The Dodd-Frank Wall Street Reform and Consumer Protection Act that was hastily written by Democrats and signed into law on July 21, 2010 turned five years old last month. Passed as a response to the Great Recession, it brought the most significant changes to financial regulation in the US since the regulatory reform that followed the Great Depression.
Dodd-Frank made (and continues to make) significant changes in the American regulatory environment that affect almost every part of the nation’s financial services industry. As a member of that industry, I have a conflict of interest, but that doesn’t mean I can’t criticize a law that I believe hurts consumers and small businesses.
As noted above, Dodd-Frank was hastily put together by the Democrats that controlled Congress in 2009 and 2010, but haste didn’t stop it from being perhaps the largest and most onerous law ever passed by Congress. The initial law was 848 pages. A recent report from George Mason University’s Mercatus Center says that Dodd-Frank now contains at least 27,669 rules and regulations, five times more than any other law.
The statute itself declared that it would “end too-big-to-fail” and “promote financial stability.” None of that has come to pass. Too-big-to-fail institutions have not disappeared. Just the opposite – big banks are even bigger, thousands of small banks have shut down and the financial system is even less stable today. Meanwhile, the economy remains in the doldrums, in no small part due to the enormous cost of Dodd-Frank.
Dodd-Frank was based on the unfounded premise that the financial crisis was the result of deregulation. Yet the Mercatus Center report notes that regulatory restrictions on financial services grew every year between 1999 and 2008. So it wasn’t deregulation that caused the crisis; it was dumb regulation.
Among the dumbest were Washington’s affordable-housing mandates that eventually led to a loosening of underwriting standards that put millions of people into homes they couldn’t afford in the years leading up to the financial crisis. Washington not only failed to prevent the crisis, it led us into it.
Dodd-Frank was supposedly aimed at Wall Street and the big banks, but it hit Main Street hard. Community financial institutions, which make the bulk of small business loans, were/are overwhelmed by the law’s complexity. Government figures indicate that the country is losing on average one community bank and/or credit union a day. These smaller lenders simply can’t afford the expense of complying with Dodd-Frank. They are just shutting their doors.
It is now more expensive for American companies to raise working capital that’s needed to grow and create jobs. It’s no wonder then that small business closures today outnumber small business start-ups for the first time since the Great Depression.
Worst of all, Dodd-Frank’s watchdog Consumer Financial Protection Bureau is wholly made up of cronies appointed by the sitting president, in this case Obama, and is accountable to no one, not even Congress. It’s an out-of-control bureaucracy. Most Americans have no idea about this.
Before Dodd-Frank’s passage, its co-founder, former Senator Chris Dodd, said that “No one will know until this [law] is actually in place how it works.” Today we know. The law he co-wrote with former Representative Barney Frank is steadily making America’s largest financial institutions even bigger and taking the power to allocate capital – the lifeblood of the US economy – away from the free market and delivering it to non-elected political actors in Washington.
It is evident that Dodd-Frank has made us less prosperous and less free. It has meant lost opportunities and frustrated dreams for millions hoping to start a small business, buy a home or plan for a secure retirement.
If we want strong economic growth, more freedom and an end to bailouts, it’s time we commit to making sure this fifth anniversary is Dodd-Frank’s last. I wish I could tell you that this is a possibility – sadly, I cannot.
I could write pages and pages more about the failures and unintended consequences of Dodd-Frank. I barely scratched the surface today, but I’ll have to leave it there for now.
If you want more, just Google “Dodd-Frank” and you will find plenty of additional info.
Finally, let me encourage all of you to join the conversation. If you send me a reasonable question or comment, I will respond if appropriate. Let me hear from you!
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