One year ago, President Obama signed the Dodd-Frank Act into law, setting the U.S. on a collision course with economic mediocrity and a prolonged period of high unemployment.
With all of their infinite wisdom of economics and the global financial markets, congressional Democrats insisted they knew what they were doing when they drafted Dodd-Frank.
They told us they knew how to regulate one of the most complex industries on the planet. They told us that the U.S. needed to lead on financial reform and the rest of the world would follow. They told us it was necessary to get our economy moving again and to prevent future taxpayer bailouts.
Fast-forward to today and we now know they had no idea what they were doing. In fact, Dodd-Frank has only made things worse for our economy, our workforce and our financial markets.
Since the passage of Dodd-Frank, credit conditions continue to be tight, the securitization market is still frozen and massive regulatory overreach is making the cost of doing business at every level in the supply chain more expensive for main street businesses.
Not only that, but rather than ending "too big to fail," Dodd-Frank has codified it.
Congressional Democrats gave financial regulators appointed by the Obama administration full discretion to implement the law as they saw fit without first considering the broader economic implications of their scorched-earth approach to regulatory reform.
And implement is exactly what they have done -- proposing more than 100 new regulations that not only reach banks, but also impact a whole host of unsuspecting entities, ranging from small-business owners and farmers to community banks, pension plans and manufacturers.
Blindsided by the cumulative cost of this albatross of new regulation, Main Street businesses have decided to put their hiring and investment decisions on hold. Even more alarming, a number of these businesses have said that if certain proposed regulations become final in their current form, then they will be forced to leave the markets altogether to avoid the regulatory costs imposed by Dodd-Frank.
If this holds true, the consequences will be nothing short of catastrophic for our economy. Fewer players in the market will mean less liquidity and more concentrated risk. And less liquidity will mean increased market volatility and a higher cost of funds. The net result of all this will mean higher prices for American consumers.
Our economy can't grow and create jobs for Americans if onerous financial regulations are preventing businesses from accessing capital markets to expand, innovate and mitigate risk at a reasonable cost. With the national unemployment rate locked in above 9%, the last thing we need right now is overzealous regulators that continue to overreach and ignore the impact their regulations have on credit and the broader economy.
Aside from the negative consequences Dodd-Frank is having on the American economy today, it also threatens to undercut U.S. competitiveness over the long-term.
We are a long way from the solidarity displayed at the 2009 G-20 meeting in Pittsburgh. The more our international competitors see the debilitating effects of Dodd-Frank on the U.S. economy, the more they are rethinking their role in international coordination of financial reform because they don't want to make the same mistakes we have.
In fact, some significant differences are beginning to emerge between the reforms included in Dodd-Frank and those of our international competitors. Instead of "you lead on reform and we will follow," it's now "you lead and we will pick and choose how want to follow."
We now have the Volker Rule, our competitors don't; we now require multidealer exchange trading of swaps, our competitors don't; we now want to require pension funds to tie up retirement money as collateral for trades, our competitors don't -- and the list goes on and on.
Put simply, the overreaching policies codified in Dodd-Frank have incentivized other countries to increase their taxable revenue through strategic regulatory arbitrage. By putting our faith in Democrats to regulate Wall Street, we have severely impaired the global competitiveness of the U.S. financial markets and pushed companies to take their capital and jobs to friendlier terrain overseas.
When commercial end-users, agricultural cooperatives and food processors -- who are not systemically risky banks -- are concerned they might be swap dealers; when Americans with good credit can't qualify for a home mortgage unless they make a down payment of 20%; when Fannie Mae and Freddie Mac continue to hemorrhage billions of taxpayer dollars and crowd the private sector out of the housing finance market; when regulations concentrate more risk in banks that are "too big to fail" and incentivize them to get bigger; and when the cost of doing business in every American industry materially increases, we have to ask ourselves: What has the Dodd-Frank Act and its overreaching regulation really achieved? So much for trusting Democrats on matters of economics and international finance.
Print version of this document