How Dodd-Frank is Destroying our Economy

Peter J. Wallison from the American Enterprise Institute knows that Dodd-Frank was “an illegitimate response” to the 2008 US financial crisis. Wallison makes his points in “The Case for Repealing Dodd-Frank.” He states housing bubbles are “procyclical” and notes while Obamacare has received all of the attention, “Dodd-Frank deserves a look.”

Wallison begins with, “The 2008 financial crisis was a major event, equivalent in its initial scope—if not its duration—to the Great Depression of the 1930s. At the time, many commentators said that we were witnessing a crisis of capitalism, proof that the free market system was inherently unstable … These views culminated in the enactment of the Dodd-Frank Act that is founded on the notion that the financial system is inherently unstable and must be controlled by government regulation.”

Wallison then goes about examining the causes of the 2008 financial crisis, which he classifies as “the largest housing bubble in [US] history.”

Wallison notes, “Congress planted the seeds of the crisis in 1992, with the enactment of what were called ‘affordable housing’ goals for Fannie Mae and Freddie Mac … Between 1991 and 2003, Fannie and Freddie’s market share increased from 28 to 46 percent. From this dominant position, they were able to set the underwriting standards for the market as a whole; few mortgage lenders would make middle-class mortgages that could not be sold to Fannie or Freddie … In a sense, government backing of the GSEs [government-sponsored enterprises] and their market domination was their undoing. Community activists had kept the two firms in their sights for many years, arguing that Fannie and Freddie’s underwriting standards were so tight that they were keeping many low- and moderate income families from buying homes.”

“Department of Housing and Urban Development (HUD) was given authority to increase the goals, and Congress cleared the way for far more ambitious requirements by suggesting in the legislation that down payments could be reduced below five percent without seriously impairing mortgage quality,” states Wallison. This was a false premise and led to the 2008 financial meltdown.

Wallison concludes, “If the American people come to recognize that the financial crisis was caused by the housing policies of their own government—rather than insufficient regulation or the inherent instability of the U.S. financial system—Dodd-Frank will be seen as an illegitimate response to the crisis. Only then will it be possible to repeal or substantially modify this repressive law.”

Terresa Monroe-Hamilton in her article “An American Depression: Extreme Haircut Edition” warns, “Americans know deep inside that things are very dire indeed and getting worse by the second. Overwhelmingly, they no longer believe the economic numbers from the government. Lies – all lies and propaganda. Instead of the breadlines of the last Great Depression, we have EBT Cards, providing the hungry with food. For those who have now been unemployed for years in The Greatest Depression, it doesn’t cut it.”

Monroe-Hamilton notes, “Much of the Western world will require defaults, a savings tax and higher inflation to clear the way for recovery as debt levels reach a 200-year high, according to a new report by the International Monetary Fund.”

Will we see another financial meltdown in 2014?


Peter J. Wallison holds the Arthur F. Burns Chair in Financial Policy Studies at the American Enterprise Institute. Previously he practiced banking, corporate, and financial law at Gibson, Dunn & Crutcher in Washington, D.C., and in New York. He also served as White House Counsel in the Reagan Administration. A graduate of Harvard College, Mr. Wallison received his law degree from Harvard Law School and is a regular contributor to the Wall Street Journal, among many other publications. He is the editor, co-editor, author, or co-author of numerous books, including Ronald Reagan: The Power of Conviction and the Success of His Presidency and Bad History, Worse Policy: How a False Narrative about the Financial Crisis Led to the Dodd-Frank Act.