IBD
May 12, 2017

Dodd-Frank: With little fanfare and even less media coverage, the House Financial Services Committee recently approved along party lines a bill that would significantly reform the economy-deadening Dodd-Frank law. It's a good first step toward restoring our financial freedom.

The fact is, the 2010 Dodd-Frank law has been a disaster, responsible for killing hundreds of thousands of U.S. jobs and putting a damper on economic growth by making credit harder to come by for those who need it most.


In a recent interview with NPR, House Financial Services Chairman Jeb Hensarling of Texas made a succinct case for getting rid of Dodd-Frank: "Free checking at banks has been cut in half. Banking fees have gone up. Working people are finding it more difficult to get mortgages," he said.

He could have gone further. Small- to medium-size banks — the traditional sources of working capital for small business — have been hurt worst by Dodd-Frank's extensive regulations that impose billions of dollars in unnecessary costs each year. And rather than repealing too-big-to-fail for big banks, Dodd-Frank actually makes it all but certain that taxpayers will be asked to bailout big banks during the next downturn.


Worse still, for many Americans, one of Dodd-Frank's creations, the Consumer Financial Protection Bureau (CFPB), has made it harder to get credit and severely limited consumers' financial choices. So this was an improvement?

Dodd-Frank was passed in a panic in 2010 following the financial crisis. But the whole premise behind Dodd-Frank was a mistake from Day One, built entirely on a far-left progressive narrative that Wall Street banks were to blame for the financial meltdown. This was false. The crisis was caused by heavy-handed regulation of mortgage lending by HUD, Fannie Mae and Freddie Mac, starting in the Clinton administration.

Under regulatory threat from the government, banks made loans they knew were bad, then the government bought them back. When the Fed went too far in raising interest rates in the mid-2000s, the housing market cratered, banks' balance sheets were destroyed, and a massive credit crunch and the "Great Recession" ensued. The government caused this crisis — not Wall Street.

As we've written repeatedly in the past, Dodd-Frank should have been shut down long ago. It has strangled entrepreneurial activity and dampened economic growth, and made it impossible for millions of Americans to get home loans. It's a major reason why GDP during the Obama years grew at a pathetic 1.9% rate, rather than the more normal rate of 3% or more.

We hope the House will move quickly to end Dodd-Frank, one of the worst financial regulatory laws in modern history.

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Has this law also caused small savings accounts to pay next to nothing? You used to get 1.25 or 1.5% and watch your money grow. Now even a CD is less than 1%.

quote:

Originally posted by egregore:
Has this law also caused paying next to nothing on small savings accounts? You used to get 1.25 or 1.5% and watch your money grow. Now even a CD is less than 1%.

I don't think this law is a cause of low rates.

Interest rates are tiered from lowest risk to higher risks. Savings accounts, bank CDs are essentially no risk accounts, so earn the lowest rates.

The level of interest rates from US t-bills on up are the result of complex factors influenced mostly by the Federal Reserve.

quote:

Originally posted by egregore:
Has this law also caused small savings accounts to pay next to nothing? You used to get 1.25 or 1.5% and watch your money grow. Now even a CD is less than 1%.

Obama and other cretins get part of the blame, but most of the cause of low consumer rates is Fed activity.

Your bank isn't going to pay more for the use of your money than they pay to borrow from the Fed.

quote:

Originally posted by joel9507:

quote:

Originally posted by egregore:
Has this law also caused small savings accounts to pay next to nothing? You used to get 1.25 or 1.5% and watch your money grow. Now even a CD is less than 1%.

Obama and other cretins get part of the blame, but most of the cause of low consumer rates is Fed activity.

Your bank isn't going to pay more for the use of your money than they pay to borrow from the Fed.

That and the low reserve requirements and low demand for money.

Banks are limited in the amount of money they can lend out by the amount of customer money deposited. I believe it used to be generally 15%. That is for every dollar deposited, a bank can lend out 85 cents as long as it keeps 15 cents. Now, it's 10% so they can lend out 90 cents for every dollar deposited. So they do not need to attract as much deposits as before. I tried to google Federal reserve requirements history but couldn't get the numbers.

Also, there apparently isn't as much demand for dollars so why hold an inventory of dollars.