Dismantling the Business Oppressive Dodd-Frank Act

The new minority leader in the Senate, Democrat Chuck Schumer, has been chortling that he has the votes to prevent the repeal of the anti-business growth Dodd-Frank Act.  Dodd-Frank was passed by Democrats on the heels of the Great Recession as a means of deflecting criticism from the government and its policies on home mortgages to pretend that the causes of the Great Recession were entirely or mostly due to private financial institutions.  Senator Christopher Dodd and Congressman Barney Frank had been among the most vociferous advocates of the government policy of easy credit for home loans and had explicitly claimed before the financial crash that there was no looming credit risk.  President-elect Trump has pledged to repeal Dodd-Frank, which is a very good idea.

A very interesting article in the 17 November Wall St. Journal by Peter Wallison discusses both the false pretenses that were used to justify the Dodd-Frank Act and the harm done to recovery from the recession and to economic growth rates by that act.  On the matter of whether the act actually addressed the causes of the recession and a few of its consequences:

Signed into law in 2010, Dodd-Frank was based on the idea that insufficient regulation, particularly of Wall Street, had allowed a buildup of subprime mortgages, a housing bubble and, ultimately, the 2008 financial crisis. The Democrats who controlled the Congress elected in 2008 acted quickly to follow out the implications of this diagnosis by adopting Dodd-Frank, the most restrictive financial legislation since the New Deal. 

Strikingly for such important legislation, there was no significant debate in Congress about whether the cause of the crisis had been correctly identified.

A later study, in 2014 by my colleague at the American Enterprise Institute Edward Pinto, showed that by 2008 more than half of all mortgages in the U.S. were subprime or otherwise risky, and 76% of those were on the books of government agencies. This leaves no doubt that government housing policies—and not a lack of regulation—created the demand for these risky mortgages. But by then it was too late. 

It is not difficult to find connections between Dodd-Frank and the historically slow recovery from the financial crisis. Here’s a sampling. 

The Financial Stability Oversight Council, a Dodd-Frank invention, was empowered to designate large financial firms as systemically important financial institutions, or SIFIs, turning them over to the Federal Reserve for “stringent” regulation. One of the council’s earliest actions, in July 2013, designated GE Capital as a SIFI. 

GE soon recognized that its huge financial subsidiary was wilting under the Fed’s control. Seeking an exit, GE wound down GE Capital, eliminating from the market an important source of funding for small and innovative firms. 

The Volcker rule, another Dodd-Frank provision, prohibited banks and their affiliates from trading securities for their own account, although there was no evidence that this activity had any role in the financial crisis. 

Soon, trading desks all over Wall Street were closing down, and traders were complaining that the debt markets were dangerously short of liquidity. The Treasury Department, deeply tied into Dodd-Frank, said it was “studying” the issue. It still is, and spreads are still historically wide. 

Small banks, the credit sources for small businesses and startups, faced new and costly regulation, requiring them to hire compliance officers instead of lending officers. 

One regulation on mortgage lending from the Consumer Financial Protection Bureau—a Dodd-Frank agency—was over 1,000 pages long. Imagine that landing on your desk in a small bank. 

No wonder, as this newspaper recently reported, banks are no longer the nation’s principal mortgage lenders. Worse still, as reported last week, job gains at startup firms, which are major sources of new employment and technological innovation, are at their lowest level in 20 years.

I added the bold to the sentence in the quoted portion of the article.

Continued High Unemployment -- A Manufactured Crisis to be Exploited

The on-going recession began in mid-2008 due to a housing bubble and financial instability brought on by the federal government's and Federal Reserve's easy money policies, which had been pricked by the needle of the 2007 sharp increase in energy prices.  Throughout the recession, which according to government numbers is falsely said to have ended in mid-2009, the government has continued to pursue the easy money policies that caused the recession.  What is more, it has selectively decided that some individuals and companies will not pay the price for bad decisions they may have made, albeit with much encouragement from the government.  This has heaped all of the costs of the recession on those who bore no or little responsibility for the recession or on a few responsible actors the government does not like for one reason or another.

