Former Congressman Barney Frank testified before the House of Representatives Committee on Financial Services on Wednesday, arguing that the Dodd-Frank Wall Street Reform and Consumer Protection Act and the voluminous set of regulations that followed shortly thereafter was a positive for the economy and safeguarded the American public from ever having to face an economic down turn the likes of the great recession ever again. Frank, a former chairman of the committee he now sat in front of, was one of five witnesses called before the committee to assess the impact of the law from multiple angles. He was the lone witness to testify in favor of the law. MReoprt, July 23, 2014
It’s been four years since Dodd-Frank was signed into law. So how’s it going? Has Wall Street been reformed? Have there been any innovative law protecting consumers from themselves?
Riddle me this Batman: If everything was going swimmingly, why’s Barney on the Hill defending it?
Here’s a hint: It’s a regulatory morass. According to the law firm, Davis Polk, who’s keeping score, the politicians, bureaucrats, and assorted lackeys, are still hammering out rules to implement the 2000+ page tome:
- As of July 1, 2014, a total of 280 Dodd-Frank rulemaking requirement deadlines have passed. Of these 280 passed deadlines, 127 (45.4%) have been missed and 153 (54.6%) have been met with finalized rules.
- In addition, 208 (52.3%) of the 398 total required rulemakings have been finalized, while 96 (24.1%) rulemaking requirements have not yet been proposed.
At this rate, one has to wonder whether the 74-year old Mr. Frank, will live to see the day when all the implementing rules have been passed.
In a recent Wall Street Journal op-ed piece, the title tells it all: [“Four Years of Dodd-Frank Damage”] In short, here’s the overriding complaint about Dodd-Frank: It swung the regulatory pendulum so far in the opposite direction, as to stifle economic growth. Quoting the article:
The effect on the economy has been worse. A 2013 Federal Reserve Bank of Dallas study showed that the GDP recovery from the recession that ended in 2009 has been the slowest on record, 11% below the average for recoveries since 1960.
Equally frustrating is the fact that despite its high aspirations, the regulators cannot reach agreement among themselves. For example, the proposed “Volcker Rule,” which was, simply stated, intended to keep the Big Banks from making Big Bets on their own behalf [known as “proprietary trading”], thus jeopardizing their own survival:
…took more than three years to write, but key provisions are still unclear.
These uncertainties, costs and restrictions have sapped the willingness or ability of the financial industry to take the prudent risks that economic growth requires. With many more regulations still to come, Dodd-Frank is likely to be an economic drag for many years.
There is much more, but one example says it all. Several months ago J.P. Morgan Chase JPM -0.27% announced that it plans to hire 3,000 more compliance officers this year, to supplement the 7,000 brought on last year. At the same time the bank will reduce its overall head count by 5,000. Substituting employees who produce no revenue for those who do is the legacy of Dodd-Frank, and it will be with us as long as this destructive law is on the books. MReport, July 23, 2014
Conclusion. Dodd-Frank is the quintessential example of legislative mission creep. And its namesakes, Barney Frank and Chris Dodd, aren’t the only ones responsible. They must have realized this was to be their swan song, as they both retired shortly thereafter, handing off the heavy listing to teams of bureaucrats to do actually write the regulations and put teeth into it. Lest anyone conclude that this leviathan was necessary, keep in mind that it birthed an entirely new bureaucracy, the Consumer Finance Protection Bureau, or “CFPB.”
From the Economist [The Consumer Financial Protection Bureau – Blessing or bureaucracy]:
The bureau also has much discretion to pursue its goals. Unlike many (but not all) government departments, it is not Congress that will determine its budget. Instead, the body will be entitled to 12% of what the Federal Reserve Banks spend on their operations, with funds coming from the Fed’s profits (which otherwise would go to the government). Unlike most (but not all) government agencies, the leadership position will be vested in a single person, rather than a board (often drawn, by law, from more than one political party).
What is more, special provisions in the law mean overturning an action by the bureau, or booting its director, will be nearly impossible. These protections are far stronger than for most other government agencies. They most closely resembling those granted to the Fed, although it has a far more limited scope of action. Finally, the bureau will be able to dispense funds. They will go to those it considers financial victims, but if they cannot be identified, the money can be spent on what the bureau believes to constitute consumer education or financial literacy.
Thus, we now have a cradle-to-grave governmental agency with little or no fiscal oversight. If you’re starting to feel a bit uneasy about all this, you’re not alone. Perhaps that’s why Barney Frank was the sole witness before the Committee on Financial Services testifying in favor of his legislative progeny. ~PCQ
 Note to those interested: You may scour every news source you wish, you will not see any credible statements attributing the 2007/2008 financial crisis to “proprietary trading.”