If we aren’t to adopt Glass-Steagall in its entirety, Weill is right that at least as to the separation of these clearly different functions, system needs should not be hostage to the risky operations of proprietary trading and investment houses. Our FDIC insured funds in millions of accounts should not be underpinning the operations, even to a farthing, and today we are as at risk if not more so than in 2008.
Micro regulation won’t accomplish its goals. Dodd-Frank added 400 new federal regulations to an already dysfunctional set of rules. President Obama praised the bill in 2010, stating it would end tax-funded bailouts and give certainty to an uncertain economy. Two years later, our economy remains uncertain and our megabanks have in a number of instances been forced to take billions in unwanted federal aid (Citigroup accepted $45 billion). Instead of breaking down the conglomerates, Dodd-Frank has enabled them, on the government’s dime and, more specifically, the taxpayers’ dime. Currently taxpayers back 99% of new residential mortgage securitizations from the Federal Housing Administration, Freddie Mac, and Fannie Mae.
If Dodd-Frank continues unamended, our continuing employment malaise confirms that employed Americans may become fewer and farther between. The U.S. Chamber of Commerce states that Dodd-Frank’s regulation of derivatives alone may cause nonfinancial American companies to take their jobs outside the country. July 2012 shows almost as many people leaving the workforce as new jobs created and a continuing 8.3percent unemployment figure indicating the road we are on is not the right one. Dodd-Frank is merely one symbol of the wrongheaded approach we are taking to right our economic ship. We have created a bifurcated banking system with the very big banks in a favored position but under a heavy federal thumb. We have burdened the rest of our commercial banks with regulation that they cannot afford and for banks of their modest size makes no sense.
If we continue down this road, we will only encounter more potholes to jar our progress and discourage the flow of animal spirits that in earlier times fueled our growth into the largest economy in the world. The latest in financial regulation is only getting started. Just around the corner, is the “qualified residential mortgage” rule, which, if accepted as is, will increase interest rates anywhere from one to four points. A former chairman of the Federal Deposit Insurance Corporation predicts that many local financial institutions will fail under the heavy load of regulation mandates. As if the government did not control enough of the U.S. financial market and businesses prior to the creation of the Dodd-Frank Act, the Act also created the Consumer Financial Protection Bureau, in which consumer financial products may be deemed “unfair” or “abusive” by the bureau alone.
The government does not, or at least should not try, to run our economy. The various parts of the banking system should be rationally split as they were before 1999, and thereafter the economy is perfectly able to do a much better job of creating a positive future than the heavy handed government efforts to micro manage our lives. Government, get off our backs and let us save ourselves!
Professor Freer is the BB&T Visiting Professor in Ethics and Free Enterprise Leadership at The Citadel, the Military College of South Carolina in Charleston, S.C., after a career in law, government, and corporate management spanning a half century. Professor Freer served as a government trial attorney, assistant to two Chairmen of the Federal Trade Commission, and for the General Counsel of the U.S. Department of Transportation. Picked by Kimberly–Clark Corporation to be its Washington Counsel, he became its youngest vice-president and was responsible for its representation before all governmental bodies, and for energy management and environmental compliance and control. Following his retirement from Kimberly-Clark, he was a principle in several law firms, including his own mid-sized Washington firm, and came to the academic realm as the first John S. Grinalds Leader in Residence at The Citadel and as an adjunct professor at The Charleston School of Law.
Prof. Freer was part of a very small team working with Casper Weinberger and Edwin Meese to create the structure for the Reagan Administration’s transition. He was appointed by President Ronald Reagan as a Commissioner of the White House Fellows Commission and served as Captain of the Grace Commission’s Land Team. He also served as Assistant General Counsel of four Republican National Conventions.
Prof. Freer founded the Washington Metropolitan Area Corporate Counsel’s Association in 1979. He followed that as the co-founder of the Republican National Lawyers Association in 1985, Washington Episcopal School in 1986, of which he remains Chairman Emeritus, Lawyers for the Republic in 1988, the U.S. Cuba Business Council in 1993, and the Free Enterprise Foundation in 2002, for which he is the current chairman.
Dr. Freer has also edited and authored several books: Finding Our Roots, Facing Our Future: America in the 21st Century, Citadel Values I and II, and the novel, Eagles Quest under the pseudonym Elliott Robins.