To be more precise, the economy was rebounding from the recession in the latter part of 2009 and in early 2010.  But then ObamaCare and the Dodd-Frank financial "reform" bills were passed and the Democrats clearly wanted massive tax increases.  These actions and many strange and arbitrary regulations created an avalanche of business uncertainty to add to the lingering uncertainty of the earlier bailouts and company asset thefts by the government. The second dip of the recession started in the latter half of 2010.  Then, once again, perhaps due to the extension of many of the Bush tax cuts, the economy showed some signs of recovery in the first quarter of this year.  But, continuing government ineptitude mixed with deliberate destruction of the private sector, caused the second quarter of this year to slip back into recession mode again.  This fact was hidden by the unrealistic measures of price inflation, which ignored large fuel and food price increases and over-emphasized some improvements in technology values.  Apparent increases in GDP were likely just artifacts of the understated inflationary effect on goods and services of the huge stimulus spending and the two Quantitative Easings.

Each month, I calculate the real unemployment rate and the number of missing jobs in comparison to January 2000 when most anyone who wanted a good job could find one.  In the belief that were good jobs available, as large a fraction of the population would be wanting to work today, one can calculate the needed jobs and the missing jobs.  The latest numbers based on the Bureau of Labor Statistics unemployment report for May 2011 follow:

There actually was a nanoscale improvement in the number of missing jobs relative to April 2011.  The bad news is that the improvement in jobs creation ought to be much, much better at this time after the mid-2008 start of the recession if we were really seeing any improvement of the economy.  There were 693,000 more missing jobs in May 2011 than there were in May 2010!  A new crop of high school and college graduates is emerging and there are no jobs for them.  This is now a three-year old recession!  Recessions of the private sector never last this long.  Only government can make such an extended recession.  This is truly the Great Socialist Recession.

We are mired in the doldrums and there is no wind in sight.  The business community expects the Obama administration and the Democrats to continue making systematically awful choices with respect to the business of business and job creation.  It is true that Congress is doing less harm since the Republicans gained control of the House, but that has only invigorated the administration's determination to cause as much harm as possible through executive branch agencies.  Some of this is incompetence in business and economic matters, but some is very likely an effort to simply make many Americans dependent upon big government.  The plan is to make many individuals so destitute that they will think government is their only salvation.  It is to put many companies so at risk in the hands of regulators that they will bow and scrape before government to save their heads from the chopping block. 

What is better than a crisis of no growth, inflation, and joblessness for government to aggrandize its power?  This is well-understood by those many Democrat Socialists who hunger always to expand the scope and power of government, while making the private sector tremble in fear.  They well remember how the Great Depression grew government and gave the Democrats the initiative in politics for decades.  Some of the most influential Democrats are hoping the present crisis will give them the same power, if only they can make this recession into a long-lasting depression or at least something close to one.  These supreme power-lusting Democrat Socialist leaders are a minority of the party, but they are in control of the party policy.  The Great Socialist Recession is very unlikely to end until Obama is no longer occupying the White House and the Democrats no longer control the Senate.

The Immoral Estate Tax

The estate or death tax is simply immoral.  When an individual has spent a lifetime building wealth, he or she should be able to give that wealth in whole to whomever they wish.  It is particularly obnoxious that some people would stand between the dead and their own families or other loved ones.  The building of wealth is often motivated in good part by a desire to leave a significant estate to one's family in order to provide them with security.  Of course the Progressive Socialists Elitists do not want anyone to be provided with security unless they choose to have the government provide it to some select group among whom the family members may or may not be numbered.  The Elitist, who fancies himself god-like, thrives on making these choices and on having the chosen dependent upon his goodwill.

