- - Thursday, June 2, 2016


Rep. Jeb Hensarling, Texas Republican and chairman of the House Financial Services Committee, is an economic disciple of the Founding Fathers.

Adam Smith was their gospel. And Smith advised, based on all human experience, that:

“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which forces things into another channel, or which endeavor to arrest the progress of society at a particular point, are unnatural and to support themselves are obliged to be oppressive and tyrannical.”

The monster 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act epitomizes what Adam Smith deplored and what Chairman Hensarling hopes to slay: ill-conceived handcuffs on the financial industry that thwarts the natural course of things.

Like an endless array of other congressional derelictions, Dodd-Frank confers limitless legislative power on federal regulatory agencies to hide from political accountability. Members of Congress would lose office immediately if they voted in favor of the economic follies of their regulatory offspring.

Among other things, Dodd-Frank empowered the Securities and Exchange Commission (SEC) by rulemaking to restrict so-called “proprietary trading” by financial institutions beyond the harsh discipline of competition. There is no evidence that such trading was implicated in the 2008 financial crisis that caused 450 financial institutions to fail. But the art of modern politics is the art of scapegoating. The result of the SEC’s anti-free market labors was the Volker Rule, a 932-page convoluted document navigable only by $1,500 per hour lawyers affordable only by the titans of the financial industry. No small financial institution has a clue as to what the Volker Rule permits or prohibits.

Chairman Hensarling plans to fix or at least ameliorate the unnaturalness of the rule.

The Chairman also intends to repeal Dodd-Frank price controls for certain financial services that have precipitated a dramatic contraction of free checking accounts from virtual universality to 39 percent. The price controls force some bank customers who are less costly to serve to subsidize others who are more costly to serve—akin to having the frugal pay for the extravagant.

A third Dodd-Frank target for the Chairman’s overhaul is the Consumer Financial Protection Bureau (CFPB), a constitutional excrescence. The CFPB escapes the congressional power of the purse, which the Constitution’s framers intended as the invincible legislative weapon to redress executive branch excesses. It is financed from interest earned by the Federal Reserve Board on financial instruments it purchases by money it creates by fiat. Additionally, the CFPB Director commands virtually limitless discretion to prohibit any consumer credit product that is deemed “unfair” or “abusive.” These terms are subjective, and hang like a Sword of Damocles over any financial institution offering consumer credit.

A companion constitutional excrescence to the CFPB created by Dodd-Frank is the Financial Stability Oversight Council (FSOC). It perversely herds together the heads of agencies complicit in the 2008 financial crisis to police the nation’s capital markets wielding vague terms like “systemic risk,” “financial stress,” and “financial stability.” In applying these terms, the FSOC is able to dictate the capital standards, product mix and lending activities of the nation’s major financial institutions reminiscent of Bolshevik Vladimir Lenin’s control over the “commanding heights” of the Soviet economy. Chairman Hensarling is thus highly skeptical of the FSOC’s reason for being.

At a time when traditional Republican Party principles are honored more in the breach than in the observance, he is a refreshing hope that there is still something left worth salvaging.

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