Finance & Banking

In the wake of the financial crisis of 2008, Congress passed the Dodd–Frank Wall Street Reform and Consumer Protection Act. This law does little to address the very real issues that led to the economic collapse, and actually makes some problems permanent while putting taxpayers on the hook for more losses down the road.

Dodd-Frank included price controls on debit cards and the creation of the Consumer Financial Protection Bureau, addressing problems that not only did not contribute to the financial crisis but probably didn’t actually exist. It enshrined “too big to fail” as official policy, meaning a future bank failure be bailed out by the taxpayers.

It also completely ignored two of the major institutions behind the financial crisis, Fannie Mae and Freddie Mac, the two government-created mortgage finance companies who backed a massive number of subprime housing loans and engaged in rampant speculation with taxpayers covering the risk.

Before Dodd-Frank, the Sarbanes-Oxley law passed after the collapse of Enron and Worldcom damaged U.S. capital markets through overregulation that drove many companies to list their stocks overseas instead of the U.S. It also imposed costly burdens on smaller companies, making them less competitive with their foreign competitors. The solutions embedded in Sarbanes-Oxley had little to do with the causes of the Enron and Worldcom bankruptcies.

Regulation of the financial and banking industries must be based on clear and simple standards, and seek to allow capital markets to function as efficiently as possible. This means eliminating “too big to fail” protections for big banks, winding down Fannie Mae and Freddie Mac and allowing the private sector to finance and insure home mortgages, ending regulations that require lenders to lower standards in order to meet politically-driven housing goals, and paring back the excessive and unnecessary elements of both Dodd-Frank and Sarbanes-Oxley.

The Federal Reserve should be freed from the competing requirements that it focus on both keeping inflation under control while also promoting economic growth and full employment. Instead it should focus solely on keeping a stable dollar with minimal inflation.