Draining the Dodd-Frank swamp
The House just passed the Financial CHOICE Act, which enacts major reforms to the Dodd-Frank Act, signed into law by President Obama in 2010.
The 2,300-page Dodd-Frank Act was passed to fix what supposedly was broken in our financial system that led to the massive financial collapse in 2007.
The potential economic impact of the sweeping reforms of the Financial CHOICE Act are as far reaching as anything going on in Washington today. But you probably haven’t heard about it.
The press is filled with news about Russia, James Comey, Jeff Sessions. Yet hardly anything about this. Why?
One hint could be an editorial that appeared in The Wall Street Journal last December under the headline, “Guess Who’s Defending Dodd-Frank?”
The answer is the nation’s biggest banks.
The full title of the Dodd-Frank law is The Dodd-Frank Wall Street Reform and Consumer Protection Act. The website of the Obama White House explained the law as “Holding Wall Street Accountable.” It attributed the crisis to the major financial institutions in New York. You would think those same institutions, the nation’s largest banks, would be unhappy about all the new regulations that they now have to live with.
But, as the Wall Street Journal points out, these same banks are defending Dodd-Frank and opposing the Republican reforms.
This is really about the “swamp” that this new Republican administration is supposedly now in Washington to drain.
The “swamp” is about Washington business “special interests” working with Washington political “special interests” to make law that makes them both happy.
The financial crisis provided an opportunity for Democrats to bring sweeping new government controls to the banking industry.
As American Enterprise Institute scholar Peter Wallison points out, the Dodd-Frank Act was not produced after a serious investigation about what really caused the crisis. It simply was an opportunity for Democrats to take advantage of the crisis for major expansion of government.
Wallison shows that the crisis was caused by government, not Wall Street. It was the result of growing pressure on government mortgage giants Fannie Mae and Freddie Mac to purchase increasingly large quotas of mortgages for low-income borrowers. The result was deterioration of lending standards in order to meet the quotas.
By 2008, per Wallison, half the mortgages in the country were subprime, with 76 percent purchased by Fannie and Freddie. Both imploded and both were bailed out by taxpayers to the tune of $180 billion.
Meanwhile, the misguided new regulations on banks suit the big banks just fine. They can deal with them, but the smaller banks can’t. So the regulations push the competition to the big banks out the door. Five of the nation’s largest banks now control more than 40 percent of the nation’s banking assets.
Unfortunately, the small community banks, whose market share is now shrinking because of the Dodd-Frank regulations, have always been a major source of loans to small business. The arteries carrying capital to the grass roots of America have been clogged. According to Wallison, and other economists, this is a major reason why our economy is growing so slowly.
Now its up to the Senate, including the 11 Democrat senators up for re-election in states carried by Donald Trump in 2016, to step up and do the nation’s business and pass these critical reforms.
Star Parker is an author and president of CURE, Center for Urban Renewal and Education.