Leef calls Dodd-Frank just one bad law in a long-running series

Regular readers in this forum know that the federal Dodd-Frank financial regulation has created plenty of problems. George Leef examines in his latest Forbes column the flawed political process that led to Dodd-Frank’s approval in Congress.

Let’s start with a pop quiz. Here’s the question.

The housing bubble was caused by:

a) The boundless greed of Wall Street fat cats

b) The natural instability of markets under capitalism

c) Deregulation

d) Foolish laws passed as long ago as the 1930s

Putting the possible answers that way is almost cruel to those who have been schooled in “progressive” thinking because the first three answers all seem equally correct. How can one choose?

The correct answer is d). We would never have suffered through the housing bubble if the federal government had not blundered into the housing market, which used to function efficiently on its own. Politicians of both parties, however, imbued with what Hayek called the “fatal conceit” that government regulation is superior to the spontaneous order of civil society, thought they could improve upon that market.

Instead, they made things far worse, creating a destructive bubble and then reacting by passing another disaster-laden law – Dodd-Frank. …

… Dodd-Frank imposes huge new regulatory costs, while sending this message to the financial industry: don’t take risks. Banks have had to substitute compliance officers for lending officers. As a result of this counter-productive mountain of a law (over 360,000 words), there is today much less investment capital available for entrepreneurial activities and small business growth, both of which are crucial to our economic vitality. Dodd-Frank is a considerable part of the federal drag that has kept the economy’s recovery from the bubble so sluggish.

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