In my previous three posts, I described what I believe needs to be done to reform our monetary, banking and housing finance systems. Here I will explain why the Dodd-Frank financial reform legislation is not a solution.
In fact, it will make problems bigger in the long term.
The four major deficiencies of Dodd-Frank are:
- The consumer compliance segment of the law is not about consumer compliance, it is about credit allocation. This is a fundamental move toward statism. If the government wants to control the economic system, the most eﬀective way to do so is to control the allocation of credit and capital.
- The legislation does not deal with "too big to fail." Instead, it identifies companies that are too big to fail and ensures that they will be protected by the government.
- The Durbin amendment on debit card fees is price fixing. It will reduce the availability of banking services to low-income consumers and increase costs for middle-income consumers. This is a government-mandated redistribution of wealth from bank shareholders and consumers to large retailers, such as Walgreens.
- The law radically expands the power of the Fed and banking regulators. It gives the institutions that created the crisis more ability to cause bigger problems in the future.
The Dodd Frank bill should be repealed and not amended.
It is not fixable.
John Allison is the president and CEO of the Cato Institute and the former chairman and CEO of BB&T. This article is adapted from his just-published book, "The Financial Crisis and the Free Market Cure: Why Pure Capitalism is the World Economy’s Only Hope."