Posts Tagged ‘Dodd Frank’
March 29th, 2018 at 10:30 am
Court Reverses Another Obama Administration Regulatory Abuse
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Bit by bit, Obama Administration regulatory abuses are being dismantled by the executive, legislative and judiciary branches.  This month, the Fifth Circuit Court of Appeals overturned one of the worst.

The Dodd-Frank Act, which itself made matters worse rather than better in the wake of the government-fueled financial downturn of 2008, explicitly empowered the Securities and Exchange Commission (SEC) as the agency to formulate rules relating to investment advisers who offer “personalized investment advice about securities to a retail customer.”  The statute also explicitly prevented the prohibition of commission-based compensation.

But as was too often the case, a rogue federal agency under Obama felt unconstrained by mere laws and norms of conduct.  Specifically, Labor Department Tom Perez decided to dictate the exact opposite:

Mr. Perez essentially rewrote the 1974 Employee Retirement Income Security Act (ERISA), which regulates employer- and union-sponsored plans differently from individual retirement accounts.  For instance, individuals are allowed to sue fiduciaries of employer and union plans for charging a commission.  Labor applied the more rigorous protections for employer and union plans to IRAs.  Mr. Perez also extended Erisa’s definition of ‘investment advice fiduciaries,’ who provide advice ‘on a regular basis,’ to broker-dealers and financial-insurance agents who merely  sell a product.”

The Fifth Circuit Court of Appeals, however, was unamused and eviscerated Mr. Perez’s lawless maneuver.  Judge Edith Jones, one of the most reliably impressive judges in the entire judiciary branch, wrote for the majority that, “Transforming sales pitches into the recommendations of a trusted adviser mixes apples and oranges.”  She added that this created an impossible dilemma to navigate, as, “Thousands of brokers and insurance agents who deal with IRA investors must either forgo commission based transactions and move to fees for account management or accept the burdensome regulations and heightened lawsuit exposure required by the [best interest contract exemption] contract provisions.”

The inescapable consequence of such a rule raised costs for small investors most of all, who would’ve faced no alternative to what The Wall Street Journal labels “robo-advice.”  Indeed, several investment firms had already stopped offering services in those parts of the retirement investment marketplace.

There’s still much work to do in reversing eight years of Obama Administration malfeasance, including at the Internal Revenue Service (IRS), as we have constantly emphasized.  But the good news is that the job is underway, as this latest appellate court ruling illustrates.

March 2nd, 2017 at 2:53 pm
WSJ Provides Some Stark Numbers on Dodd-Frank and Market Overregulation
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In our recent commentary “Dodd-Frank:  Ripe for Repeal,” we highlighted the destructive effect of that law and the need for repeal by the Trump Administration.  In a piece entitled “Snap Goes the Market,” today’s Wall Street Journal highlights Snap Inc.’s initial public offering (IPO) and provides some stark numbers on the matter:

Last year, there were only 105 IPOs on U.S. exchanges, the fewest since 2009.  One reason is that the regulatory costs of going public – mainly imposed by Sarbanes-Oxley but also Dodd-Frank – can outweigh the benefits.  Amazon went public in 1997, three years after launching.  Snap waited six.”

This is low-hanging fruit and a no-brainer for the Trump Administration in its continuing effort to cut harmful overregulation and improve our economy.  There’s no reason whatsoever for delay.

October 8th, 2013 at 4:24 pm
Federal Overregulation Is Killing U.S. Public Markets
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Recently, CFIF highlighted the threat to markets and the U.S. economy posed by Dodd-Frank and overzealous Obama Administration regulators.  Specifically, the Securities and Exchange Commission (SEC) proposed a new regulation last month requiring public companies to tediously calculate their employees’ income ratios for exploitation by political activists.  Current laws already require public companies to post executive compensation levels, and the proposed rule would only encourage more overseas outsourcing, since foreign employees would likely be excluded.

Importantly, we noted that the SEC’s proposed regulation would also push even more companies to go private rather than public, thus depriving everyday investors the opportunity to participate in markets.  In other words, this little class warfare tactic would paradoxically end up hurting middle-class and poorer Americans while benefiting wealthier Americans who are able to participate in private company investment.  On that topic, in today’s Wall Street Journal Edward S. Knight illustrates the problem we face:

The number of publicly traded companies listed on U.S. exchanges has steadily declined to 5,000 this year from around 8,000 in 1995.  There are a number of reasons, but no one doubts that going and staying public has become increasingly more expensive, time-consuming and distracting for management.  As a result, businesses have sought other ways to organize and finance themselves.

