Tuesday, July 13, 2010
More analysis of Dodd-Frank
The negative reactions to Dodd-Frank continue to surface, this analysis from Gary Becker and Richard Posner. These are smart guys, in whom I have much more confidence than the members of Congress. I continue searching for some independent voice out there who has a positive view of this pending legislation, but beyond the Senators and Congressmen who are touting it I find few who recommend it.
Like most titles of legislation Washington produces, this title is once again misleading. The so-called “Financial Services Reform” bill is anything but reform. The AP, reports that “Sens. Olympia Snowe and Scott Brown pushed sweeping financial legislation to the edge of final passage Monday, both announcing they intend to support the regulatory overhaul despite initial misgivings.” Gary Becker and Richard Posner write on The Becker-Posner Blog the following 5 faults with this legislation:
1. “The bill adds regulations and rules about many activities that had little or nothing to do with the crisis.” - This bill is over 2,000 pages in length like Obamacare and is a complete mess of new regulations and the establishment of multiple (not just one) new administrative agencies. Extraneous measures were added to this bill not even related to the systemic causes of the 2008 financial crisis, and that is an outrage. Becker-Posner write that “the bill gives the Fed authority to limit interchange or ’swipe’ fees that merchants pay for each debit-card transaction.” This is nothing more than voodoo politics -- save the masses from a minor fee that touches their lives every day, then allow them to pass it along in some other fee down the road. It is not beyond the realm of possibility this bill could also trigger more financial crises than it cures.
2. “The Dodd-Frank bill gives several government agencies considerable additional discretion to try to forestall another crisis, even though they already had the authority to take many actions.” Does anyone you know think that giving the federal government more expansive power is a good idea? Now is the time to LIMIT government, not expand it. Who wants to give Treasury and the Fed vast new powers to address a crisis when they already have authority to address whatever they need to with existing powers? Honestly, Congress is either brain dead or they think we're just stupid lemmings.
3. “Insufficient capital relative to bank assets was an important cause of the financial.” The bill has a complicated means to require more capital, yet Becker-Posner argue that a simple requirement would have been a better means to require more capital reserves in banks.
4. “One of the most serious omissions is that the bill essentially says nothing about Freddie Mac or Fannie Mae.” This bill does nothing to reform or abolish Freddie and Fannie. The Foundry argued that, “supporters of Sen. Chris Dodd’s financial regulation bill say it will end financial bailouts. In fact, the Senate — anxious to reassure Americans on that fact — even added an amendment last week with a stated purpose ‘[t]o prohibit taxpayers from ever having to bail out the financial sector.’ But someone forgot to tell the folks across town at Freddie Mac and Fannie Mae. Freddie last week announced it had lost $8 billion in the first quarter of the year, and would be asking for another $10.6 in taxpayer help. And today, its twin Fannie announced a $11.5 billion loss, and asked for a further $8.4 billion in aid from taxpayers. That’s in addition to the nearly $145 billion in aid to Fannie and Freddie have already received.” And Dodd and Frank continue to tell the bald-faced lie this bill is “reform” when nothing is being done to abolish an organization that has wasted over hundreds of billions of your tax dollars? They were the chairmen of the respective committees that caused the crisis, and now they would have you believe they are the problem solvers through regulation? This bill is not reform. Any legislation that purports to conduct reform and does nothing about Fannie and Freddie is not reform. Don’t be fooled by this legislation, because the elites in Washington will do anything to protect friends who have worked at Fannie and Freddie.
5. “Many proposals in the bill will have highly uncertain impacts on the economy.” Becker-Posner point to new mortgage regulations, hedge fund regulations and consumer “protections” as three examples of new red tape that may slow and already slow economy. Yet again, the elites in Washington think they know better than the experts on Wall Street and have chosen to empower bureaucrats.
This bill is terrible policy, omits real reform and it may harm the economy. Despite fears and warnings, however, once again this legislation is one Senate vote away from a Presidential signing ceremony.
Senator Scott Brown's (R-MA) supporters need to rethink whether he's a real conservative if he ends up voting for this trash.