The Truth Makes Free -- Not Today?

We live in a time of premature verdicts delivered by sponsored sound bites. Dodd-Frank is a failure, pundits cry, with burgeoning regulations driving small banks out of business, making “too big to fail” as certain as death.

To the contrary, the Secretary of the U.S. Treasury Department touts Dodd-Frank as the builder of a pro-growth, pro-investment financial system. Deputy Assistant Secretary Wolin attempts to dispel the “myth” that Dodd-Frank hurts small banks by saying that it helps to level the playing field between large banks and small ones and holds big banks to much stiffer standards than small ones.

So what’s the truth? Will Dodd-Frank spell the death knell for community banks? Is Dodd-Frank swamping banks with regulations, creating job security for compliance officers and attorneys? According to the General Accounting Office in November 2011, “little is known about the actual impact of the final Dodd-Frank rules, given the short amount of time the rules have been in effect.”

Several major criticisms of Dodd-Frank ring true. First, Dodd-Frank did not reinstate Glass-Steagall, the depression era legislation that separated commercial from investment banks, repealed during the Clinton presidency. Second, Dodd-Frank does not explicitly attack the credit default swap exposure that brought down AIG and now poses unclear risk regarding U.S. bank exposure to European sovereign debt.

Most important, if one were to assume that the Dodd-Frank provisions were designed to prevent another financial crisis on the order of the 2008 debacle, a year and a half has passed and most of the legislation remains unimplemented.

Well, say the doubters, banks still aren’t lending, sitting on their cash, all because of Dodd-Frank. That’s easy to say, but what in Dodd-Frank has caused this? Perhaps the specter of Dodd-Frank regulations (such as proposed ability to repay regulations), not yet adopted. More likely, concern about the loosey-goosey practices that led to the crisis and the resulting closer scrutiny of bank examiners, not Dodd-Frank. Even if Dodd-Frank hadn’t come to be, we’d most likely be working through the subprime fallout and banks would be reluctant to lend.

I’m not about to brag on Dodd-Frank. My biggest beef with the bill is its multitude of provisions that will, if they haven’t already, affect institutions that had nothing to do with the financial crisis Dodd-Frank was enacted to prevent. Most lenders did not make NINJA (no income, no job, and no assets) loans. It isn’t fair to treat them all as if they did. Dodd-Frank should have an exemption for the good guys. How to word the exemption and keep it constitutional is something I don’t know much about.

“When you do, let us know, will you?” says Virginia.

Yeah, sure.

"And, by the way, have you bought a Ninja blender yet?" she tosses in.

What?