Underestimating the Horrors of Dodd-Frank

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Regulation: Tuesday's GOP debate moderator was shocked by the front-runners' broadside against Dodd-Frank banking rules. He seemed to think they were hyping their damage. They weren't.

The media elite are under the assumption that all government regulations are good. So when both Mitt Romney and Newt Gingrich took shots at Dodd-Frank, NBC News anchor Brian Williams was flabbergasted. He expressed skepticism that its new rules posed any problem.

Gingrich straightened him out, arguing the media and the public don't know how "bad" the Democrats' law is.

"If you could repeal Dodd-Frank tomorrow morning, you would see the economy start to improve overnight," Gingrich asserted. "It is crushing independent banks" by clamping down on lending for both housing and small businesses.

Indeed, the American Bankers Association predicts the law will shutter 1,000 banks by 2020.

"The Dodd-Frank Act and the related burdens are threatening not just our industry but our very banks," outgoing ABA chair Stephen Wilson last year wrote to FDIC chief Sheila Bair. "The most conservative estimates that we have seen predict that by the end of the decade there will be 1,000 fewer banks in the United States than there are today."

Williams wasn't buying it. "Do you really think the financial system is overregulated?" he pressed. "That's the second mention of Dodd-Frank tonight."

"Of course it's overregulated," Gingrich snapped.

Williams then turned to Romney for what he thought would be a more tempered response. But Romney said "the speaker is absolutely right."

"It has made it almost impossible for community banks," which are drowning in costly red tape, he said.

He said the head of a large New York bank told him he has hundreds of lawyers working to comply with Dodd-Frank. "Community banks don't have hundreds of lawyers," Romney explained. "It's just killing the residential home market, and it's got to be replaced."

Dodd-Frank is also a job killer. ABA says it threatens to cost the U.S. economy 2.9 million jobs over the next three years alone - and that's without all the rules yet in effect.

The regulatory onslaught is a boon only for lawyers and government workers. GAO says implementing Dodd-Frank will require 2,850 additional federal employees just through this fiscal year - at a cost to taxpayers of $1.3 billion.

Wall Street banks, meanwhile, are hiring small armies of outside advisers to navigate the hundreds of new rules. They are expected to spend nearly $4 billion on compliance technology alone. The law has spawned a cottage industry - dubbed Dodd-Frank Inc. - just to cope with all the new rules.

Of course, hiring consultants and compliance officers instead of loan officers won't help the economy over the long run. And producing mountains of government paperwork is merely business at the expense of business.

Treasury Secretary Tim Geithner recently scolded the industry for fighting what he called Dodd-Frank's "sensible rules." In fact, they are dumb rules that are hurting the recovery. And Republican White House hopefuls are wise to propose killing them.


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