencies.
One of these is the “Volcker Rule,” added during the House-Senate conference without being debated during the bill’s passage, which prohibits financial institutions from investing their own funds and engaging in proprietary trades. Not one of the banks that failed during the crisis did so due to the types of trading the Volcker Rule prohibits. In fact, the diverse revenue streams and greater liquidity that would exist without the Volcker Rule allow institutions to better adapt when faced with a market downturn.
Dodd-Frank also created the Consumer Financial Protection Bureau (CFPB) and the Financial Stability Oversight Council (FSOC). These agencies operate outside the usual system of checks and balances but wield tremendous power over the economy. The CFPB just released rules that would all but wipe-out an entire industry by rendering small dollars loans unprofitable, thereby denying poor Americans one of their only avenues for accessing credit. The FSOC, meanwhile, is a committee composed of regulators from the very agencies most responsible for the financial crisis, which Dodd-Frank rewarded with the power to rule by fiat over financial firms.
Mainstream consumers have further been harmed by Dodd-Frank’s so-called “Durbin Amendment,” which put price controls on debit card interchange fees. These are the fees that card issuers collect from merchants. Like other prices they are best set by market competition, but on the behest of merchants politicians stepped, promising savings for consumers that have never materialized. Instead, many banks have responded to the lost revenue by eliminating free checking and other customer benefits.
None of these or Dodd-Frank’s many other interventions have made our financial system any more secure. Instead it has codified too-big-to-fail and bailouts into law, while concentrating risks into a few large entities. Moreover, it has added 224 (out of an eventual 400) new rules that will require from the private sector over 24 million hours per year in compliance.
To replace Dodd-Frank’s heavy-handed and counterproductive approach, Hensarling offers the Financial CHOICE Act. It ends too-big-to-fail and taxpayer bailouts of financial institutions, and replaces complex and arbitrary governance by bureaucrat with transparent rules that respect economic liberty. Congress should embrace his reforms as a counter to the failed, top-down approach of the last decade.