Dodd-Frank Damage Begins to Unfold

The Washington Times does a little follow-up on the Dodd-Frank bill, a monstrous 2,300-page law named after two of the most corrupt clots of slime ever to disgrace the Beltway. It was a reaction to the $zillions our rulers flushed down the toilet in bailouts after Democrat race-based mortgage policies crippled the housing sector and with it the entire economy in 2008. Supposedly it would do away with the alarming concept that politically connected firms are “too big to fail.”

The actual result has been a mountain of red tape. At least 400 new federal rules will be layered on top of existing regulations. New bureaucracies will have overlapping jurisdiction with existing regulatory bodies. Affected banks and businesses are scrambling to comply, but frequently they don’t know what they are supposed to be complying with. Only 21 of these rules have been finalized, and the remainder are being rammed through with nearly no time made available for cost-benefit analysis, public comment or reflection.

Far from getting rid of bailouts, Dodd-Frank institutionalized them. Title II empowered the Federal Deposit Insurance Corporation with “orderly liquidation” authority, giving the agency discretion to intervene between a financial institution and its creditors in any way it sees fit. Markets have not been slow to recognize this. Historically, large banks have paid higher interest rates on their loans than small banks; since the passage of Dodd-Frank that relationship has been reversed. Markets believe Treasury Secretary Timothy F. Geithner when he says the federal government is prepared to do “exceptional things” if warranted. That means the “too big too fail” ethic still applies.

Dodd-Frank has largely severed the relationship between risk and return, which is the necessary discipline imposed by a free market. Now, the big banks get to keep the rewards, but American taxpayers bear the risk. If that sounds familiar, it should. That is precisely what happened in Greece, when the International Monetary Fund underwrote hundreds of billions of dollars in loans, leaving American and German taxpayers stuck with the bills.

The only difference between America under its current rulers and Greece is that we have nowhere to turn for help, once our own taxpayers have been bled dry. To sum up:

Dodd-Frank has been an expensive exercise in command and control by the federal government. It encourages crony capitalism while undermining free markets and limiting competition.

The insane law will cost businesses $27 billion over the next 10 years in various fees, assessments, et cetera. At least major Dem donors like Goldman Sachs will get their money’s worth.

If we let people like this rule us, we don’t deserve a future.


On a tip from Just TheTip.