Dodd-Frank: Too Big and Failing

Two centerpieces of legislation during the last four years were Obamacare and Dodd-Frank.  Both are pernicious, and both currently are failing.  Dodd-Frank was destined to fail because it is 9000 pages of mumbo jumbo.  A total waste of time.

Federal Reserve Bank of Dallas Advises We Must...
Federal Reserve Bank of Dallas Advises We Must End Too Big to Fail – Now! (Photo credit: watchingfrogsboil)

Dodd-Frank is ignorant of economics, and ignorant of the free market capitalistic system that destroys failure.  Dodd Frank fails to  lift up businesses that create and provide value to customers.  Instead, it codifies mediocrity and eliminates competition.

It shouldn’t go unnoticed that both the authors of the bill decided not to run for re-election.  Wait until something happens because of Dodd-Frank and the taxpayers are stuck picking up the pieces.

However, there may be a glimmer of hope.  Finally, someone at the Federal Reserve had the courage to speak up.  My only question is where were they three years ago?

Because of government actions taken during the crisis, and Dodd-Frank, we are stuck with megabanks.  The bankers responded to incentives laid out by government policy and structured their business to take advantage of it.  Codified too big to fail banks are bad for a capitalistic system.  For the Democrats that oppose corporatism, through this legislation, they just got a pantload of it.  We will be stuck with too big to fail for eternity unless we repeal Dodd-Frank.

Here is a recommendation just for starters from Richard Fisher of the Dallas Federal Reserve:

First, we would roll back the federal safety net—deposit insurance and the Federal Reserve’s discount window—to apply only to traditional commercial banks, and not to the nonbank affiliates of bank holding companies or the parent companies themselves, where the safety net was never intended to be.

Second, customers, creditors and counterparties of all nonbank affiliates and the parent holding companies would sign a simple, legally binding, unambiguous disclosure acknowledging and accepting that there is no government guarantee—ever—backstopping their investment. A similar disclaimer would apply to bank deposits outside the FDIC insurance limit and other unsecured debts.

Third, we recommend that the largest financial holding companies be restructured so that every one of their corporate entities is subject to a speedy bankruptcy process, and in the case of banking entities themselves, that they be of a size that is “too small to save.” Addressing institutional size is vital to maintaining a credible threat of failure, thereby providing a convincing case that policy has truly changed. This step gets both bank incentives and structure right, neither of which is accomplished by Dodd–Frank.

Like I said, it is just a start.  The country can go a lot further to ensure every playing field is level and there is hyper competition in the marketplace.  Citizens will benefit with better and cheaper access to capital, and lower fees to process and hold money at banking institutions.

As many have outlined, we have a long way to go in the publicly traded marketplace to level the playing field as well.  We might as well start somewhere.

Repealing Dodd-Frank or gutting it and rewriting it would be a start.

Follow me on Twitter, like Points and Figures on Facebook.

 

Enhanced by Zemanta