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ICYMI: Fixing What's Wrong With Dodd-Frank — And That's A Lot
Washington, Jun 20 -
Investor's Business Daily The Dodd-Frank Act was floated to the public on a raft of promises. It would end too-big-to-fail, restore faith in banks, end the roller-coaster on Wall Street and boost economic growth. It did none of these things. In a recent Op-Ed for The Dallas Morning News, Texas Rep. Jeb Hensarling, the chairman of the House Financial Services Committee, sums up the damage: "Since the law's passage, the big banks have gotten bigger, the small banks have gotten fewer, and Washington bureaucrats have been empowered to officially designate some firms too-big-to-fail, setting them up for the next round of bailouts.Instead of lifting our economy, small business lending from banks has declined, and the rate of new business startups is near a 20-year low. Entrepreneurship has dropped to a generational low." In short, Dodd-Frank has been a disaster. How did it happen? Essentially, there were two competing narratives for how the financial crisis came about, one reality-based using hard data, the other fantasy-based formed by liberal ideology. The liberal fantasy won. "The public has been told over and over again by the media and the Obama administration that the financial crisis was caused by insufficient regulation of the financial system, particularly the banks and even more particularly Wall Street," writes Peter J. Wallison, a fellow at the American Enterprise Institute, this week. Wallison has special credibility, since he sat on the official, bipartisan Financial Crisis Inquiry Commission that issued its report in January 2011. He now charges that the final report ignored data that didn't support the principal conclusions of the majority. The report, he implies, was politically cooked. In a new report, "New Questions About the Financial Crisis Inquiry Commission," Wallison concludes: "As a government study commission, the FCIC failed in its obligation to report fairly on all the evidence it collected, not just the evidence for the story it wanted to tell." That's how such a bad bill as Dodd-Frank came about. It was a bad law based on bad data. Hensarling and his colleagues will soon put forward the Financial Choice Act, which seeks to fix that. It will eliminate many of the burdensome regulations on banks, while forcing them to raise more capital. It will create a new form of bankruptcy for huge financial institutions, ending "too big to fail." It will take supervisory powers out of the hands of political hacks, and put it into the hands of bipartisan panels that base their decisions on cost-benefit analyses — not politics. Want a growing economy and a healthy banking system again? Support the Financial Choice Act.
The Republicans will soon put forth a plan to do away with the worst parts of the economy-smothering Dodd-Frank reforms. It's a welcome step toward restoring sanity to our financial markets.