MReport September 2015 - Cool Under Pressure

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58 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET the latest SECONDARY MARKET committee examines impact of dodd-Frank on american Prosperity Multiple witnesses claimed Dodd-Frank has slowed economic recovery. t he second in a series of three full committee hearings examining the impact of the Dodd-Frank Act on American prosperity, freedom, and financial stability five years after the controversial law was enacted took place in the House Financial Services Committee in late July. The hearing, titled "Dodd- Frank Five Years Later: Are We More Prosperous?" included wit- nesses Phil Gramm, senior part- ner with U.S. Policy Metrics and former U.S. Senator; R. Bradley Miller, of counsel with Grais & Ellsworth and a former member of Congress; and Peter Wallison, Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute. A recurring theme at the hear- ing was that Dodd-Frank rep- resented overregulation, which has stifled economic recovery rather than accelerated it as was intended. "By any measure we are today experiencing the weakest recov- ery of a post-war era," Gramm said. "Had this recovery simply matched the strength of the aver- age of the other ten recoveries since World War II, 14.4 million more Americans would be working today and the average income of every man, woman and child in the country would be $6,042 higher. The incomes of the poor, middle income work- ers, women and minorities have fallen even during the recovery, an unprecedented event. All this economic carnage has occurred despite a doubling of the Federal debt and an 2 expansion of the Federal Reserve Bank balance sheet and the monetary base at rates never before witnessed." Wallison presented a chart that compared recovery from the financial crisis of 2008 with that of previous crises and noted that from 2009 until the passage of Dodd-Frank in July 2010, eco- nomic recovery was on the same pace as previous recoveries. He contended that recovery began to slow down when Dodd-Frank was signed into law. "I believe that all the new regu- lation added by the Dodd-Frank Act in 2010 is the primary reason for the slow growth this country has experienced since 2010. Later in this testimony, I will show that the new regulations imposed on banks—particularly small banks— has created a bifurcated economy," Wallison said. "Large firms in the real economy, which can access the capital markets for financ- ing, have been growing roughly in line with previous recoveries, but smaller firms that rely on banks for financing are growing far more slowly. Since most of the growth in the US economy, and especially in employment, comes from small firms, the economy is underperforming and will con- tinue to underperform until the treatment of banks under Dodd Frank Act is substantially modi- fied or repealed." Gramm, a former Republican Senator from Texas, also said he believes that Dodd-Frank gave regulators too much power. "Much of our slow growth is not just a product of mounting regulatory burden but of legislative and executive actions that have empowered regulators to set rules rather than implement rules set by Congress," he said. "Dodd-Frank has undermined a vital condi- tion required to put money and America back to work—legal and regulatory certainty." In his opening statement at the July hearing, Committee Chairman Jeb Hensarling (R-Texas) as- serted the massive 2,300-page law "launched a salvo of consequences that have crippled growth," and that Dodd-Frank had hit Main Street when it was intended to reform Wall Street. As Gramm pointed out, the effects of the "failed recovery" were manifested in the bank- ing system; the FDIC said 1,341 banks have failed since 2010, while only two new banks have been chartered. About 2,500 banks were chartered in the quarter-century prior to the financial crisis. "It has had pernicious effects on small businesses and commu- nity financial institutions which are the lifeblood of the Main Street economy. Community banks and credit unions supply the bulk of small business and agricultural loans, but the com- bined weight of Dodd-Frank's 400 regulations is dragging them down," Hensarling said. "We are losing on average one commu- nity financial institution a day." Miller, a former North Carolina Democratic Congressman, admitted there was more work to be done as far as creating an economy that allows Americans to grow and prosper. But he stood in defense of Dodd-Frank at the hearing. "Dodd-Frank was a com- promise and reformers did not get all we wanted, but it was probably all that was possible at the time, given the industry's continued enormous clout in Washington, even while the industry stood in complete disrepute among the American people," Miller said. "We are better off, and more prosperous, than we would be without it." The first hearing in the series, "Dodd-Frank Five Years Later: Are We More Stable?" took place July 9.

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