Dodd-Frank Financial Law Uses Regulations to Outsource American Jobs

by Hans Bader on September 23, 2011

in Deregulate to Stimulate, Economy, International, Legal, Trade

American jobs will soon be outsourced due to the Dodd-Frank financial “reform” law passed in 2010 with strong support from the Obama administration. That law contains provisions that will result in money being managed by foreigners, rather than Americans, and result in American financial employees being fired or relocated to Europe. Under proposed agency rules, these provisions will impose costly regulations on U.S.-based operations — but not foreign operations of the very same bank — “even if  no American money is at risk,” but only foreigners’ money. Proprietary trading and investments in private equity using money from abroad will be restricted if done by American employees, but not if done by foreign employees.

As Bloomberg financial news notes:

A rule limiting proprietary trading by U.S. banks may be extended to overseas firms with operations in the country, according to four people familiar with the matter. Regulators next month will issue a proposal to carry out provisions of the so-called Volcker Rule, part of the Dodd-Frank financial-regulation law, that will clarify the types of offshore trading allowed under the rule, the people said. The Volcker Rule . . . has prompted U.S. banks such as Goldman Sachs Group Inc. (GS)to close proprietary-trading operations. Overseas banks say that a strict interpretation of the rule may also force them to fire or relocate U.S. employees who are involved in proprietary trading, even if no American money is at risk. “There is no question that we would lose jobs,” said Wayne Abernathy, vice president of the American Bankers Association in Washington. “A lot of what the banks have been doing in recent years to diversify their services are activities that can easily be done by foreign competitors.” . . .The language of the bill is subject to interpretation by regulators at agencies including the Federal Reserve and the Federal Deposit Insurance Corp. . .

Foreign banks often employ New York-based investment advisers and managers to work on offshore proprietary trading. If such trading were forbidden under the Volcker Rule because U.S. employees are involved, the banks would simply move those jobs overseas, Miller said. “It’s a jobs issue — if we can’t use a U.S. sub-adviser, we’re going to use an adviser sitting in London or Frankfurt, so that job is not here anymore,” Miller said in an interview. “Allowing foreign banks to employ U.S. firms as sub-advisers encourages foreign banks to invest in U.S. securities.” International banks employ more than 250,000 U.S. citizens and permanent residents, according to IIB. Credit Suisse Group AG, Societe Generale and Deutsche Bank AG are among the overseas banks that manage trades in the U.S. and would be affected by the rule. U.S. bank executives, including JPMorgan Chase & Co. (JPM) Chairman and Chief Executive Officer Jamie Dimon, argue that the Volcker Rule places domestic banks at a disadvantage to foreign rivals that aren’t subject to the same restrictions in their home countries.

A more liberal relative of mine who used to manage a hedge fund (and has given money to both Democrats and Republicans over the years, including Hillary Clinton and Barney Frank) is aghast at the stupidity of the Dodd-Frank law:

how could they have not drafted the financial reform law properly? it was a giant bunch of regulation — yet apparently, it forbids bank proprietary trading based not on whose money is being risked but where the trader is based? totally insane. so a US money manager couldn’t manage proprietary funds for a foreign bank? this was a very basic detail, if they had actually cared about future financial stability.

This is not the only outsourcing of American jobs due to Obama administration policies. The $800 billion stimulus package subsidized outsourcing at taxpayer expense. Its green jobs funding, nearly 80 percent of which went to foreign firms, effectively outsourced thousands of American jobs to foreign countries like China. The stimulus package also contained ill-conceived provisions that ignited trade wars with foreign countries, wiping out jobs in our export sector and aggravating America’s trade deficit. Two economists concluded that the stimulus wiped out 550,000 jobs.

The Dodd-Frank law also contains racially-discriminatory provisions that drew criticism from four members of the U.S. Commission on Civil Rights, as well as violations of constitutional separation-of-powers limits.

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