Wednesday, September 21, 2011

Article on Newt's efforts to repeal Dodd-Frank

As part of his campaign to seek the Republican Party's presidential nomination, Newt Gingrich has made the repeal of the Dodd-Frank Act a key element of his proposed domestic policy. During the summer, the former Speaker of the House of Representatives hosted a number of meetings and telephone conference calls with mortgage bankers and business leaders to discuss the Dodd-Frank Act's effects on their operations and the economy.
Newt on why the act needs to be repealed:
Gingrich: Dodd-Frank is a regulatory Tower of Babel that is paralyzing the American economy and depressing home values. The legislation itself is over 2,300 pages in length and requires federal regulators to come up with more than 400 rules, which will expand the law by another 5,000 pages. It contains so much complexity and uncertainty as to how it will be applied that it is depressing normal lending and borrowing across the country, especially among small community banks and their small business borrowers.

We know from experience that a largely free economy is the best system to provide jobs and prosperity. We also know from experience, both here at home and abroad, that a command and control economic system run by bureaucrats of the central government is a recipe for economic decline.
They asked Newt what the most common comments from those affected by the act are:
Gingrich: The common theme of these comments is the sheer uncertainty of what the law requires and deep anxiety about the amount of arbitrary power that this bill invests in unelected, unaccountable bureaucrats. The uncertainty about what Dodd-Frank regulations will look like a month, a year, or five years from now makes decision-making impossible and freezes up even more investment.

Despite the fact that Dodd-Frank ended up being over 2,300 pages long, the most disturbing words and clauses may very well have yet to be written. This is a bill that allows bureaucrats to author 400 new regulations with little oversight, and also limits the extent to which we can predict damaging effects now.

There are obviously some aspects so devastating that they stand out: Lenders and Realtors have told us how disastrous the proposed Qualified Residential Mortgage (QRM) standards would be if they were to come into effect. They are sure that this rule will prevent hundreds of thousands of creditworthy Americans from accessing mortgages. Today's housing market, which is already mired in its worst slump since the Great Depression, will only get more miserable as fewer and fewer Americans are able to buy and sell their homes.

Community bankers are already bracing themselves for the cumbersome deluge of new regulations that will affect them disproportionally hard. Some community bankers have said that in order to afford the towering compliance costs, they may be put in a place where they will have no choice but to either merge with another institution or go out of business.
On Fannie Mae and Freddie Mac:
Addressing Fannie and Freddie should have been the first priority of any serious financial reform. The fact that these government-sponsored enterprises (GSEs), which played such a critical role in the financial crisis in 2008, escaped unscathed - some would say they escaped even stronger - is testament to how misguided and confused the authors of this bill were.

It is absolutely critical for the private sector to assume a larger role in the mortgage market. Our continued dependence on the GSEs is simply unsustainable. American taxpayers have already paid out about $150 billion in bailout funds, and are likely exposed to hundreds of billions more in liabilities. Dodd-Frank further harms private-sector lenders with new byzantine regulations and penalties, such as those surrounding the QRM rule. While that happens, Fannie and Freddie will only get bigger and continue to distort the housing market on the backs of the American taxpayer.

After we repeal Dodd-Frank, we must gradually scale down the role of the GSEs in the American housing market, eventually breaking them up and beginning the process of privatization.
On the "Consumer Financial Protection Bureau":
Dodd-Frank is an economically and constitutionally destructive piece of legislation, and the CFPB is its corrupted foundation. Only Congress could create an agency that invests all of its power in one single, unelected bureaucrat, and then claim that doing something like this could actually help "consumer protection."
Read the whole interview here.

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