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In this morning's Wall Street Journal, John Taylor, an economics professor at Stanford University, writes about the massive 2,319 page financial reform bill which is currently working its way through Congress. The complexity of the legislation is but one of its many problems. Taylor writes:
The main problem with the bill is that it is based on a misdiagnosis of the causes of the financial crisis, which is not surprising since the bill was rolled out before the congressionally mandated Financial Crisis Inquiry Commission finished its diagnosis.
Taylor asserts that the biggest mistake that the bill makes is that it presumes that the government did not have enough power to avoid the financial crisis. Listing several examples, he points out that it actually did possess the tools needed to avoid economic disaster:
Instead of trying to improve upon existing government regulations, the bill vastly increases the size and scope of the federal government in ways that have no relation to the recent crisis. Such new regulations, Taylor asserts, may even lead to future crises.
He goes on to list some of the bill's "false remedies":
The worst part of the Frank-Dodd financial reform bill, however, is not what it includes but rather what it lacks. The legislation fails to reform the government sponsored Fannie Mae and Freddie Mac corporations which encouraged the creation of risky mortgages by purchasing them with the support of many in Congress.
Some excuse this omission by saying that it can be handled later. But the purpose of "comprehensive reform" is to balance competing political interests and reach compromise; that will be much harder to do if the Frank-Dodd bill becomes law.
After reviewing all aspects of the Democrats' financial reform bill, it becomes clear that the legislation fails to address the real issues that led to the financial crisis. Instead, it adds burdensome regulation upon burdensome regulation. The Frank-Dodd bill will not prevent future crises from occurring. It will slow economic growth, hinder the workings of the market and may even lead to future financial disasters.