Dodd-Frank bill: putting a cast on the wrong leg

Geoffrey Lawrence

The American financial system has been hobbling on a broken leg for over a decade. Perverse regulatory incentives that required Fannie and Freddie to hold, in their portfolio of mortgage assets, a minimum percentage of sub-prime loans combined with monetary policy looser than Paul Krugman’s grip on reality to create an Austrian Business Cycle on steroids.

The massive malignment of resources towards an artificially-inflated housing market eventually and inevitably led to a major financial collapse and economic recession. Thanks, Alan Greenspan. Thanks, Barney Frank.

So now Senator Chris Dodd and Rep. Frank are trying to atone for past sins (creating many of the previous regulations that contributed to the collapse) by drafting a brand new financial regulation bill. Problem is, the Dodd-Frank bill does absolutely nothing to address the central problems that led to financial collapse – i.e. regulations requiring or encouraging subprime lending and overly loose monetary policy. Dodd and Frank apparently understand that the American financial system has a broken leg. They just don’t know which one is broken, so they’re putting a cast on the healthy leg. Gee, I wonder if that will improve ambulation…

It seems the most economically illiterate individuals in the world have amassed themselves in Washington, DC and are running the country. With a complete misunderstanding of financial and monetary economics and the continued push for failed Keynesianism, American policymakers are parading ineptitude.

As one financial analyst is quoted today in the Washington Times:

“The U.S. continues to stick its head in the sand and ignore the animal mating calls of austerity measures [coming from Europe]. A crisis may need to develop before [Washington] wakes up and takes action.”

The president of the Bundesbank clearly understands the blunders of Washington as well. He made that clear in a recent Handelsblatt column as reported by the Wall Street Journal:

“Where did the financial crisis begin? Which central bank conducted monetary policy that was too loose? Which country went down the wrong path of social policy by encouraging low income households to take on mortgage loans that they can never pay back?”

In frustration, I will concur with the famed words of Henry Ford:

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

Apparently, those who understand the monetary and banking system the least work on Capitol Hill.

Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.