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Dodd Frank Changes

There were some recent additions to the Dodd Frank rules that specify that the ratio of the median employee annual total compensation to the CEO annual total compensation must be disclosed. This is a double edged sword; investors would like to know how much the CEO is making in comparison to the average employee. Such transparency helps in making decisions regarding the integrity of the company one might consider investing in.

There are however many who argue that Dodd Frank as a whole imposes excessive demands for fees and a mountain of paperwork that will blanket a vast segment of the American economy causing more harm than good with its massive cost, complexity of its regulations, and its internal inconsistencies.

After each economic boom comes the bust and with it more regulation; after the crisis of 2008, came Dodd-Frank. Its original intent was to address the issue of bailing out banks that were deemed too big to fail and to help regulate derivatives, however it turned into an 848 page bloated and confusing behemoth of added bureaucracy.

The scope and structure of the mammoth law are fundamentally different to those of its precursor laws. Dodd-Frank is not directed at people, it is an outline directed at bureaucrats and it instructs them to make still more regulations and to create more bureaucracies. Like the Hydra of Greek myth, Dodd-Frank can grow new heads as needed.

There are several arguments in opposition to the Dodd Frank rules:

  1. The greatly increased bureaucracy and regulation mandated by this act will not prevent another banking crisis.

  2. It impedes the ability of small banks to raise capital.

  3. It requires government partnership with the largest financial institutions.

  4. Ad hoc intervention responses by regulators rather than more predictable set rules.

The relatively fixed rules of bankruptcy could certainly handle the breakdown of big financial institutions but Dodd-Frank is tilted against bankruptcy because it is the product of banking committees, where bankruptcy is handled by judiciary committees.

This is a perfect example of our government stepping in and creating an overblown juggernaut to help “fix” the problem that it created in the first place. If a bank makes bad loans and goes bankrupt let them fail – it worked both for Sweden and Iceland.

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