As part of his campaign to seek the Republican Party's presidential nomination, Newt Gingrich has made the repeal of the Dodd-Frank Act a key element of his proposed domestic policy. During the summer, the former Speaker of the House of Representatives hosted a number of meetings and telephone conference calls with mortgage bankers and business leaders to discuss the Dodd-Frank Act's effects on their operations and the economy.
MortgageOrb spoke with Gingrich about his concerns relating to the Dodd-Frank Act and his proposals for replacing it.
Q: Why do you believe that the Dodd-Frank Act needs to be repealed rather than reformed? Is there anything that can be salvaged from the legislation?
Gingrich: Dodd-Frank is a regulatory Tower of Babel that is paralyzing the American economy and depressing home values. The legislation itself is over 2,300 pages in length and requires federal regulators to come up with more than 400 rules, which will expand the law by another 5,000 pages. It contains so much complexity and uncertainty as to how it will be applied that it is depressing normal lending and borrowing across the country, especially among small community banks and their small business borrowers.
We know from experience that a largely free economy is the best system to provide jobs and prosperity. We also know from experience, both here at home and abroad, that a command and control economic system run by bureaucrats of the central government is a recipe for economic decline.
Dodd-Frank is a takeover of the economy by the federal government bureaucracy, and it is leading to our economic decline. In this form of socialism, the government doesn't own American companies - American businesses are just indirectly controlled more and more by the arbitrary and capricious designs of the bureaucratic regulators and their politician masters.
Such an instrument of bureaucratic socialism needs to be dismantled root and branch. Marginal reforms will not address the underlying job-killing and prosperity-killing problem of centralizing economic decision-making among bureaucratic regulators in Washington, D.C.
Once we repeal Dodd-Frank, we can begin to consider limited, responsible, pro-growth financial regulations passed in a series of steps, with each one understood and passed on its own merits. A bill that finally begins the process of removing the federal government from housing finance through institutions like Fannie Mae and Freddie Mac would be a start.
We also must absolutely ensure that failing financial institutions are not bailed out by the federal government. We cannot have capitalism on the way up and socialism on the way down. If financial institutions are not allowed to fail quickly, then we will just get Dodd-Frank's bureaucratic socialism, which simply socializes failure across the entire economy. Dodd-Frank is a recipe for American prosperity to die slowly.
Q: During your presidential campaign, you've held numerous meetings with financial services officers and business owners relating to the Dodd-Frank Act. What have been the most frequent comments raised about the legislation?
Gingrich: The common theme of these comments is the sheer uncertainty of what the law requires and deep anxiety about the amount of arbitrary power that this bill invests in unelected, unaccountable bureaucrats. The uncertainty about what Dodd-Frank regulations will look like a month, a year, or five years from now makes decision-making impossible and freezes up even more investment.
Despite the fact that Dodd-Frank ended up being over 2,300 pages long, the most disturbing words and clauses may very well have yet to be written. This is a bill that allows bureaucrats to author 400 new regulations with little oversight, and also limits the extent to which we can predict damaging effects now.
There are obviously some aspects so devastating that they stand out: Lenders and Realtors have told us how disastrous the proposed Qualified Residential Mortgage (QRM) standards would be if they were to come into effect. They are sure that this rule will prevent hundreds of thousands of creditworthy Americans from accessing mortgages. Today's housing market, which is already mired in its worst slump since the Great Depression, will only get more miserable as fewer and fewer Americans are able to buy and sell their homes.
Community bankers are already bracing themselves for the cumbersome deluge of new regulations that will affect them disproportionally hard. Some community bankers have said that in order to afford the towering compliance costs, they may be put in a place where they will have no choice but to either merge with another institution or go out of business.
Q: The Dodd-Frank Act did not include any strategy for dealing with the status of Fannie Mae and Freddie Mac - both entities will soon observe their third anniversary in federal conservatorship. What do you propose doing with Fannie Mae and Freddie Mac?
Gingrich: Addressing Fannie and Freddie should have been the first priority of any serious financial reform. The fact that these government-sponsored enterprises (GSEs), which played such a critical role in the financial crisis in 2008, escaped unscathed - some would say they escaped even stronger - is testament to how misguided and confused the authors of this bill were.
It is absolutely critical for the private sector to assume a larger role in the mortgage market. Our continued dependence on the GSEs is simply unsustainable. American taxpayers have already paid out about $150 billion in bailout funds, and are likely exposed to hundreds of billions more in liabilities. Dodd-Frank further harms private-sector lenders with new byzantine regulations and penalties, such as those surrounding the QRM rule. While that happens, Fannie and Freddie will only get bigger and continue to distort the housing market on the backs of the American taxpayer.
After we repeal Dodd-Frank, we must gradually scale down the role of the GSEs in the American housing market, eventually breaking them up and beginning the process of privatization.
Q: Arguably, the most contentious aspect of the Dodd-Frank Act is the Consumer Financial Protection Bureau (CFPB). What is your opinion of the bureau's mission, and how did you view President Obama's decision to nominate former Ohio Attorney General Richard Cordray as its director, instead of Elizabeth Warren?
Gingrich: Dodd-Frank is an economically and constitutionally destructive piece of legislation, and the CFPB is its corrupted foundation. Only Congress could create an agency that invests all of its power in one single, unelected bureaucrat, and then claim that doing something like this could actually help "consumer protection."
The CFPB is the most powerful yet unaccountable agency in the federal government. I cannot remember a time when Congress was so willing to abdicate its responsibility and cede decision-making power to new, unchecked agencies.
Dodd-Frank transferred jurisdiction over a number of critical regulations from the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Federal Reserve to the CFPB. Now, the CFPB has unilateral authority to rewrite and refocus those regulations in any way they see fit, without congressional oversight. The CFPB's funding is not even subject to the normal appropriation process, which prevents Congress from ensuring that it does not engage in wasteful or unnecessary spending.
Every affected individual I have spoken with - from community bankers, to realtors, to small business owners - is concerned about the potential impact that this bureau could have on their viability. As competition dwindles, how can that possibly be good for consumers?
Elizabeth Warren and Richard Cordray are no friends of American business, and either would only make this fundamentally flawed institution even worse.