On Wednesday the Financial Services Committee passed several bills designed to help grow the economy, create jobs and bring much-needed accountability and transparency to the Federal Reserve.
H.R. 3189, the Fed Oversight Reform and Modernization Act (FORM Act), requires the Federal Reserve to transparently communicate its monetary policy decisions to the American people. Included among its reforms are changes that require the Fed to generate a monetary policy strategy of its own choosing.
“History – not theory, but history – shows that when the Fed follows a monetary policy strategy of its own choosing and transparently communicates that strategy to the rest of us, the economy performs better and more Americans get to wake up in the morning and go to work. The FORM Act protects the Fed’s independence to chart whatever monetary policy course it deems appropriate, but it has to give the American people a greater accounting of its actions," said Chairman Jeb Hensarling (R-TX).The FORM Act’s sponsor, Monetary Policy and Trade Subcommittee Chairman Bill Huizenga (R-MI), added, "With the Federal Reserve having more power and responsibility than ever before, it is imperative the Fed changes its opaque structure and becomes more transparent and accountable to the American people. The Fed’s recent high degree of discretion and its lack of transparency in how it conducts monetary policy demonstrate that not only are reforms needed, but more importantly that reforms are necessary. We need to modernize the Federal Reserve and bring it into the 21st Century."
For more information on the bills that the committee passed this week, click here.
Dodd-Frank Leaves Americans Less Prosperous
The Committee held its second hearing this month focused on the consequences of the Dodd-Frank Act with a discussion of the sweeping law’s impact on Americans’ prosperity.
Although President Obama promised Dodd-Frank would “lift the economy” when he signed the 2,300-page bill into law with much pomp and circumstance five years ago, Americans are instead stuck in the worst performing economic recovery since World War II – one that is even “weaker than previously thought, according to newly revised data,” the Wall Street Journal reported this week. And ABC News reported this week that wage growth fell to a “record-slow pace” in the second quarter.
The Committee’s hearing, according to Investor’s Business Daily, offered “eye-opening testimony” that Dodd-Frank is “largely to blame for our lackluster economy.”
“I believe that all the new regulation added by the Dodd-Frank Act in 2010 is the primary reason for the slow growth this country has experienced since 2010,” testified Peter Wallison of the American Enterprise Institute.
Former Senator Phil Gramm, an economist who served as Chairman of the Senate Banking Committee, testified before the Committee that “the regulatory burden has exploded under Dodd-Frank” and today “we’re experiencing the poorest recovery in the post-war history of America. If we had simply equaled the average of the 10 previous recoveries in the post-war period, 14.4 million more Americans would be working today and the average income of every man, woman, and child in the country would be over $6,000 higher.”
Wallison, who served on the Financial Crisis Inquiry Commission, refuted some of the Democrats’ myths about the cause of the financial crisis.
“Now, predatory lending no doubt occurred, but the Financial Crisis Inquiry Commission was unable to find enough data to show that it was significant. What we learned from the financial crisis is that in 2008 more than half of all mortgages in the United States were subprime. And of those, 76 percent were on the books of government agencies -- primarily Fannie Mae and Freddie Mac, FHA too. The point was here that the government had required certain quotas of mortgages to be made to people below median income. Now, there was no reason why that was a bad idea except for the fact that if you make those quotas too high then the GSEs had to reduce their underwriting standards, which they did. That's why 81 percent of all of the losses that Fannie suffered they reported as coming from subprime and other low-quality mortgages,” Wallison explained.
MEMBER SPOTLIGHTRep. Ed Royce | Bill to kill $3M raises for Fannie, Freddie CEOs gains momentum
“Congress needs to put a stop to the planned multi-million dollar paydays at Fannie Mae and Freddie Mac. Holding compensation packages at taxpayer-backed organizations to responsible limits is in the interest of the public trust,” Royce said in advance of his bill being marked up.
Weekend Must Reads
Investor's Business Daily | How Dodd-Frank Ate The U.S. Economic Recovery
Dodd-Frank has led to a decline in small banks and rising market share for the very largest. A cynic might suspect this was how it was designed to be. But what it's done to the economy is worse.
International Business Times | Dodd Frank Act Killing US Banks? Only 3 New Financial Institutions Have Opened Since 2010
One explanation for the lack of new banks in recent years might be the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted in 2010. Before the act was passed, the banking industry was spurring, and over 100 new banks popped onto the scene every year, according to data from the Federal Deposit Insurance Corporation, which is responsible for approving new banks.
Wall Street Journal | Dodd-Frank’s Unhappy Birthday
A unanimous three-judge panel of the D.C. Circuit Court of Appeals ruled that State National Bank of Big Spring has standing to challenge the CFPB’s constitutionality. The bank, supported by a legal team including former White House counsel Boyden Gray and the Competitive Enterprise Institute, argues that the agency violates the Constitution’s separation of powers. The bureau is an independent agency and thus largely unaccountable to the President. But because it draws funding directly from the Federal Reserve, rather than appropriations, it is also largely unaccountable to Congress. And it can declare lending practices abusive at its whim. Don’t be surprised if this is another case that makes it to the Supreme Court.
AEIdeas | The Wrong Directions for Poverty Policy
If the best antipoverty program is a job, government should support policies aimed at job growth, and should not increase wages for some while making employment harder to find for others.
In the News
Wall Street Journal | House Committee Approves Federal Reserve Overhaul Bill
Washington Examiner | Fed Faces a Laundry List of Reform Measures
Wall Street Journal | Lawmakers Move to Halt Fannie, Freddie Pay Raises
Bloomberg | House Panel Approves Bills Meant to Help Small Banks
American Banker | Your Definitive Guide for the Latest Slew of House Banking Votes
Housing Wire | Dodd-Frank dragging down economic recovery, House Committee says
The Hill | House members push Obama to start over on financial adviser rule
Housing Wire | Bill to eliminate $6M raise for Fannie, Freddie CEOs passes House Committee 57-1
Automotive News | U.S. House committee approves limit on CFPB's oversight of auto lending
Bloomberg | Fed Accidentally Released Confidential Staff Projections
National Mortgage News | House Committee Passes Bills to Delay TRID Enforcement, Revise QM
DSNews House | Committee Passes 14 Bills, Including Regulatory Relief and Fed Reform