July 20, 2012

Dodd-Frank Turns Two

Hester Peirce

Former Senior Research Fellow

J. W. Verret

Senior Affiliated Scholar

Todd Zywicki

Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics

Arnold Kling

Senior Affiliated Scholar
Summary

Two years later, after being praised by politicians as the financial system’s magic bullet, Dodd-Frank is, in effect, riddled with half-baked solutions, corrupted by special interests, and poised to create, not prevent, the next financial crisis.

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After being praised by politicians as the financial system’s magic bullet, Dodd-Frank, which turns two on July 21st, is, in effect, riddled with half-baked solutions, corrupted by special interests, and poised to create, not prevent, the next financial crisis.

Upon Dodd-Frank’s first anniversary, Mercatus scholars weighed in on its impact and voiced concerns that still hold true today. Former Freddie Mac Economist Arnold Kling noted that one of the key aims of Dodd-Frank, solving the “too big to fail” problem, was unsuccessful. J.W. Verret, member of the Financial Markets Working Group, explained how investors have suffered from high compliance costs, and Todd Zywicki voiced concerns about the structure of the new Consumer Financial Protection Bureau. 

Today, Mercatus scholars continue to track the financial impacts of the Dodd Frank act. This week, Hester Peirce, who was on the Banking Committee at the drafting of the bill, said the law has three fatal flaws:

1)      By institutionalizing “too-big-to-fail” big banks gain a competitive edge over their smaller rivals. With additional regulations comes the unspoken commitment of the Federal government to save its pet firms because if you fail, it looks like they’ve failed.

2)      Congress gave regulators tremendous discretion to define the limits of their own authority and now they’re putting red tape over Main Street companies that had nothing to do with the crisis.

3)      Dodd-Frank is riddled with half-baked solutions and corrupted by special interests. The last thing we need is more special interest bureaucracies which don’t answer to Congress, the President, or the American people.

J.W. Verret recently wrote that George Washington would turn over in his grave to see the structure that Dodd-Frank sets up for the Consumer Financial Protection Bureau, which enjoys immunity from oversight by the President, substantial immunity from review by the judiciary branch, and complete immunity from budgetary review by Congress. 

Below are a few highlighted pieces of Mercatus commentary on the economic effects of Dodd-Frank thus far. For more of our research on the consequences of the financial crisis, click here.

More Regulators and More Regulation May Not Be the Answer
Hester Peirce

About the Dodd-Frank Act, George Washington Would Be Turning Over In His Grave 
J.W. Verret | Forbes

Dodd-Frank's Office of Financial Research Is An Affront to Privacy
Hester Peirce | Real Clear Markets

The Real Cost of the 2008 Bailouts
Hester Peirce | U.S. News and World Report

One Year Later: Mercatus Scholars Comment on the Dodd-Frank Financial Reform Bill

Investors Are Worse Off a Year After Dodd-Frank's Passage
J.W. Verret

Dodd-Frank Slowing Housing Recovery
Anthony Sanders

Dodd-Frank and the Return of the Loan Shark
Todd Zywicki | The Wall Street Journal

Is Dodd-Frank Adding to Unemployment?
Anthony Sanders