Posted on

Garrett Calls “Too-Big-To-Fail” a virus in our banking system and says Dodd-Frank increased the likelihood that taxpayers will be on the hook for additional Wall Street bailouts



January 16,2016

the staff of the Ridgewood blog

Ridgewood NJ, In November  Rep. Scott Garrett (NJ-05), Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, questioned Federal Reserve Chair Janet Yellen about the Fed’s use of cost/benefit analyses on new regulations. Chair Yellen testified before the House Financial Services Committee today and admitted to Rep. Garrett that the Fed has no plans to conduct an economic analysis that would determine the cumulative impact that hundreds of new rules prescribed by Dodd-Frank and the Basel Committee will have on the economy.

Garrett spoke earlier last year saying “ the Dodd-Frank Act was signed into law amidst promises that the legislation would protect American consumers, make our economy more competitive, and end ‘too big to fail.’ Instead, Dodd-Frank has stifled economic growth, made it more difficult for Main Street businesses to obtain credit, and increased the likelihood that taxpayers will be on the hook for additional Wall Street bailouts. Most importantly, this law has and has made it harder for Americans to find a job, buy a home, and save money for their family’s future.

“Despite creating new bureaucracies that have imposed thousands of pages of rigid, invasive, and unworkable regulations, Dodd-Frank did nothing to reform the mortgage giants Fannie Mae and Freddie Mac, whose actions caused the 2008 financial crisis. Now more than ever we need solutions that expand economic freedom and opportunities for hard-working American taxpayers. I look forward to working with my colleagues in order to protect our economy from the harsh reality of Dodd-Frank.”

“I believe we have a virus in our banking system that is stifling competition and innovation. It protects incompetent management and insulates antiquated business models from market discipline. It incentivizes the largest banks to grow even larger and makes these mega-banks captive to government influence. This “Too-Big-To-Fail” virus is now poised to spread beyond banks to other types of financial firms. Not surprising, it is the government that is preparing to label other financial firms “Too-Big-To-Fail” by designating them as systemically important and spreading these market distortions.


The Spectacular Too Big Failure of Dodd-Frank

Quick-to-fix regulation often creates unintended consequences
Dodd-Frank ultimately destroyed the community bank
Consumers lost choice and completion, although farmers were hurt most

By Edward Morrissey

February 12, 2015

Not much unites the activist Left and activist Right, and not much ever has. After the near-collapse of the fiscal sector in 2008, though, populist movements on both sides found momentum in opposition to government bailouts of private-sector firms, especially in the financial industry.

“Too big to fail” became a mantra used to leverage massive taxpayer bailouts of financial institutions. Those bailouts enraged conservatives who believed that government had largely created the “too big to fail” players that needed rescuing from bad government policy. At the same time, progressives angrily denounced the parachutes provided to Wall Street fat cats while ordinary Americans suffered through a period of tight lending and a poor economy — especially in the labor markets.

By the time 2010 rolled around, the two sides could agree on one thing: changes were necessary to unwind “too big to fail.” Conservatives wanted to push government out of lending and finance through tax and regulatory reforms that would end rent-seeking behaviors that perpetuated it. Progressives wanted more regulation and government intervention to force the industry to behave better.

Since Democrats controlled Congress and the White House in the spring and summer of 2010, they chose the progressive policy. Congress passed and President Barack Obama signed the Dodd–Frank Wall Street Reform and Consumer Protection Act in July of that year – not long after passing the progressive Affordable Care Act that created massive government intervention in the health-insurance industry.

For the past eighteen months, the news media has focused on the failures and incompetence of the Obama administration in the ACA’s rollout and infrastructure. The impact of Dodd-Frank has largely been ignored, until now. According to a new study by the Harvard Kennedy School of Business, the attempt to end Too Big to Fail backfired – in a big way.

One problem that led to TBTF was industry consolidation, which had been steadily reducing the number of smaller community banks that made lending much more accessible to small business owners, farmers, and middle and working-class families. Over the past twenty years, the share of US lending handled by community banks has fallen by half, from 41 percent to 22 percent, while the share handled by large banks more than doubled from 17 percent to 41 percent.