I'm taking an online test to renew my loan origination license. The test is a riot! We're now discussing the cost of implementing the Dodd-Frank Act. Here's only a portion of the commentary.Budget / Tax CostSo far, the benefits of Dodd-Frank are largely speculative, but the costs on the American economy have been quite real. During a period of economic uncertainty and staggering debt and deficits, the Government Accountability Office (GAO) has estimated that by this time next year the budgetary cost for Dodd-Frank will exceed $1.25 billion, which has the effect of siphoning off resources that might otherwise have gone toward deficit reduction or private sector job creation.15 Moreover, the Congressional Budget Office has estimated that over the next ten years, the Dodd-Frank Act will take $27 billion directly from the economy in new fees and assessments on lenders and other financial companies.16GAO likewise estimates that Dodd-Frank will create more than 2,800 new jobs17—government jobs that is. According to agency submissions and the President’s own budget, the Dodd-Frank Act will add 2,849 new government positions. These are positions in agencies where six figure salaries are common. The SEC, FHFA and CFTC have the highest average salaries in the federal workforce according to the Congressional Research Service.18 The average salary at the Securities and Exchange Commission is $147,595. The FDIC has the seventh highest average salary.And Dodd-Frank has been a boon for lawyers, who have seen demand for their services explode as companies seek assistance in understanding and complying with the Act’s 2,000-plus pages and the more than 400 federal regulations mandated by the Act. The lobbyists have also done quite well, as companies seek help in influencing Congress and the regulators charged with implementing the hundreds of the Act’s regulations.But outside the Beltway, there is no evidence that the Dodd-Frank Act has created any private sector jobs. In fact, as the June unemployment numbers starkly demonstrate, job creation as a general matter remains anemic, despite the claims of Dodd-Frank’s proponents at the time the law was enacted that it would foster “robust growth in our economy.” According to the Economic Research Division of the Federal Reserve Bank of St. Louis, the last year the ratio of employed civilians to the population was lower than it is presently—58.24%—was in 1983.19At a time when the economy is faltering and Americans are struggling to make ends meet, the Dodd-Frank Act takes money out of the pockets of American workers to fund expanded government bureaucracy.Operating the Consumer Financial Protection Bureau (CFPB), a brand new agency created by the Dodd-Frank Act, will cost $329,045,000 for 2012 alone.20This amounts to all of the income and payroll taxes paid by 26,000 average American workers.21That means 26,000 Americans will work all year to offset the cost of this new government bureaucracy.The Dodd-Frank Act also creates the Financial Stability Oversight Council (FSOC) and the Office of Financial Research, which together will add 142 government employees to the federal payroll at a cost of $82,353,000 in FY 2012.22 After July 21, 2012, the Office of Financial Research will fund itself and the FSOC through assessments on “financial companies” and there is no limit on the amount of money it can take in.23 The bulk of these costs will be passed on to consumers in the form of higher fees and/or fewer services.The costs of Dodd-Frank are clear. Because of the Dodd-Frank Act, every single American worker will have a portion of his or her hard-earned tax dollars go to funding expanded bureaucracy and increasing wealth and prosperity in Washington rather than on Main Street.Compliance Cost“Has anybody done a comprehensive analysis of the impact on [credit markets, businesses, and job creation]? I can’t pretend that anybody really has. You know, it’s just too complicated. We don’t really have the quantitative tools to do that.” - Ben Bernanke, (Chairman of the Federal Reserve System Board, answering a question from a bank CEO in Atlanta, GA.)While Chairman Bernanke might not believe that it is possible to calculate the impact of the Dodd-Frank Act on credit markets and job creation, the compliance costs of Dodd-Frank rulemaking are beginning to become clear. The Dodd-Frank Act will require small community and mid-sized regional banks to spend thousands of man-hours on regulatory compliance, leaving them less time for focusing on the needs of their customers. The rulemaking agenda covering the last 12 months listed thirty new rules written to implement the Dodd-Frank Act25—less than 10% of the over 400 rules required by the law.26 [...]More broadly, the President’s Executive Order of January 18, 2011, urged independent agencies to “propose… a regulation only upon a reasoned determination that its benefits justify its costs.”29 But Inspectors General from the CFTC, SEC, FDIC and OCC found that these agencies failed to conduct rigorous, cost-benefit analyses that considered the effect of agency regulations on economic growth, job creation, or international competitiveness. In fact, one report found that within the CFTC, the Office of General Counsel appeared to have a greater say in the proposed cost-benefit analyses than the Office of the Chief Economist. [...]Of all the claims made by the proponents of the Dodd-Frank Act, the most important are these: that the Dodd-Frank Act ends “too big to fail” and that it protects the American taxpayer “by ending bailouts.”False Claims On Dodd-Frank Ending Bailouts:“This legislation makes common-sense reforms that end the era of taxpayer bailouts and 'too-big-to-fail' financial firms.” - Rep. Nancy Pelosi floor remarks, 6/30/10“Because Of This Reform, The American People Will Never Again Be Asked To Foot The Bill For Wall Street’s Mistakes. There Will Be No More TaxpayerFunded Bailouts Period.” - President Obama, remarks on passage of regulatory reform, 7/15/10 ***Bottom line: Our government is dysfunctional and the only plausible cure got defeated in the 2012 election.
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