Dodd-Frank – The ObamaCare of the Financial System?

This week The Wall Street Journal offers an interesting op-ed piece on the Wall Street Reform and Consumer Protection Act, also known by the name Dodd-Frank.  On Tuesday, it will be the four year anniversary of its going into effect.

How has Dodd-Frank impacted the economy?  According to the WSJ op-ed piece, it has “overwhelmed the regulatory system, stifled the financial industry and impaired economic growth.”  That’s quite a list.

Dodd-Frank was passed in response to the financial crisis associated with the substandard mortgage mess, as if what Wall Street needed was more regulation.  This “new New Deal” attempt was meant to micro-manage the financial industry with a vast array of regulations, approximately only 50% of which are complete after four years.  By the way, 45% of Congressional deadlines have been missed so far.  Adding to the regulatory problem is the vagueness of regulations.

Let’s step back for a moment.  As of 2008, there were 32 million sub-prime or low quality mortgages.  76% of these mortgages were mostly associated with Fannie Mae and Freddie Mac.  In other words, despite responsibility for the mortgage crisis, the government chose to blame Wall Street and create the Dodd-Frank regulatory behemoth.

Consider just one example of the impact of more regulations.  JPMorgan Chase announced its intention recently to add an additional 3,000 compliance officers to the 7,000 they added last year.  That’s 10,000 more people to handle the regulatory morass.  Wouldn’t it be better for the American Economy if those 10,000 people working on regulatory requirements could do more productive work instead?

The bottom line for Dodd-Frank: an unnecessary law that stifles economic growth.

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