The Progressive Socialist Elitist commonly claims that the estate tax in not levied on the individual who died, but on the heirs.  Barney Frank just recently made such an often quoted claim:

Rich people should have a large chunk of their remaining estate confiscated by the government when they die because their heirs have done nothing to "earn" it themselves.

Strangely enough, the tax cut, to be 35% in 2011 and 2012, is made before and not after the money or property is put in the hands of the heirs.  The tax is made on the transfer of the estate, which really means before the transfer of the estate.  Thus it is more correct to say it is made on the dead than on the heirs.  Either way, this tax is made on those who generally did not choose to engage in an estate transfer, the dead usually not choosing to die and the heirs generally wishing their parent or other loved relation might have lived longer.

Unfortunately, the re-imposition of the death tax on 1 January 2011 for estates of $5 million or more has put dying people in the dilemma of choosing to die before then.  It is highly immoral that the federal government is forcing people to make such a choice.  Studies have shown that people do make the choice to die earlier in such cases.  Imagine yourself dying, but fighting to hang on to spend a last few days or weeks to say goodbye to those you love and allowing them to say goodbye to you and having to make this choice to cut off that incredibly important process.  You may have family members thousands of miles away who would wish to come to your side and spend a few last hours with you remembering the good times you have shared.  Imagine how important it is to hear one last time that you were a great father or mother and that your children will miss you greatly.  On the other hand, if you just stop fighting through the pain of dying, the business you spent a lifetime building may survive and your the employees you care about and trusted will continue to have jobs.  Maybe one or more to those who will continue to have jobs will be your children.  No one should ever be forced by a callous government run by Progressive Socialist Elitists to make such choices.

The Barney Frank claim begs several questions.  For one, it is simply assumed that the heirs did nothing to earn the estate.  Perhaps the children gave up many hours of time with their parent as the parent worked hard to accumulate the wealth.  Despite this, the children may have encouraged or given strength to the parent with their love to be so dedicated to his work and wealth-building.  In such cases, it is also often the case that the parent loved the work he or she did and the child understood that.  If, as is often the case, the wealth was accumulated from a business owned by the parent, the children may well have worked in the business as children and may still be working in the business as adults.  As adults working in the business, they may be the managerial succession plan of the business.

Yanking 35% of the business away from them at the difficult moment of transition may kill the business, causing much human grief as employees lose their jobs and as customers who have come to depend upon the business lose that relationship.  These are losses to which the power-grubbing likes of Barney Frank are blind and insensitive.  It may also be the case that the business owner had been retired for years and the business was in fact being run by his children for many years.  His children may already have greatly enhanced the value of the business.  One very important value enhancer is that a business gains value simply by having good managers it can count on for years to come, including tough recession years such as those of the Great Socialist Recession.  Family members are often just such valuable managers.  It cannot be correctly assumed that the children will not provide an even better manager and wealth creator than the family founder.  Or, the founder may have found the formula for success in a business after years of trial and error and passed it on to the children who will have much more time to use that formula, with such modifications as they will have to introduce themselves, to further build the business.  Destroy the business with taxation and the formula may also be destroyed.

Becoming an entrepreneur is a very difficult process.  The successful entrepreneur may have had, and probably did have, a long struggle to learn how to be successful.  One of the difficulties in becoming successful is the very fact that we already soak high income earners.  The top 1% of high income earners paid 38.02% of income taxes in 2008.  The top 5% of income earners paid 58.72% of all income taxes.  The successful entrepreneurial wealth-builder is just the person whose wealth will be again outrageously taxed at 35% on his death, with the frequent collapse of his business with all of his highly trained employees.  Such organizations are a wonder and should be highly valued in our society.  They represent incredible numbers of hours of hard prior work and difficult decisions, which are rarely appreciated at all by the all-knowing Progressive Socialist Elitist.  The founder or the heirs of the founder have built and maintained this organization.  In either case, its destruction or the act of harming it does harm to our society.  It has to be remembered that society generally is more benefited by the growth of the private sector than by the growth of government.  We must maintain rational priorities, despite Barney Frank's desire for us to irrationally further continue the transfer of private sector wealth to the government.

