Morning Bell: The Dodd-Frank Assault on Economic Recovery

Conn Carroll / June 29, 2010

Following the release of the 2,000-page Dodd-Frank financial regulation bill last Friday, fixed-income portfolio manager Christine McConnell told Businessweek: “Clarity is good. [Once financial institutions] understand the rules of the road they’ll be able to accommodate their business models.” There is only one problem: passage of the Dodd-Frank bill doesn’t provide any clarity. In fact, it does the exact opposite. The New York Times explains: “The bill, completed early Friday and expected to come up for a final vote this week, is basically a 2,000-page missive to federal agencies, instructing regulators to address subjects ranging from derivatives trading to document retention. But it is notably short on specifics, giving regulators significant power to determine its impact.”

In other words, this law is going to be continually rewritten by federal bureaucrats for years to come. And the continued uncertainty it will create is just the beginning of its faults:

Permanent Bailout Authority: The Dodd-Frank bill creates an “orderly liquidation” process by which regulators are empowered to seize financial institutions that they believe are in danger of failing and liquidate them. While the lack of a broadly accepted process for closing down large financial institutions helped lead to the massive bailouts of 2008 and 2009, this liquidation process is problematic. Federal regulators are granted broad powers to seize private firms they feel are in danger of default, and these powers are subject to insufficient judicial review. Such governmental discretion to seize private property is constitutionally troubling. (more…)