By Representative Scott Garrett
Are you fed up with our lackluster recovery and stubbornly high unemployment? Do you wonder why, three years after we officially pulled out of the Great Recession, we still haven't hit our economic stride? Look no further than the current occupant of 1600 Pennsylvania Avenue.
The reason economic growth is stuck in neutral is because the Obama administration is determined to regulate risk out of our capital markets. Put another way, President Obama believes that state-controlled capitalism is the best path to economic prosperity.
As a free-market capitalist, I couldn't disagree more with President Obama's vision for America's economy. I believe that market-driven capitalism fueled by free ideas, free people and the freedom to take risk is what creates economic prosperity.
Robust economic growth requires healthy and dynamic capital markets, the ability to access credit and some good old-fashioned competition. In the past, policies mindful of basic economics allowed our capital markets to become the deepest and most liquid in the world.
In fact, our capital markets became the envy of the world specifically because government got out of the way so that they could flourish and grow.
Unfortunately, the story has changed dramatically over the last few years. Because of laws like Dodd-Frank and the tidal wave of regulations that are drowning our capital markets, pools of private capital have dried up, jobs creation has been placed on life support, and the global supremacy of our capital markets is now in jeopardy.
In the wake of Dodd-Frank, government control over every facet of our capital markets seems limitless. In particular, the Obama administration's policies have green-lighted the heavy hand of government to micromanage capital market liquidity; to dictate to banks and issuers what to do, how to do it and when to do it; to subordinate investor rights whenever government planners deem it politically expedient; and to impose new regulations that seek more government control over farming, manufacturing, and small businesses in the name of "financial reform."
Our financial system has become increasingly controlled by government regulators who inevitably fail. And what happens when they fail? They blame the private sector, and insist they could have done better if they had more power; which is exactly what they have done.
Emboldened by Dodd-Frank, safety and soundness regulators are now competing with capital markets regulators to see who can regulate the risk out of capital markets first. It's clear to anyone who is paying attention that the freedom of the U.S. capital markets is under attack.
In defense of this attack on our financial markets, we are told that Dodd-Frank is necessary to keep the financial system safe from future crises. If that's the stated goal, why are there so many glaring holes?
Dodd-Frank doesn't end the "too big to fail" doctrine; it doesn't address the banking system's ability to withstand "common shocks" to widely held assets; it doesn't change capital rules that treat sovereign debt as risk free; it doesn't end the failure of government-subsidized homeownership and the crony capitalism that comes along with it; and it doesn't end the worst example of subsidized central planning in U.S. history: Fannie Mae and Freddie Mac.
The Obama White House has justified its interventionist policies by blaming unregulated capitalistic forces for causing the financial crisis. In reality, though, the actual cause of the financial crisis and the breakdown in market-driven capitalism was the injection of government subsidies into the market and the failure of regulators to do their job, not capitalist risk-taking that Obama-appointed regulators are determined to wipe off the face of the earth.
For market-driven capitalism to work, you must have risk -- period. The capital markets, by their very nature, are innovative and dynamic, with the assumption that a level of risk always exists.
If the goal of this administration's regulators is to eliminate all risk from our markets, no one will prosper -- except perhaps the government. This is very dangerous, and it will have lasting implications on the competitiveness of our markets and on our economy unless we change course.
Economic prosperity does not come by allowing central planners to micromanage the U.S. financial system. Rather, economic prosperity requires respect for investor rights, honoring the sanctity of private contracts and sound money.
It also requires tearing down the barriers to capital formation, removing the burdens on small banks so they can lend to small businesses, and eliminating the subsidies that continue to create dislocations in market pricing.
The main function of the U.S. capital markets is to facilitate the flow of capital from those who have it to those who need it. President Obama's policies have disrupted that basic function. It's time for him to embrace risk-taking as a fundamental ingredient to free markets, job creation and economic prosperity.
* Garrett, a Republican who represents New Jersey's 5th congressional district, is chairman of the House financial services subcommittee on capital markets and government-sponsored enterprises.