This is not a healthy trend.  Private companies that need to grow can raise capital efficiently in U.S. public markets.  And robust public markets provide wide opportunities for individual and institutional investors to grow wealth.”

Clearly, federal overregulation comes at great cost, whether via Sarbanes-Oxley, Dodd-Frank or SEC executive compensation micromanagement.  Until we put an end to it, those costs will only increase for American markets and citizens alike.

September 20th, 2013 at 11:45 am
Federal Regulators Make Move to Micromanage Company Pay
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Last week, we highlighted the latest in a long line of Dodd-Frank debacles.  Specifically, a federal court unceremoniously vacated a regulation forcing U.S. energy companies working abroad to disclose sensitive proprietary information to foreign competitors who aren’t subject to the same rule.  As we noted, federal bureaucrats were essentially trying to force domestic companies to surrender their playbooks to overseas rivals in the name of worldwide social engineering.

This week, we’re witnessing yet another Dodd-Frank infamy.

On Wednesday, a sharply divided Securities and Exchange Commission (SEC) proposed a controversial regulation that would require companies to tediously calculate compensation ratios between chief executives and employees for public scrutiny.  Keep in mind that public companies are already required to disclose compensation of top executives, so the proposed new rule won’t provide any useful information about a given company’s financial stability.  Rather, it is nothing more than a sop to activists who obsess over distribution of wealth and who seek to pressure businesses and executives.

To what end?  What business is it of the federal government how private companies choose to compensate every single one of their employees?  Why should companies’ time and resources be wastefully diverted to calculating ratios simply to please Washington, D.C. bureaucrats?  How will this help “protect” investors?  The simple answer is that it won’t.  Instead, it’s a provision sought by anti-corporate activists to foment discord and wage class warfare.

Moreover, the proposed rule may drive subject companies to shift even more workers overseas rather than here in the U.S., since foreign employees may be excluded from the burdensome calculations.  The proposed rule will also incentivize companies to remain or become private, rather than public, in order to escape these pointless burdens.  In turn, that would only serve to punish middle-class investors who don’t possess the wealth to participate in private investment.

While the SEC’s proposed pay ratio disclosure rule has yet to be implemented, the issue of executive compensation has also surfaced in the ongoing American Airlines bankruptcy.  This week, in U.S. Bankruptcy Court, Judge Sean Lane rejected the compensation package American Airlines’ creditors had approved for the airline’s CEO Tom Horton.  Largely due to the work of Horton and his management team, American’s performance in bankruptcy has exceeded all expectations — the company has experienced an almost total turnaround.  Furthermore, Horton’s compensation package is in line with industry standards.  Executives whose airlines fared far worse in bankruptcy than American received their compensation packages with little to no opposition.

An individual’s compensation at a corporation is a matter that should be decided by its leadership, board, and investors.  The government has no business intervening and micromanaging company pay, whether at American Airlines or all of the other U.S. public companies now moving within its sights.

August 19th, 2013 at 4:16 pm
The Sprawling Administrative State
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The bad news: government is growing. The worse news: the source of this growth is unelected bureaucrats and tinkerers not directly responsible to American citizens. From Ben Goad and Julian Hattem at The Hill:

… [N]ew federal rules are accumulating faster than outdated ones are removed, resulting in a steady increase in the number of federal mandates.

Data collected by researchers at George Mason University’s Mercatus Center shows that the Code of Federal Regulations, where all rules and regulations are detailed, has ballooned from 71,224 pages in 1975 to 174,545 pages last year.

As that timeline suggests, this is a bipartisan phenomenon. We cannot lay the blame purely at Barack Obama’s feet, though the data seems to indicate he’s first among equals:

To be sure, the explosive growth in federal rule-making did not begin with the Obama White House. The 13,000 rules finalized during the president’s first term, according to the nonpartisan Congressional Research Service (CRS), were slightly fewer than those published during former President George W. Bush’s first term.

Yet the quantity of federal regulations is increasing by some measures at a quickening pace.

More “major rules,” those with an annual economic impact exceeding $100 million, were enacted in 2010 than in any year dating back to at least 1997, according to the CRS.

And over Obama’s first three years in office, the Code of Federal Regulations increased by 7.4 percent, according to data compiled by the Chamber of Commerce. In comparison, the regulatory code grew by 4.4 percent during Bush’s first term.

As the piece goes on to note, the two oversized blank checks to the administrative state from the Obama years have been Obamacare and Dodd-Frank, two cases in which the law really is, in large measure, whatever the regulators say it is. The actual legislation is little more than scaffolding.

