Journal Entry – Financial Reform: Does it Solve Anything?
- By J. Wesley Fox
- Published 10/15/2011
- Politics
- Unrated
Congress passed a massive financial reform bill designed to address the causes and effects of the 2008 financial meltdown. It is very long, very complicated and applies to a topic that few people understand. One of the chief authors of the bill, Sen. Dodd, freely admitted we (The entire country) will have to wait to see what impact the bill will have. It is disturbing that Democrats pass such massive legislation without knowing what it will do, let alone letting anyone read it until it is passed. As experts have had time to look over the bill, most have stated it does not address the causes of the 2008 meltdown, creates hundreds of new regulations and enhances the power of lobbyists and bureaucrats. The Dodd-Frank Act fails in its objective: to improve confidence and certainty in the financial markets.
Young Americans have a strong interest in restoring confidence and certainty in the U.S. financial markets. The U.S. Government must work to encourage banks to begin providing credit for small and medium-sized businesses, allowing them to grow and hire more workers. The Government should also promote confidence among investors, encouraging them to invest in American companies and encourage innovation among entrepreneurs.
Since I am no expert on economics, finance or banking – it is important to note a significant portion of the analysis here was done by experts at the Heritage Foundation, Cato Institute and American Enterprise Institute. After going over numerous articles and reports a couple key conclusions emerged from these sources. First, the Dodd-Frank Act does very little to address the cause of the 2008 meltdown, it only gives the government greater authority to deal with the effects. Second, it does not do anything about financial companies becoming “too big to fail”. It also does not end government bailouts of financial institutions, but in fact makes it easier for the government to implement them. Finally, the Dodd-Frank act empowers lobbyists, trial lawyers and bureaucrats in Washington while marginalizing small banks, small businesses, and regular Americans seeking home loans.
The top objective for Americans concerning financial reform is to prevent another financial meltdown like the one in 2008. The Dodd-Frank Act fails to do that. Fannie Mae, Freddie Mac and Ginnie Mae (all government-sponsored corporations) played a major role in the 2008 collapse. These corporations are backed by American taxpayers and required massive bailouts after the collapse. The Dodd-Frank Act does not reform them and in fact the Democrats are prepared to give these companies billions more in bailouts. Like every other problem they have faced, their solution is to throw money at it.
A lot of the bad loans responsible for the collapse were possible because of the country’s extremely low interest rates. According to Mark Calabria (Cato Institute scholar), the Federal Reserve set interest rates so low for so long that a “bubble” or artificial inflation in prices was inevitable. We have now seen the consequences of when a “bubble” bursts. Clearly, the Federal Reserve was also a contributor to the crisis, and yet the Dodd-Frank Act completely ignores that fact.
To help prevent a financial crisis, the bill gives a new oversight agency the task of monitoring the financial markets and looking for potential problems. Some wonder why we are relying on the foresight of the same regulators who failed to predict the last collapse.
Young Americans struggle with the concept of a firm being “too big to fail”. Such a designation reeks of unfair monopoly/an impermissible concentration of wealth and power in one company. Many thought the Democrats would certainly do something about this. They did not. In the Dodd-Frank Act, a new agency (The Financial Stability Oversight Council) would be charged with identifying firms that would pose a threat to the markets. The firms would then be subject to greater regulation and oversight. According to the Heritage Foundation, designating financial firms that “pose a threat” would signal to the marketplace that these firms will be protected by the U.S. Government if anything goes wrong.
Outraged at all the Wall Street bailouts? Get use to it because the Dodd-Frank Act does not end that practice either. It establishes a $50 billion fund to pay for bailouts funded by taxes on financial firms. The problem is the bank tax will likely be passed on directly to customers, employees, and investors in the bank. The Act also authorizes regulators to guarantee the debt of stable banks. Even if a bank is not in trouble, regulators can declare that a “liquidity crisis exists”. The U.S. Government could potentially bailout a stable bank.
What should anger Americans even more is how the Dodd-Frank Act benefits large banks and financial institutions.
The Dodd-Frank Act creates 243 new rule-making authorities among the new and existing agencies. When the rules are being formulated, lobbyists will be working overtime to make sure the rules favor their clients. Unfortunately, only larger banks and financial institutions can afford lobbyists. As a result, the new rules will be written to benefit large financial institutions.
The Act also allows the new consumer regulatory agency to ban arbitration agreements between consumers and financial firms. This would force parties use litigation as a means of resolving disputes. Who wins in that situation? Trial lawyers.
Is it better for the financial system or American businesses to give more power to federal bureaucrats, lobbyists, and trial lawyers?
Young Americans should know the Dodd-Frank Act will damage long-term job creation. Banks will face higher costs, which will make them even more reluctant to extend credit to small businesses. Without growth among small businesses, there will be very few new jobs created (something Young Americans desperately need).
