Without spending a single dime, the Obama administration did more yesterday to create jobs for the U.S. economy than it has throughout its entire existence. With the single stroke of a pen, President Barack Obama signed the Dodd-Frank financial regulation bill that set in motion 243 new formal rule-makings by 11 different federal agencies. Each of the 243 rule-makings will employ hundreds of banking lobbyists as they try to shape what the final actual laws will look like. And when the rules are finally written, thousands of lawyers will bill millions of hours as the richest incumbent financial firms that caused the last crisis figure out how to game the new system. Yesterday, the Washington law firm Jones Day snapped up the Securities and Exchange Commission head enforcement division lawyer, and J.P. Morgan Chase, one of the biggest U.S. banks by assets, assigned more than 100 teams to examine the legislation. University of Massachusetts political science professor Thomas Ferguson tells The Christian Science Monitor:
By delegating so much to the regulators, Congress is inviting everyone interested in the outcome to make more campaign contributions, as they intervene in the regulatory process to influence the regulators. Nothing is settled. It’s a gold mine for members of Congress.
So if the richest big banks, lawyers, lobbyists and Congress were the big winners yesterday, who are the losers? Small banks, entrepreneurs and you.
Smaller community banks do not have the same resources that the Goldman Sachs of the world do to hire armies of lawyers and lobbyists to shape and comply with new regulations. The cost of compliance will eat up a much larger share of small bank revenue. Jim MacPhee, CEO of Kalamazoo County State Bank in Michigan and chairman of the Independent Community Bankers of America (ICBA), told USA Today: “We weren’t part of the subprime (mortgage) meltdown. Why throw more regulations at us?”
Entrepreneurs take a double hit in the Dodd-Frank bill. First, by forcing banks to raise more capital it will now be more difficult for them to make new loans for small businesses. But more important is the regulatory threat for new products. Across the world mobile device and telecommunications firms are beginning to compete against credit card companies and banks to reshape how consumers buy products and manage their finances. Will the Dodd-Frank Consumer Financial Protection Bureau even allow these services to come to market? Will cell phone firms have to be regulated exactly like financial firms? Nobody knows the answer to these questions. Here is what we do know: it will be the banks and telco firms with the best lawyers and lobbyists – not the best entrepreneurs – that come out on top in this battle.
Then there is what the Dodd-Frank does not do: it does nothing to stop future government bailouts. Instead, it makes the TARP bailout system permanent. The bill’s “orderly liquidation” process empowers regulators to seize any firm they deem a threat to our financial system and liquidate them. These powers are subject to insufficient judicial review and do nothing to ensure that the firms’ creditors won’t receive 100% of their irresponsibly lent money back in future taxpayer funded bailouts. And speaking of taxpayer-funded bailouts, the bill does nothing to address Fannie Mae and Freddie Mac, whose activities were instrumental to the financial crisis.
Back in 1994, Jonathan Rauch wrote in his book Government’s End: “Economic thinkers have recognized for generations that every person has two ways to become wealthier. One is to produce more, the other is to capture more of what others produce. … Washington looks increasingly like a public-works jobs program for lawyers and lobbyists, a profit center for professionals who are in business for themselves.” The Dodd-Frank bill is the perfect extension of Washington as “a public-works jobs program for lawyers and lobbyists.” Instead of encouraging the U.S. economy to invest in engineers, technology and new products, it requires firms to invest in lawyers and lobbyists just to stay alive. It will do nothing to help create new wealth or new net jobs in the economy, but will transfer more wealth to lobbying and law firms in Washington, D.C.
Quick Hits:
- House Minority Leader John Boehner (R-OH) said yesterday that the Dodd-Frank financial regulation bill “ought to be repealed.”
- A first-ever national analysis of state spending per teacher on political advocacy by the National Education Association (NEA) and the American Federation of Teachers (AFT) found that teachers unions spent more than $100 per teacher in five states.
- A new Rasmussen Reports national telephone survey finds that 68% believe the nation’s Political Class doesn’t “care what most Americans think.”
- The Turkish charity that led the flotilla involved in a deadly Israeli raid has extensive connections with Turkey’s political elite, and the group’s efforts to challenge Israel’s blockade of Gaza received support at the top levels of the governing party.
- Heritage Action will hold its weekly online chat on Friday at 3:00 PM featuring Jack Spencer and David Kreutzer talking about the Gulf oil spill and the economic damage caused by President Obama’s oil ban.
