October 16, 2011
Dodd-Frank DisasterBy Joseph Smith
In this week's Republican debate, an incredulous Charlie Rose, the moderator, exclaimed, "Clearly, you're not saying they should go to jail!" He was referring to Newt Gingrich's indictment of Chris Dodd and Barney Frank for the financial meltdown.
And the law bearing their names may be a case of the cure being even worse than the disease.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, regulators have released a draft of the so-called Volker Rule, which runs some 298 pages, with 381 footnotes and 350 questions for public comment.
The rule would limit bank risk in trading for their own accounts, but American Bank Association President Frank Keating, quoted at Forbes.com, asks how "such a simple idea could become so complex":
The cost burden may sink smaller banks, and Forbes also points out that foreign competitors to U.S. banks are "not following suit."
Firms such as Goldman Sachs and Morgan Stanley, which converted to bank holding companies during the bailout era, may consider dropping their bank status to avoid dealing with the Volker Rule.
Former Securities and Exchange Chairman Arthur Levitt, quoted at Bloomberg, observes that "this is going to be a long slog, and much of that rule that you see today is going to go up in smoke."
What you see is a massive exercise in bureaucratic wheel-spinning.
The Volker rule is the result of just one of more than 500 sections in the 849-page Dodd-Frank bill. The Wall Street Journal has reported that there are 387 sets of rules imposed by the act, and the New York Times further reported last month that "regulators have missed deadlines for 77 percent of the rules so far." And that was fourteen months after the July 2010 passage of Dodd-Frank.
Highlighting the ridiculous length of bills like ObamaCare and Dodd-Frank, which no one person could possibly read and understand, the Journal observes:
An industry insider calls Dodd-Frank a "full-employment act," as the New York Times reports on the "legions of corporate accountants, financial consultants, risk management advisers, turnaround artists and technology vendors all vying for their cut."
The Times account, appropriately titled "Feasting on Paperwork," notes that "the Dodd-Frank Act is quickly becoming such a gold mine that even Wall Street bankers, never ones to undercharge, are complaining that the costs are running amok."
Another Dodd-Frank mandate, the Consumer Financial Protection Bureau, or CFPB, was in the news last week, as the president's latest nominee to head the agency, former Ohio Attorney General Richard Cordray, was approved on party lines by the Senate Banking Committee.
The Los Angeles Times reports, however, that "nearly all Senate Republicans -- enough to mount a successful filibuster -- have vowed to block the confirmation of any nominee to head the agency unless its powers are watered down."
As the law is written, the CFPB is an "independent bureau" within the Federal Reserve System, with the director appointed to a five-year term by the president and removable only for neglect or malfeasance. The Dodd-Frank law spells out the unchecked nature of the Bureau in Section 1012 (c) (2) and (3):
While the CFPB director is required to appear periodically before Congress, there is no congressional oversight on funding. The director simply obtains funds from the Federal Reserve Board of Governors as needed, per Section 1017 (a) (1):
A U.S. Chamber of Commerce officer, quoted by the LA Times, highlights the lack of accountability:
The current nomination dispute follows the earlier dustup over the temporary assignment of consumer advocate and Wall Street adversary Elizabeth Warren as the acting director. Republican senators even went as far as threatening to block adjournment over the Memorial Day recess last year to prevent the president from making Ms. Warren a recess appointment.
Yet another controversial area of Dodd-Frank is the sweeping expansion of the Commodities Futures Trading Commission, or CFTC, which was originally established in 1974 to "regulate commodity futures and options markets."
The CFTC is tasked with writing more than forty sets of new rules under Dodd-Frank, but the commission is behind schedule, and House Republicans have balked at funding increases requested by the Obama administration.
Townhall Finance columnist Jeff Carter details an unintended consequence of the changes in commodity regulations.
Citing a 68-page CFTC rulemaking proposal that calls for, among other things, "creating rigorous recordkeeping and real-time reporting regimes," Carter observes:
Newt Gingrich went on in Tuesday's debate to indict "the politicians who were at the heart of the sickness which is weakening this country." And that "heart of the sickness" is where Dodd-Frank and ObamaCare reside. A couple of one-page repeal bills, followed by real reforms, will go a long way toward healing the patient.
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