Of course there are cases we all know about in which the children are undeserving wastrels.  This is not really relevant, since it is the parent who built the wealth who has the right to decide where that wealth will go.  It is not our decision to make.  Neither is it the decision of government to make.  WE know the 35% cut the government will take will be spent foolishly and unconstitutionally for the most part.  In fact about 75% will be spent unconstitutionally, making the proper government spending out of the 35% tax a mere (1 - 0.75) (35%) = 8.75%.  This is a wastrel record which most wastrel children cannot match.  Their spending, while unwise, may easily be less unwise than that of the government.  Besides, the wasted part of the government spending very commonly goes to the undeserving poor or to the corrupt parasites of big business, labor unions, and other special interest groups, such as trial lawyers and public employees, who take advantage of the general taxpayer to live large.  In these days in which half the voters pay almost no taxes and the high income earners pay an outrageous fraction of all taxes, the wealth accumulator in many cases spent a lifetime supporting wastrels with his tax payments and upon dying is to once again forced to support those same wastrels with another 35% of his wealth.  You can hardly get more immoral than to demand that.

The Death Tax is highly immoral because it is a very discriminatory tax.  It strikes a very hard blow against businesses which are capital intensive.  Farming, for instance, is very capital intensive, since farmland has a very high value in the aggregate when enough acreage is held to make a farm profitable and a farmhouse and barn must be a part of the capital investment package as well.  A tractor and truck and many farm implements are other capital investments needed in our high-productivity farming environment.  The plight of farms due to the death tax has been often discussed and yet this important issue is of no concern to the Progressive Socialist Elitists such as Barney Frank.  There are many other American businesses which are also capital intensive.  In fact, for Americans to maintain their high standard of living in a global economy of intense competition, it is critical that many businesses achieve a very high labor productivity by being very well-equipped and by having other appropriate capital investment.  But, the death tax is a tax aimed at the destruction of exactly these competitive types of business with high capital investment because they also have high asset value upon the death of an owner.

Our all-knowing Progressive Socialist Elitists have long been dead-set on damaging the private sector, particularly our productive businesses, with completely stupid policies such as:

• The Death Tax to destroy businesses with high capital investment.
• The highest corporate tax in the world, designed to cause many U.S. corporations to build more facilities abroad and keep more of the profits of those facilities abroad, while decreasing their ability to compete in world markets from production in facilities in the U.S.
• High personal income taxes on those with relatively high incomes which hurt the accumulation of cash to be re-invested in many small businesses, thereby decreasing their growth rates and the numbers of employees they have.  Of course, high marginal tax rates at moderate to high incomes also decrease the incentive of productive people to work hard and produce as much wealth and as many jobs as they otherwise would.
• High company personal tax rates by counties and states which hurt capital intensive and therefore asset-intensive businesses.
• High power costs owing to wrongheaded supports for expensive ethanol fuel, electric wind generation and solar power subsidies and mandates, and restrictions on oil and natural gas production.  The electric power supply dependability has already been harmed and will suffer much more as these policies are expanded.
• Some pollution controls have exceeded rational cost benefit ratios.  Those on carbon dioxide are clearly such a case since carbon dioxide does not cause the global warming attributed to it by some all-knowing Progressive Socialist Elitists.  Despite this, great expense is already incurred in the name of CO2 reductions and the expenses are to ramped up drastically if the Obama EPA has its way in raping the U.S. economy.
• Many safety controls and regulations are expenses on business with little to no benefit.  Food inspection, drug regulations, FCC controls on broadcast and now Internet information and entertainment, anti-trust, railroad regulations, the first-class postage monopoly, and many more costs have been imposed on businesses and individuals more for government control and power and to protect big industries selectively while punishing other industries than makes rational sense.  All such schemes were advanced by Progressive Socialist Elitists.
• Tariffs and many irrational trade prohibitions still restrict international trade which is only carried out when two parties are benefited.  These restrictions are harmful.
• The minimum wage law creates higher unemployment and keeps many under-educated young people from receiving necessary on-the-job training and a start to their careers.
• Government favoritism toward unions makes labor too expensive in some industries, suppressing the competitiveness of those industries and pulling down other industries dependent upon those industries.
• Restrictions on the freedom of information exchange harm the economy, as does the introduction of government propaganda on economic issues critical of Capitalism through our government-run education system and by the Progressive Socialist Elitist media.
• Subsidies and mandates favoring some industries distort our economy and greatly harm the efficient utilization of capital and brainpower.
• Policies by the government favoring some races and women over men create an impediment to the efficient use of human brainpower.
• The huge transfer of wealth from the private sector to governments for unconstitutional purposes moves that wealth generally from production to non-productive uses.

