Get excited — Dodd-Frank is also here to stay

Obama’s second term means the leviathan legislative packages of ObamaCare and Dodd-Frank are indeed going to survive fully intact and are now preparing to rule over the health care and financial industries with an iron regulatory fist… and it’s not going to pretty. From the Associated Press:

Financial stocks in the Standard & Poor’s 500 were down more than 3 percent around midday, worse than any of the other nine stock categories in the S&P.

The concerns that plagued stocks broadly — looming government spending cuts and tax increases, a deepening recession gripping Europe — are especially hard on banks and other financial firms.

Obama’s re-election also has a direct impact on banks: …

— It means the thick roster of banking rules passed in 2010, the Dodd-Frank Act, is all but certain to stay in place. Those rules have crimped some revenue sources that banks used to rely on, like fees charged to stores when customers use debit cards, or on credit cards marketed to college students. Romney had promised to repeal Dodd-Frank.

I’ve often noted my internal quandary over which of Obama’s ‘crowning legislative achievements’ will actually end up doing more economic damage in the long run (but I won’t have to wonder anymore, because we’ll get to see it first hand, yippee!). While both of these ill-conceived, paternalistic, bureaucratic endeavors are doomed to be economic catastrophes that will impose egregious opportunity costs, there is no sector of the economy that doesn’t pass through finance in some form. From businesses large and small seeking loans to speculative trading to individuals saving and accruing money for retirement — these transactions are all fundamental to economic growth, and Dodd-Frank is going to pose a huge hindrance upon all of these activities.

In July, J.W. Verrett wrote for Forbes that separation-of-powers-lovin’ George Washington would be turning over in his grave if he knew about the immunity from outside oversight that the Dodd-Frank-created Consumer Financial Protection Bureau is going to enjoy:

In his farewell Presidential address, [George Washington] noted the “love of power and proneness to abuse it which predominates in the human heart” and he suggested the “necessity of reciprocal checks of political power…”

The CFPB Director is indeed the czar of czars.  He or she may only be removed for neglect or malfeasance in office.  That is not true of most other financial regulatory agencies, where the President can replace the Chairman at will by designating another Commissioner as Chairman.

Nor is the CFPB accountable to Congress.  The Dodd-Frank Act prohibits the House or Senate from reviewing the agency’s spending authority. The CFPB’s $500 million budget comes entirely from the Federal Reserve’s surplus, out of funds that would otherwise be returned to the Treasury Department and ultimately to the [A]merican taxpayer.

President Obama seems to be wildly fond of decrying financial institutions that are “too big to fail” and insisting that they need to be accountable for the “bad bets” that led to the financial crisis — but he always conveniently forgets to mention that the federal government created a lot of those faulty incentives in the first place. I’m not excusing Wall Street, big banks, etcetera, but it is a fundamental truth that most people and businesses, when given the opportunity to rent-seek, will rent-seek. The only venue that permits rent-seeking above free-market competition is big government, and poorly-planned and politically-motivated regulatory overhauls that will only put a damper on transparency and competition are not the solution to that problem. Why? This isn’t going to encourage honest oversight as much as it will collusion.

There’s a very big difference between being pro-business and pro-market. The Obama administration is decidedly not pro-market, and the president’s financial reform isn’t doing anything to effectively put a stop to “too big to fail.” Mitt Romney turned the president’s showy rhetoric on its head during the first presidential debate, pointing out that Dodd-Frank “designates a number of banks as too big to fail, and they’re effectively guaranteed by the federal government. This is the biggest kiss that’s been given to—to New York banks I’ve ever seen.” If anything, smaller banks and institutions may actually end up bearing the brunt of the law — funny how so many Democratic policies end up hurting the very people they claim to be trying to protect, isn’t it?

The government has missed more than half of the law’s deadlines for rules, meaning that a lot of regulations have yet to be written, and there are certain parts of the law the financial industry and others are challenging in court that could be delayed or even overturned. But now that President Obama has gotten through his election with his “I am the great tamer of Wall Street” ideological purity mostly intact, I wouldn’t be surprised if we start seeing other modifications and adjustments to the law — and I wouldn’t bet any money on all of those changes being pro-market, if you know what I mean.

(I say all this, by the way, because I’m obviously one of those ridiculously wealthy, greedy “pin-striped Republicans” rolling in my fat stacks and looting the little people from my Wall Street tower. Or maybe I’ve just got free-enterprise Stockholm Syndrome, ’cause there’s just no other possible way I could favor smaller, more efficient government, amirite?)

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