Politico - Hensarling: Dodd-Frank a Confidence Killer

Op-Ed

By Representative Jeb Hensarling

As President Barack Obama continues his campaign for a second term, Americans must keep in mind that his major policy visions have already been legislated into reality -- and reality has regrettably not lived up to his promises.

One of the boldest of broken promises came when the president and the Democrats who controlled Congress then sought to "rein in Wall Street" by enacting legislation that codified too big to fail, made the financial institution bailouts permanent and ignored Fannie Mae and Freddie Mac, the housing giants at the core of the financial crisis.

Before Sen. Chris Dodd and Rep. Barney Frank passed their legacy legislation, their fellow Democrats insisted that Dodd-Frank financial reforms would "increase investment and entrepreneurship" and "foster competitiveness, confidence in our financial sector and robust growth in our economy."

Last year, the Democratic chairman of the Senate Banking Committee, Tim Johnson, claimed "the effective and timely implementation of the Dodd-Frank Act will help strengthen the economy by creating certainty for the business community, consumers and investors."

Shamelessly, this 2,300-page regulatory bill was sold to the American people as an economic growth bill. Instead, the new law came with unintended consequences on every page, resulting in a slowed economy and stalled job creation.

Despite all of its touted benefits for the financial sector, Dodd-Frank ended up only killing confidence and sidelining capital. After the largest monetary and fiscal stimulus in history, companies are currently sitting on roughly $2.1 trillion of excess liquidity while banks are sitting on $1.5 trillion in excess reserves. This is money that is not being used for investment and job creation because of -- not in spite of -- Dodd-Frank.

With more than a million more Americans out of work since he took office, the president's policies have ushered in the longest period of sustained high unemployment since the Great Depression. With entrepreneurship in a coma, the number of new business startups is at a 17-year low, while the number of Americans having to rely on food stamps is at an all-time high.

The lack of economic recovery and jobs for millions of Americans stems from the severe lack of certainty in the private sector. This deficit of confidence did not appear out of thin air but has been fostered by the actions of an administration obsessed with red tape and bureaucracy creation -- not job creation.

At the heart of Dodd-Frank is the ironically named Consumer Financial Protection Bureau, which has the power to strip from citizens their consumer freedom and restrict their credit opportunities -- all in the name of "consumer protection." Orwell would be impressed.

Last month, the president made former Ohio Attorney General Richard Cordray the CFPB's first director via a recess appointment, albeit without the Senate being in recess. While the constitutionally dubious move remains troubling enough, the vast regulatory power now ready to be exerted by the new director stands as a direct threat to the prosperity of American families and businesses it claims to protect.

The emergence of this authoritative new agency marks a disturbing transfer of power from elected members of the legislative branch to a handpicked, unelected bureaucrat in the executive branch. As written in Dodd-Frank, this single credit czar now has the power to decide whether a family can obtain a mortgage, receive a car loan or even get a credit card to buy groceries. Any "consumer financial product" the director personally deems "unfair" or "abusive" can be banned or modified according to his whim.

In other words, if the mortgage that would allow you to be a homeowner is ever considered "unfair," you'd better find another one. If the credit card you choose for your family is at some point ever thought to be "abusive," you might find yourself paying cash.

Evidently, Obama does not believe that well-informed consumers are capable of judging which financial products are appropriate for their needs, and that we're all better served by a nanny-state government bureaucrat at the Consumer Bureau.

Americans should rightly be protected from fraud, but not by surrendering their freedom and centralizing even more power in even fewer hands in Washington. Consumers should be empowered with effective and factual disclosure, not potentially barred from enjoying the benefits of product innovations like automated teller machines and online banking.

How will banning the types of credit small businesses use to make ends meet create jobs? Rationing consumer credit certainly won't grow the economy. Sadly, Dodd-Frank has commissioned yet another unaccountable bureaucrat to do exactly this.

Through its numerous provisions to ban and ration credit products, make credit more costly and less available and reduce consumer choices as discussed above, Dodd-Frank has indeed already become a private-sector job preventer, if not outright job killer. At a time when government policy ought to create an environment where private lenders -- especially small community financial institutions -- can lend responsibly to creditworthy consumers and small businesses, Dodd-Frank guarantees that doing so will remain harder than ever. In fact, the only professions that may benefit from this bill are trial lawyers and government bureaucrats (even arguably illegitimate ones) like Cordray.

Instead of addressing the real flaws that led to the very real financial crisis that began in 2008, Dodd-Frank is turning out to be a ruthless cocktail of political favoritism, regulatory overreach and radical, unprecedented power consolidation. It is not bringing confidence to our financial sector or helping our economy create jobs.

Like the president's other major policy "victories," it is only succeeding in making things worse.

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