Walter Williams - Congress's Financial Mess

Walter E. Williams, professor of economics at George Mason University, has written another interesting commentary on the current financial crisis called Congress's Financial Mess. He notes that the new media have repeatedly insisted that the current financial crisis was caused by deregulation and free markets. He goes on to show that this is not at all the case.

Professor David Henderson, research fellow at the Hoover Institution of Stanford University, studied how regulation has grown in general over the last few decades. He published his results in "Are We Ailing From Too Much Deregulation?" in Cato Policy Report (Nov/Dec 2008). He examined the Federal Register for its lists of new regulations.

• 1977-1980, Carter, annual average of 72,844 pages of new regulations
• 1981-1988, Reagan, annual average of 54,335 pages
• 1989-1992, Bush, annual average of 59,527 pages
• 1993-2000, Clinton, annual average of 71,590 pages
• 2001-2008, Bush, annual average of 75,526 pages

Employees in government regulatory agencies:

• 1980, 146,139 employees
• 2007, 238,351 employees, an increase of 63%

[How do you measure the efficiency of a regulatory agency employee? Is it by the number of new pages of regulations per employee? If so, in 1980 there were 0.50 pages of new regulations per employee and this had dropped by 2007 to about 0.32 pages per employee! Apparently, the more employees, the less efficient they become.]

Regulatory spending by the banking and finance industries:

• 1980, $725 million
• 2007, $2.07 billion, an increase of 286%
  

Under the recent George Bush, there was no hesitation at all in creating new regulations. In fact, the Bush administration specifically wanted to tighten down on risky mortgage and other loans by banks, but Congress would not allow it. The most outspoken critics of tighter credit controls in Congress were Democratic leaders and committee chairmen, including Rep. Barney Frank and Senator Harry Reid.

The Clinton administration made a concerted effort to force Fannie Mae to expand mortgage loans to low and moderate income people in 1999. They used the 1977 Community Reinvestment Act to make the banks make high-risk loans they otherwise would not make. Banks not submitting were fined and their mergers and branch expansion plans were denied or held-up.

In 2008, about $5 trillion of mortgages outstanding were owned or securitized by Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing, and the Veterans Administration. This was one-third of all such mortgages.

[Government also encouraged the inflation of home and property values with extremely low interest rates through inflation of the money supply by the Federal Reserve Board over the last several years.]

To make matters still worse for us taxpayers, Bush gave the auto industry a bailout of $17 billion in addition to about $700 billion in bailouts to banks and financial institutions. Now, the presidents of 36 state government universities are asking for a bailout. State governors and local governments are readying proposals for bailouts, with California $15 billion in the red, Florida $5 billion negative, and Michigan shutting down a prison to save money.

Williams notes that the news media is insulting our intelligence! Unfortunately, they appear to be right about the intelligence, or at least the attention span, of the average voter.