The Dodd-Frank Act must be either repealed or scaled-back in the near future. Democrats were hoping that most Americans simply would not understand what they were doing in this new bill. They barely understand themselves. They also hoped Republican lawmakers would also not fully understand what they were voting for. Most opposed the Act but three were convinced of its merit (Sens. Scott Brown, Susan Collins, and Olympia Snowe). Restore America’s Legacy supports responsible financial reform that restores confidence and certainty in the financial markets. Without greater confidence and certainty, corporations and investors will continue to sit on their money – unwilling to take risks in this unstable economy.
Young Americans have a strong interest in restoring confidence and certainty in the U.S. financial markets. The U.S. Government must work to encourage banks to begin providing credit for small and medium-sized businesses, allowing them to grow and hire more workers. The Government should also promote confidence among investors, encouraging them to invest in American companies and encourage innovation among entrepreneurs.
Since I am no expert on economics, finance or banking – it is important to note a significant portion of the analysis here was done by experts at the Heritage Foundation, Cato Institute and American Enterprise Institute. After going over numerous articles and reports a couple key conclusions emerged from these sources. First, the Dodd-Frank Act does very little to address the cause of the 2008 meltdown, it only gives the government greater authority to deal with the effects. Second, it does not do anything about financial companies becoming “too big to fail”. It also does not end government bailouts of financial institutions, but in fact makes it easier for the government to implement them. Finally, the Dodd-Frank act empowers lobbyists, trial lawyers and bureaucrats in Washington while marginalizing small banks, small businesses, and regular Americans seeking home loans.
The top objective for Americans concerning financial reform is to prevent another financial meltdown like the one in 2008. The Dodd-Frank Act fails to do that. Fannie Mae, Freddie Mac and Ginnie Mae (all government-sponsored corporations) played a major role in the 2008 collapse. These corporations are backed by American taxpayers and required massive bailouts after the collapse. The Dodd-Frank Act does not reform them and in fact the Democrats are prepared to give these companies billions more in bailouts. Like every other problem they have faced, their solution is to throw money at it.
A lot of the bad loans responsible for the collapse were possible because of the country’s extremely low interest rates. According to Mark Calabria (Cato Institute scholar), the Federal Reserve set interest rates so low for so long that a “bubble” or artificial inflation in prices was inevitable. We have now seen the consequences of when a “bubble” bursts. Clearly, the Federal Reserve was also a contributor to the crisis, and yet the Dodd-Frank Act completely ignores that fact.
Young Americans struggle with the concept of a firm being “too big to fail”. Such a designation reeks of unfair monopoly/an impermissible concentration of wealth and power in one company. Many thought the Democrats would certainly do something about this. They did not. In the Dodd-Frank Act, a new agency (The Financial Stability Oversight Council) would be charged with identifying firms that would pose a threat to the markets. The firms would then be subject to greater regulation and oversight. According to the Heritage Foundation, designating financial firms that “pose a threat” would signal to the marketplace that these firms will be protected by the U.S. Government if anything goes wrong.
Outraged at all the Wall Street bailouts? Get use to it because the Dodd-Frank Act does not end that practice either. It establishes a $50 billion fund to pay for bailouts funded by taxes on financial firms. The problem is the bank tax will likely be passed on directly to customers, employees, and investors in the bank. The Act also authorizes regulators to guarantee the debt of stable banks. Even if a bank is not in trouble, regulators can declare that a “liquidity crisis exists”. The U.S. Government could potentially bailout a stable bank.
What should anger Americans even more is how the Dodd-Frank Act benefits large banks and financial institutions.
The Dodd-Frank Act creates 243 new rule-making authorities among the new and existing agencies. When the rules are being formulated, lobbyists will be working overtime to make sure the rules favor their clients. Unfortunately, only larger banks and financial institutions can afford lobbyists. As a result, the new rules will be written to benefit large financial institutions.
The Act also allows the new consumer regulatory agency to ban arbitration agreements between consumers and financial firms. This would force parties use litigation as a means of resolving disputes. Who wins in that situation? Trial lawyers.
Is it better for the financial system or American businesses to give more power to federal bureaucrats, lobbyists, and trial lawyers?
Young Americans should know the Dodd-Frank Act will damage long-term job creation. Banks will face higher costs, which will make them even more reluctant to extend credit to small businesses. Without growth among small businesses, there will be very few new jobs created (something Young Americans desperately need).
The Dodd-Frank Act must be either repealed or scaled-back in the near future. Democrats were hoping that most Americans simply would not understand what they were doing in this new bill. They barely understand themselves. They also hoped Republican lawmakers would also not fully understand what they were voting for. Most opposed the Act but three were convinced of its merit (Sens. Scott Brown, Susan Collins, and Olympia Snowe). Restore America’s Legacy supports responsible financial reform that restores confidence and certainty in the financial markets. Without greater confidence and certainty, corporations and investors will continue to sit on their money – unwilling to take risks in this unstable economy.
J. Wesley Fox
J. Wesley Fox is the Chairman of Restore America's Legacy PAC. He is a recent graduate of DePaul University College of Law and has been active in local and national politics for several years. He currently lives in New Jersey after growing up in the Chicago suburbs.www.restoreamericaslegacy.com
View all articles by J. Wesley Fox