Wall Street Reform and Consumer Protection Act–Friend or Foe?

23 Jul

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A valued reader of my blog asked me to pen some thoughts on the Dodd-Frank Bill enacted into law a year ago.

She sent this request:

“If all works as designed, it will put in place a stronger consumer protection law.  This bill will supposedly bring an end to taxpayer funded bailouts.

It will not make the taxpayer responsible for “paying the bill” if a big bank fails.

Its intent is to stop the reckless risk-taking by Wall Street. (To me, Wall Street is another name for Risk Taking.)

Is this law meant to protect the consumer or is it just more of government in your business?”


I’ve no qualms with the lofty goals of this bill.  They are laudable and indeed praiseworthy.  I would be very happy should time prove its aims achievable.

However (don’t you just love this word), I have a number of concerns.  They are not based on specifics, but rather philosophical or principle based.

First let’s look at the words in the request that tend to question the potential success of the Act.  “If all works as designed”   “bill will supposedly”  “Its intent is to”

This is one of the most complex pieces of legislation ever devised.  I’m not sure, but I suspect that it might be almost as confusing as ObamaCare.  Ms. Pelosi’s test of the value of a bill applies here: “We have to Pass the Bill to see what’s in it.”

It is, after all, around 2,300 pages in length.  Do you ever wonder who actually wrote the bill?  Could it be that many of the contributors really had their own “protection” in mind rather than that of the consumer?

I have no credentials to suggest in any way that I know anything at all about what the bill says.  Nor do I mean to imply that I know what will actually happen as a result of this bill.  I’m really not qualified to say one way or the other.  However (there I go again), I do have some thoughts about what our government’s role should be in matters such at this.

Let’s look at how a related matter played a role in bringing about the perceived need for the Dodd-Frank Act.

It all started with the government disregarding some basic economic dictates.  In their infinite  wisdom (or lack thereof), they determined that all people should have easy access to an essential element of the American Dream, i.e., home ownership.  Actually everyone did have access, but not all had the ability to acquire it.  So “the government” decided to correct that problem.  (By the way, the same Dodd and Frank played a big role in that decision as did Bill Clinton and George W. Bush).  In any event, the means to accomplish that goal was to loosen the requirements needed to obtain a home loan.

Now this may be well and good, but some of the more greedy among us concluded that the way to their economic prosperity was to “gin up” as many of these loans as possible.  They could do this by not requiring the borrower to have the “ability” to pay back the loan.  The result….you guessed it, many that should not have received any loan at all could secure one….and without a down payment.

Now I suspect that many of the “poor” that obtained such loans were suckered into it with false promises.  These are the ones we should worry about and find a way to protect.  I’m not sure this Act does that.  Reverting to the policy that one doesn’t get a loan until they demonstrate they can pay it back would be a good start.

Others found a way to make a killing by flipping houses thereby making big profits.  These people should have known better and shouldn’t get bailed out.

Anyway, a few people began to worry about the liability they were carrying and they conjured up a scheme to “insure” against defaults.  Things such as bundling, derivatives and credit default swaps popped up.  Then one day the piper showed up and said “Pay me.  And pay me now.”

I say all of this just to illustrate how when government sees something it thinks is a good thing it doesn’t always turn out that way.  Wanting to do good doesn’t always make good.  And when it comes to “Big Government” that is often the case.

The Heritage Foundation says this about the Act: “…., Dodd–Frank and its 243 separate rulemakings (by 11 different federal agencies) are an ill-conceived attempt to reduce financial risk by constraining banks, credit unions, mortgage brokers, investors, accountants, and myriad other financial products and services.”  It says further:  “Two dozen bills are pending in Congress to rescind or reform various elements of Dodd–Frank. Some are more worthy than others. But the law’s unparalleled powers, unless checked, will curtail the availability of credit and capital for consumers and businesses alike, both of which are sorely needed to nurture economic growth.”

Think Churr-Ching!

I imagine that when the dust settles this Act will result in a horrendous burden on the those being regulated.  These costs will somehow filter down to their customers in one way or another.  Only then can we determine if the Act is truly looking after the wellbeing of the customers?

The short of it is that greed is a terrible thing.  It motivates people to inflict great harm and pain on the unsuspecting.  Then the greed of an individual morphs into groups of people until it finally gets out of control.  Big Government and Big Business, along with Big Labor are perfect breading grounds for greed.  Trying to regulate greed out of the picture doesn’t work because greedy people usually outsmart the regulators.  They are quicker to figure out ways to get around restrictions dreamt up by the regulators and they often use the regulation against itself.

The answer to our problems isn’t for our government to attack small or big businesses.  No, the answer is more basic than that, but infinitely more difficult to pull off.  That is to re-establish the value of having strong family relationships that ultimately strengthen the moral character of us all.

Government can’t do that.  Individuals can.  But do we have the moral fortitude to do that and quit asking for the government to do it for us?  You tell me.

Following my logic is probably more tedious that sorting out the language in the Dodd-Frank Act.  But it kinda make sense to me.  I’ve tried to do my part in all of this.  I’ve paid off my home loan.  Now, I’m afraid we are all paying off someone else’s loan and we’ll be doing so for a good long time.

But thanks for asking.  I appreciate getting any ideas out there.


Leave a Reply


  1. Jeanne Ries

    July 24, 2011 at 3:50 PM

    You say that the greedy are quicker to figure out ways to get around restrictions dreamed up by the regulators, is that because the regulators leave loop holes for the wealthy and learned lawyers to find?
    Does this make a point that the “wealthy” should pay their way when it comes to taxation? What is wrong with closing some loopholes for the very wealthy?
    Enjoyed your comments and thanks for response.

    • Robert

      July 24, 2011 at 6:28 PM

      Both. The lobbyists design the loop hole the wish to take advantage of. But I doubt (though I really don’t know) that the derivatives and credit default swaps were put in by the lobbyists. For example, General Electric lobbied in their ability to escape all their taxes. Enron, I believe, found the loop holes that allowed them to do their thing.

      The “wealthy” already pay their way. The top three percent pony up, I don’t know exactly but I seem to recall it being about 75% of all personal income taxes. The bottom 50% don’t pay anything. However, if you really want to get the “wealthy” to pay more, just change their taxes so they don’t pay any income taxes, but a percentage of their net worth. So if one gets from the words I cobbled together that they suggest the “wealthy” should pay more taxes, then I’ve failed in how I presented my case.

      I’m not opposed to closing loop holes though. In fact I’d close them all and go to flat tax.

      Thanks for your response.


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