Time to End 'Government-by-Crisis'

Three years and 9,000 pages of legislation later, our economy has yet to see any benefits from the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). Originally hailed as the answer to our subprime mortgage crisis, Dodd-Frank has not only failed to resolve the issue of "Too Big to Fail" (for which it was originally intended), but also failed to deliver any of the savings claimed for it to consumers. What has this colossal piece of legislation done, you ask? Other than force the community bank and credit union industry into alarming rates of foreclosure, and increase bank fees across the board for consumers, not much.

So how exactly did this massive bill come to be law? Robert Kaiser, a 50-year veteran of the Washington Post, has the answer in his new book: An Act of Congress. The problem, he says, is Washington.

Although some have viewed Kaiser's reporting as a congratulation to Washington for "doing something," in fact, Kaiser's reportage paints a picture of the Dodd-Frank legislation as a prime example of what happens when you mix an economic crisis with political ambition and lobby power: bad policy. The mixture of what he describes as "politics-obsessed mediocrities who know little about the policy they're purportedly crafting and voting on" along with outcry for action in Washington following the subprime mortgage crisis, created the perfect ground for Dodd-Frank to blossom; an immaculate "policy window" ripe for Congress to seize upon.

Kaiser is also not the first in his field to insinuate such a notion. In 2010, the same year that Dodd-Frank was enacted, Professor Stephen Bainbridge (UCLA School of Law), suggested a similar hypothesis. In his research he compared Dodd-Frank to the Sarbanes Oxley Act of 2002 (Sarbanes-Oxley), which was quickly enacted following the IT crisis in 1997. Bainbridge defines both Dodd-Frank and Sarbanes Oxley as "Bubble Acts," characterized by the following attributes:

(1) enacted in response to a major negative economic event.

(2) It is enacted in a crisis environment.

(3) It is a response to a populist backlash against corporations and/or markets.

(4) It is adopted at the federal rather than state level.

(5) It transfers power from the states to the federal government.

(6) Interest groups that are strong at the federal level but weak at the Delaware [corporation mecca] level support it.

(7) Typically, it is not a novel proposal, but rather a longstanding agenda item of some powerful interest group.

(8) The empirical evidence cited in support of the proposal is, at best, mixed and often shows the proposal to be unwise.

The academic work of Stephen Bainbridge and the compelling new book by Robert Kaiser make an unanswerably strong case for the repeal of Dodd-Frank and a drastic change in Washington's legislative process away from "not letting a crisis go to waste," to move toward the deliberative process of what used to be known as "regular order." Voters, consumers, and the millions of Americans seeking jobs should demand that Washington scrap the massive Dodd-Frank regulatory scheme before it does any more damage to the recovery, and instead focus on the real problems facing American economy.

Three years and 9,000 pages of legislation later, our economy has yet to see any benefits from the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). Originally hailed as the answer to our subprime mortgage crisis, Dodd-Frank has not only failed to resolve the issue of "Too Big to Fail" (for which it was originally intended), but also failed to deliver any of the savings claimed for it to consumers. What has this colossal piece of legislation done, you ask? Other than force the community bank and credit union industry into alarming rates of foreclosure, and increase bank fees across the board for consumers, not much.

So how exactly did this massive bill come to be law? Robert Kaiser, a 50-year veteran of the Washington Post, has the answer in his new book: An Act of Congress. The problem, he says, is Washington.

Although some have viewed Kaiser's reporting as a congratulation to Washington for "doing something," in fact, Kaiser's reportage paints a picture of the Dodd-Frank legislation as a prime example of what happens when you mix an economic crisis with political ambition and lobby power: bad policy. The mixture of what he describes as "politics-obsessed mediocrities who know little about the policy they're purportedly crafting and voting on" along with outcry for action in Washington following the subprime mortgage crisis, created the perfect ground for Dodd-Frank to blossom; an immaculate "policy window" ripe for Congress to seize upon.

Kaiser is also not the first in his field to insinuate such a notion. In 2010, the same year that Dodd-Frank was enacted, Professor Stephen Bainbridge (UCLA School of Law), suggested a similar hypothesis. In his research he compared Dodd-Frank to the Sarbanes Oxley Act of 2002 (Sarbanes-Oxley), which was quickly enacted following the IT crisis in 1997. Bainbridge defines both Dodd-Frank and Sarbanes Oxley as "Bubble Acts," characterized by the following attributes:

(1) enacted in response to a major negative economic event.

(2) It is enacted in a crisis environment.

(3) It is a response to a populist backlash against corporations and/or markets.

(4) It is adopted at the federal rather than state level.

(5) It transfers power from the states to the federal government.

(6) Interest groups that are strong at the federal level but weak at the Delaware [corporation mecca] level support it.

(7) Typically, it is not a novel proposal, but rather a longstanding agenda item of some powerful interest group.

(8) The empirical evidence cited in support of the proposal is, at best, mixed and often shows the proposal to be unwise.

The academic work of Stephen Bainbridge and the compelling new book by Robert Kaiser make an unanswerably strong case for the repeal of Dodd-Frank and a drastic change in Washington's legislative process away from "not letting a crisis go to waste," to move toward the deliberative process of what used to be known as "regular order." Voters, consumers, and the millions of Americans seeking jobs should demand that Washington scrap the massive Dodd-Frank regulatory scheme before it does any more damage to the recovery, and instead focus on the real problems facing American economy.

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