In a just world, this would be a bipartisan concern. Even if one agrees with the policies coming out of the bureaucracy, after all, the price is losing any meaningful leash on government. Liberals, however, long ago made the decision that limiting government would only be important to them on a handful of boutique social issues and any instance involving law enforcement or national security. When it comes to the administrative state — well, they’re getting everything they want without having to dirty their hands with the democratic process. Why alter such a sweet deal?

July 19th, 2013 at 7:16 pm
The Administrative State: Too Big to Scrutinize
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From Obamacare to the current Gang of Eight immigration bill, the only thing more threatening to consensual government than enormous pieces of legislation is the even larger corpus of rules and regulations that they inevitably breed. Consider this analysis of Dodd-Frank, as reported by The Hill:

Rules implementing the Dodd-Frank financial reform law could fill 28 copies of Leo Tolstoy’s War and Peace, according to a new analysis of the Wall Street overhaul [by the law firm Davis Polk]…

All told, regulators have written 13,789 pages and more than 15 million words to put the law in place, which is equal to 42 words of regulations for every single word of the already hefty law, spanning 848 pages itself.

And if that seems like a lot, keep in mind that by Davis Polk’s estimate, the work implementing the law is just 39 percent complete.

I don’t think you have to be a limited government conservative to realize that government of this scope just can’t work. We no longer have a meaningful legislative branch if members of Congress are only responsible for writing 2 percent of what eventually becomes the law (the easiest 2 percent, it should be noted — it’s in the rules and regs, not the statutes, that oxes really get gored). There will be no one capable of enforcing all of these provisions, nor anyone capable of complying with all of them (though you can bet that they’ll be an army of consultants offering compliance services for a pretty penny).

For the rule of law to mean anything, rules have to be few enough to be digestible and clear enough to be intelligible. That’s also, by the way, a good rule of thumb for creating a legal environment that leads to economic growth. Rulemaking orgies like Dodd-Frank? They take us in precisely the opposite direction.
January 29th, 2013 at 2:30 pm
Dodd-Frank Missing Deadlines, Hurting Businesses

A new GAO report says that Dodd-Frank, the 2010 law that enormously expands the federal government’s regulatory role in the financial markets, is being implemented at a snail’s pace:

Overall, GAO identified 236 provisions of the act that require regulators to issue rulemakings across nine key areas. As of December 2012, regulators had issued final rules for about 48 percent of these provisions; however, in some cases the dates by which affected entities had to comply with the rules had yet to be reached. Of the remaining provisions, regulators had proposed rules for about 29 percent, and rulemakings had not occurred for about 23 percent.

At first blush, limited government conservatives might cheer the slow growth in regulation.  But limited government is only good if it’s for the right reasons; for instance, relying on the current legal (fraud) and market (bankruptcy) framework to police financial bad actors.  Here, however, the delays are due to Dodd-Frank’s perpetuation of flawed regulatory methods.

For example, the report lists obstacles such as regulators with overlapping jurisdictions and inconsistent rules, impossible-to-meet statutory deadlines, and lack of consumer confidence in the regulators’ ability to produce fair and reasonable guidelines.  To cope with these realities, bureaucrats are opting to miss deadlines in favor of more collaborative rules.  But while the benefit may be more buy-in from stakeholders inside and outside the government, the costs are huge to the businessman on the street.

The two biggest casualties are the rule of law and regulatory transparency.  The first is undermined because bureaucrats allowed to ignore statutory mandates are bureaucrats allowed to operate outside the law.  Think a private business could just decide to miss a deadline because compliance is too hard?

Moreover, part of the difficulty complying comes from the lack of transparency.  Businesspeople need certainty in regulations to plan for the future, but that can’t be done when deadlines are waived at the discretion of the regulator.  So instead of being able to act on distasteful yet concrete information, businesses are left wondering how to position themselves as the regulatory elites “collaborate.”

In this type of environment, the safest bet is not to take risks like hiring or expanding.  With government like this, is it any wonder the job market is so lousy?

H/T: The Hill’s RegWatch blog

April 3rd, 2012 at 12:53 pm
How to Avoid Bank Bailouts: Make the Bankers Liable
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Over at the Wall Street Journal, James Grant, editor of Grant’s Interest Rate Observer has a perceptive review of the new book, “White House Burning: The Founding Fathers, our National Debt, and Why it Matters to You,” by former IMF Chief Economist Simon Johnson and University of Connecticut law professor James Kwak. Two passages deserve special attention.

On the banking system, Grant writes:

Here’s an idea: Let’s try capitalism for a change.

