“For some reason, some Republicans in Congress are still waging an all-out battle to delay, defund and dismantle these commonsense new rules.” That was, in a recent weekly address, President Obama’s all-or-nothing defense of the 2,600-page Dodd-Frank financial “reform” rammed through Congress just after Obamacare in 2010. Yet, almost by the day, members of the president’s own party are coming to realize Dodd-Frank is actually toughest on smaller financial institutions while institutionalizing too-big-to-fail for large ones.
Take this exchange last Friday on HBO’s “Real Time With Bill Maher,” not a place where you expect a conservative 0r libertarian critique on regulation. Certainly not from a Democratic officeholder.
Yet listen (at 37:55; HBO subscription required) to the the exact words of Montana’s outgoing Democrat Governor Brian Schweitzer on the show:
Banks that actually did their job like in Montana – where we didn’t have banks go upside down, because they made you bring your financials in and they’d only loan you money if they understood your business plan – now, they are the ones that are being penalized. They now have more regulation on them, and it’s more difficult for them to make the loans. The very banks that were doing their job are having a tougher time because of the banks that are too big to fail.
Fellow panelist Rep. Darrell Issa (R-Calif.), there to represent conservatives, replied with a grin to Schweitzer, “I knew there was something I liked about you.”
Yet, remarkable as his words were in such a prominent liberal venue, Schweitzer is far from the only community banking advocate, and not even the only Democrat, criticizing Dodd-Frank’s provisions. As real estate columnist Ken Harney writes in Inman News, the proposed regulation implementing Dodd-Frank’s Section 941, which stringently defines criteria for a “qualified mortgage” — criticized in the first debate by Mitt Romney – also has attracted opposition from “bipartisan groups of 160-plus members of the House of Representatives and 40 members of the Senate.”
On the regulation, now being revised by the Consumer Financial Protection Bureau (CFPB) – and causing great uncertainty in the mortgage market as the final rule has been delayed until 2013 — Sen. Kay Hagan (D-N.C.) stated at a press conference, “The strict, inflexible restrictions proposed by banking regulators could put home ownership out of reach for many credit-worthy American families.” To illustrate the diverse opposition to this rule, Hagan and other lawmakers were flanked not just by groups representing banks and credit unions, but also by groups such as the NAACP and National Urban League, who stood united in opposition to the rule as drafted.
And the proposed regulation also shows the flip side of Dodd-Frank, the protection of too-big-too-fail financial institutions. Dodd-Frank has been rightly criticized for hitting just about every business except for the two main entities that we can fairly say did the most to get us into this mess: Fannie Mae and Freddie Mac. To compound this gross oversight, the “qualified mortgage” rule actually tilts the playing field toward them by deliberately exempting any mortgage bought by Fannie and Fredie and saying it is de facto “qualified.” The proposed rule suggests a 20 percent down payment for most mortgages but no specific down payment for those bought by Fannie and Freddie.
The incredibly circular rational of Dodd-Frank and the regulators is that there is no risk these loans will sour an institution since Fannie and Freddie already have the taxpayers at their back. But as I have written in National Review, this means the qualified mortgage regulation simply diverts even more risk to taxpayers.
There has also been bipartisan opposition to Dodd-Frank’s Durbin Amnendment, a particularly regressive set of price controls that benefit some of the nation’s wealthiest retailers at the expense of consumers. The price controls on what banks may charge merchants to process debit cards has resulted in the virtual extinction of free, minimum-balance checking accounts. And legistlation to repeal it has even attracted the co-sponsorship of Democrats such as Obama’s own hand-picked chairman of the Democratic National Committee, Debbie Wasserman Schultz. Kind of hard to argue she is a Wall Street shill.
Yet the Obama administration rigidly refused to say any provision needs to be repealed or eased. The closest it came to any relief from Dodd-Frank was when Obama signed the Jumpstart Our Business Startups (JOBS) Act in April, slightly broadening exemptions from some of Dodd-Frank’s provisions that apply to publicly traded companies.
And no matter the bipartisan opposition from Congress, bureaucracies in Dodd-Frank – such as the CFPB, the Financial Stability Oversight Council and the Orderly Liquidation Authority — are specifically designed to lack accountability to Congress. This is why the Competitive Enterprise Institute, the 60 Plus Association, and the Texas community bank State National Bank of Big Spring, have filed a lawsuit to restore this oversight required by the U.S. Constitution.