September 16, 2011

Is Dodd-Frank Adding to Unemployment?

While Dodd-Frank was well intended, it was a clear and present danger to the future of the economy. Why do I say that?

Simple. Dodd-Frank as a whole is leading to lower availability of credit to both the housing market and consumers (and at a higher cost). I have discussed before that the ‘Qualified Residential Mortgage’ rule is very restrictive and only about one-third of Fannie Mae and Freddie Mac loans outstanding would qualify for QRM. In other words, two-thirds of those loans would not be made again.

That represents a major decline in the number of borrowers able to purchase housing. Hopefully, QRM will be relaxed from 20% back to somewhere around 10% so that the housing market isn’t punished further.

The additional fees and required compliance costs are staggering, and those costs result in lost credit availability at a higher cost to consumers. That directly results in a decline of consumer demand for goods and services. That is turn causes firms to not hire or even lay off employees.

The only sector that will be helped is the regulatory community. Otherwise, Dodd-Frank is yet another example of government hindering economic growth and employment.