Rather than the bureaucratic monstrosity called the Dodd-Frank Act, for instance, why not hold the bankers personally accountable for the solvency of the institutions that employ them? Until 1935, bank stockholders would get a capital call if the company in which they had invested became impaired or insolvent. It was their problem, not the government’s. In the same spirit, suggests the New York investor Paul J. Isaac, let the bankers forfeit a portion of their past compensation—say, that in excess of 10 times the average manufacturing wage—if they steer their employer on the rocks. And let them surrender not just one year’s worth but rather seven year’s worth—after all, big banks don’t go broke all at once. Proceeds would be distributed to the creditors, as in days of yore. Bankers should not only take risks. They should also bear them.

And on the endless invocation of the Great Depression as the sole object lesson in how to respond to a severe economic downturn:

Messrs. Johnson and Kwak, who draw the usual conclusions from 1929-33, fail to mention the depression of 1920-21. Yet this cyclical downturn was as instructively brief as it was ugly. Peak to trough, nominal GDP plunged by 23.9%, wholesale prices by 40.8% and the CPI by 8.3%. Unemployment, as it was then inexactly measured, soared to 14% from a boomtime low of 2%. And how did the successive administrations of Woodrow Wilson and Warren G. Harding, along with the Federal Reserve, meet this national disaster? Why, they balanced the budget and raised interest rates. Yet for reasons never examined in the pages of this book, that depression promptly ended and the 1920s roared.

Grant’s theme? Responsibility, both personal and collective. That has the great virtue of being the right thing to do. It also has one even greater virtue: it works.

February 23rd, 2012 at 5:01 pm
Dodd-Frank’s Quiet Regulatory Assault on American Energy
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Dodd-Frank, the monstrous financial “reform” legislation enacted two years ago, contains hundreds of byzantine provisions targeting banks, mortgage lenders, and traders on Wall Street.  All of those new rules and regulations have been contested from both sides of the political aisle, and regulators have requested additional time to even understand its requirements.  There’s one little-known provision, however, that was snuck into Dodd-Frank at the last minute and should alarm everyone, regardless of political point of view.  Namely, new payment disclosure rules for American oil, gas, and mining companies that instantly threaten our nation’s energy security.

Typical of the current trend in Washington, Congress has tasked a regulatory agency, the Securities and Exchange Commission (SEC), to carry out this mandate. The new regulation, formally called “Disclosure of Payments by Resource Extraction Issuers,” is found in Title XV, Section 1504 of the bill. Put simply, the rule would require that any company listed with the SEC and engaging in energy production overseas must disclose literally every single payment made to a foreign government.

The rule would create a competitive disadvantage for American energy producers because not only would state-owned companies such as those in Iran and Venezuela be exempted, they would also suddenly possess detailed knowledge down to individual wells and projects.

Senator Ben Cardin (D – Maryland), one of the champions of this provision, has curiously argued that “it’s appropriate to require companies to provide project-level information…” According to him, specific, sensitive financial – even proprietary – data on particular drilling projects should potentially be surrendered, including to those countries or companies who don’t share America’s intentions.

Pete Sepp at the National Taxpayers Union recently explained the problem well:

“…Here is the painful rub with Section 1504: In essence, the rule would give foreign competitors—largely state-owned oil and gas firms—access to information about what American companies are paying to governments overseas, enabling them to outbid and outmaneuver in the global race for energy resources.”

That means that energy firms controlled by the Iranians and the Chinese would receive a huge helping hand compliments of the SEC, one that would severely undercut the international competitiveness of American companies. What’s more, the state-run energy firms that would benefit from the SEC’s new payment disclosure rule already maintain a large advantage over our domestic producers – not only financial backing from their home governments, but also ownership of the lion’s share of proven oil and gas reserves worldwide.   (According to The Wall Street Journal, state-run companies now control more than 75 percent of global oil production.)

And, quite simply, after the rejection of the Keystone XL pipeline and renewed calls for new tax hikes on American oil and gas companies, this new SEC regulation would deal yet another blow to an industry that is essential to our economic recovery. Why then would Congress and the SEC side with petro-dictators over American motorists and manufacturers?

An alternative would be for the SEC to implement a payment disclosure rule on a country-by-country basis, which could help protect American companies’ interests in specific projects abroad.  Or, preferably, Congress could reconsider that section of Dodd-Frank altogether.  Recall that Capitol Hill spent significant time more than 30 years ago hashing out the Foreign Corrupt Practices Act, which already specifically addresses  the transparency and payment issues at hand in Section 1504. For the sake of American future energy and economic security, our chief securities regulator must keep America’s interests first – not Russia’s or Iran’s or Venezuela’s.

