To wit: Remember the financial crisis and federal government bailuts of 2008? Some factoids care of the Government Accountabiility Office:
- The Federal Reserve lent $16T through its emergency programs between 2007 and July 2010.
- That's $0.8T less than the nation's 2013 GDP.
The idea was that large but failing firms deserved the $$$s because they were "too big to fail," meaning it was cheaper to bail them out than it would be to let them collapse in the free market.
Enter center stage now-former Representative Barney Frank (D-MA) and now-former Senator Christopher Dodd (D-CT), authors of the "Dodd-Frank Act" (DFA). What the duo sought to engineer was greater regulation over the financial markets, their goal allegedly being keep those markets more stable by:
- establishing the Financial Stability Oversight Council to monitor the U.S. financial industry and identify which firms' failure would cause problems for the American economy;
- firms deemed "systemically important" (i.e., "too big to fail") would be coerced into complying comply with more expansive and onerous regulations; and,
- DFA's Title II authorized the FDIC to seize struggling firms and shut them down.
Remember all of that?
Perhaps not. After all, that was then and this is now. Who cares?
With Frank and Dodd gone from center stage, it ends up that the law bearing their names has introduced neither greater predictability nor clarity into the financial markets. According to the Economist, DFA has also created numerous problems for consumers, banks, and other financial entities. Some of these include:
- 40% fewer free checking accounts;
- 26k full-time employees have been hired to comply with the paperwork requirements; and,
- bank profits are in the tank.
All of that combines to hurt the financial industry as well as consumers who need the services those firms provide.
Hopefully, plaintiffs in the lawsuit in federal court challenging the Dodd-Frank Act will prevail. Oral arguments were heard earlier this November. Short of that, the Heritage Foundation notes the next Congress could:
- repeal Dodd-Frank entirely;
- use bankruptcy law not DFA's Title II for large institutional failures;
- restrict the Federal Reserve from making emergency loans to private firms; and,
- eliminate the Financial Stability Oversight Council.
The real problem is that American voters have a very short memory and aren't much interested in details. Soundbites featuring Barney Frank and Christopher Dodd and touted by the media sell a flawed, but populist idea. Then, when the data roll in a couple of years after that idea is signed into law, American voters don't seem to recollect ever being sold that bill of goods. All they know is that, come April 15th each year, they always seem to end up paying the ever-increasing costs it takes to fund the federal government.
On that count, Jonathan Gruber is absolutely correct.
Let the discussion begin...
To read the article in the Economist, click on the following link:
To read the Heritage Foundation report, click on the folowing link:
"Repealing Dodd-Frank and Ending 'Too Big to Fail'".