On the stump, words like “Obamacare” roll off the tongue. “Swap execution facility,” not so much.
That has not stopped Republican presidential candidates from using the Dodd-Frank Act, the sprawling regulatory effort to address the causes of the financial crisis, as their newest anti-Obama target for what ails the economy.
Republicans have repeatedly invoked the law’s 848-page girth — and its rules on, among other things, trading derivatives and swaps — as a symbol of government overreach that is killing jobs.
But in trying to turn Dodd-Frank into the new Obamacare, the disparaging term that opponents use to refer to the new health care law, Republicans are largely ignoring the basic trade-off that the financial law represents, supporters say.
“Dodd-Frank is adding safety margins to the banking system,” said Douglas J. Elliott, an economic studies fellow at the Brookings Institution. “That may mean somewhat fewer jobs in normal years, in exchange for the benefit of avoiding something like what we just went through in the financial crisis, which was an immense job killer.”
So far, only a small portion of the law, which was signed by the president in July 2010, has taken hold. Of the up to 400 regulations called for in the act, only about a quarter have even been written, much less approved.
Dodd-Frank aims to rein in abusive lending practices and high-risk bets on complex derivative securities that nearly drove the banking system off a cliff. It creates a bureau to protect consumers from financial fraud, cuts the fees banks charge for debit card use, and sets up a means for the government to better supervise the nation’s largest financial institutions to avoid expensive and catastrophic failures. And it calls for swap execution facilities, or exchanges on which derivatives and other complex financial instruments are traded.
Republicans say Dodd-Frank is the root of some of today’s economic problems. It has stopped banks from lending to “job creators,” they contend, and is a direct cause of high unemployment. “It created such uncertainty that the bankers, instead of making loans, pulled back,” said Mitt Romney, the former Massachusetts governor, speaking at a South Carolina rally over Labor Day weekend where he again called for the law’s repeal.
“I think part of that flows from the fact that the people who were putting that together, Dodd and Frank,” he continued, referring to Democratic lawmakers former Senator Christopher J. Dodd of Connecticut and Representative Barney Frank of Massachusetts, “as much as anyone I know in this country were responsible for the meltdown that we had.”
Mr. Frank demurs. “Their claims are literally based on nothing but misconception,” he said. “The legislation is very popular. Nobody wants to go back to totally unregulated derivatives. Nobody wants banks to go back to making loans without having to retain some of them. This is a debate that is being conducted for the right wing.”
Rick Perry, the governor of Texas, has also called for the repeal of Dodd-Frank. “We have to end it right now,” he said, on the same weekend in the same state as Mr. Romney. Newt Gingrich said it is “a devastatingly bad bill” that is “killing small banks, killing small business, killing the housing industry.” Representative Michele Bachmann regularly reminds voters that she introduced the first Dodd-Frank repeal bill this year.
Former Gov. Jon Huntsman of Utah agrees, but he wouldn’t stop there. He would also eliminate the Sarbanes-Oxley law passed in 2002, which set standards for corporate accountability in the wake of the Enron scandal.
The candidates could find that there are some political dangers to their deregulation strategy, as Republicans in Congress learned last year during the debate over the legislation. Then, opponents of measures to address the causes of the financial crisis found themselves rather easily painted as defenders of Wall Street financiers and the banking industry, rather than being on the side of borrowers and consumers. Mr. Obama has signaled recently that in the 2012 campaign he plans to portray Republicans as defending corporations and the wealthy.
These political risks probably account for the Republicans’ current effort to portray Dodd-Frank as an enemy of jobs rather than as a burden to banks. Most of the regulations included in the law fall on the big banks that were at the center of the financial crisis — Bank of America, Citigroup, Wells Fargo and JPMorgan Chase.
Those names rarely pass the candidates’ lips, however, as Republicans have turned Dodd-Frank into a piñata. Instead, they invoke community bankers — the small-town lenders who are more likely to be seen coaching a Little League team than wearing a pinstripe suit — as the beleaguered victims of overregulation.
Community bankers worry about Dodd-Frank rules setting limits on how much banks can charge for debit card transactions. Those rules have yet to go into effect. In the meantime, the bankers say, they have plenty of money to lend, but small-business owners are not asking for loans.
“There are a lot of qualified borrowers who don’t want to borrow, because they are not sure what is going to happen with the economy,” said R. Todd Price, president of the First State Bank of Mesquite, Tex. “I don’t know if that can be directly associated with Dodd-Frank,” he added. While the law “will put a whole lot more regulations especially on community bankers,” he said, “I think they’re yet to come.”
The arguments of the Republican candidates have some support among economists, particularly conservatives. Todd J. Zywicki, a senior scholar at the Mercatus Center at George Mason University, says that credit is the lifeblood of the economy, and that Dodd-Frank was designed to decrease access to credit. “Dodd-Frank is the thing that is most harming the economy right now,” he said. “Big business can deal with regulatory uncertainty, but it makes small businesses reluctant to take on risk and expand their operations.”
Unless Republicans capture the presidency and can also muster 60 votes in the Senate, it appears unlikely that Dodd-Frank will be repealed in full. Senate and House Republicans introduced such bills, but they have never been brought up for floor votes.
But there has also been relatively little resistance from Democrats in defense of Dodd-Frank. Federal agencies have been busy writing regulations to put the law into effect, but those efforts have not generated the widespread public debate that occurred when the legislation was debated in Congress. Without someone on the Democratic side actively fighting on its behalf, Dodd-Frank, for the moment at least, has been left without a champion.
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