November 1st, 2011 at 5:33 pm
Pelosi: Make Your Plant Union or Shut it Down
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House Minority Leader Nancy Pelosi sat for an interview with CNBC’s Maria Bartiromo last week on the state of the economy. Based on her remarks here, we can conclude that — as dismal as the current downturn is — it would only be worse if the Sage of San Francisco and her ilk were still running the lower chamber:

h/t: Hot Air

October 17th, 2011 at 9:29 pm
Ron Paul is Making Sense
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I’ve posted before on the difficulty that Texas Congressman Ron Paul’s presidential candidacy presents: while Paul is utterly at sea on foreign policy issues and too philosophically pure to countenance the type of compromise that real political progress requires, his libertarian beliefs also make him one of the best candidates in the Republican race on economic issues. Thankfully, Paul has no hope of being the nominee, but let’s hope that his “Restore America” economic plan, unveiled earlier today, has an influence on the GOP field. This is solid stuff, as the Wall Street Journal’s Washington Wire blog reports:

Mr. Paul does get specific when he calls for a 10% reduction in the federal work force, while pledging to limit his presidential salary to $39,336, which his campaign says is “approximately equal to the median personal income of the American worker.”  The current pay rate for commander in chief is $400,000 a year.

The Paul plan would also lower the corporate tax rate to 15% from 35%, though it is silent on personal income tax rates, which Mr. Paul would like to abolish. The congressman would end taxes on personal savings and extend “all Bush tax cuts…”

While promising to cut $1 trillion in spending during his first year, Mr. Paul would eliminate the Departments of Education, Commerce, Energy, Interior and Housing and Urban Development…

Mr. Paul would also push for the repeal of the new health-care law, last year’s Wall Street regulations law and the Sarbanes-Oxley Act, the 2002 corporate governance law passed in response to a number of corporate scandals, including Enron.

What’s most remarkable is that Paul — long considered an ideological outlier — is now in line with the majority of the Republican establishment (the movement was on their end, not his). With the exception of his call to abolish the federal income tax and a few of his cabinet department eliminations, these are all priorities that a Republican congress could support coming from a GOP president. That man won’t be Ron Paul … but let’s hope he’s read his plan.

August 1st, 2011 at 7:30 pm
Soros: Regulation for Thee, But Not for Me

George Soros, the leftwing hedge fund billionaire and part-time Hungarian Bond villain, announced last week he’s opting out of the regulatory straitjacket he demanded of his industry.  Taking advantage of a little-known loophole in the Dodd-Frank financial “reform” law, Soros is evading the kind of “transparency” he championed for others.

Per Michelle Malkin:

Under Title IV of Dodd-Frank, hedge funds were required to abide by new registration and reporting requirements in an attempt to better police systemic risk (not that the feckless Securities and Exchange Commission has ever been able to fulfill that mission). To evade the regulations, Soros and other firms have used a recently passed rule allowing so-called family offices to shield themselves from both registration and disclosure rules that would have subjected Soros Inc. to a new “Financial Stability Oversight Council.”

But what would Soros want to hide?  More Malkin:

Soros and his family shelled out $250,000 for Obama’s inauguration, $60,000 in direct campaign contributions and untold millions more to liberal activist groups pushing the White House agenda.

Over the past year, Soros provided coveted support for Obama and the Democrats’ Byzantine financial “reforms” under the sweeping Dodd-Frank law. He preached to financial publications around the world about the need for increased regulatory controls over his industry. And in November 2008, while paying obligatory lip service to concerns about going too far, he submitted a statement to the House Committee on Oversight and Government Reform that recommended: “The entire regulatory framework needs to be reconsidered, and hedge funds need to be regulated within that framework.”

That is, unless you’ve got creative lawyers and a disingenuous president’s ear.

July 22nd, 2011 at 1:18 pm
Obama Anniversaries Cause for Despair, Not Celebration

The Heritage Foundation has a helpful list of the Obama Administration’s many anniversaries this month:

The Obama Administration has seen its fair share of milestones this month. Yesterday marked the first anniversary of the Dodd Frank Wall Street Reform and Protection Act, Obamacare is just over one year old, it has been more than 800 days since the Democrat-controlled Senate passed a budget, and the Consumer Financial Protection Bureau opened its doors on Thursday–the first new federal agency in nearly a decade. You’ll notice that no one is celebrating any of them.

Liberals are aghast that regulating the economic activity of millions of people is going so slow, while business owners and the unemployed are living in constant fear of growth-killing rules.

Happy Anniversaries, Mr. President!  Your laws are destroying America.