As we sail on the choppy seas of a questionable economic recovery, we can look back upon a storm of our own making that has wreaked havoc upon our financial system. That storm is the Dodd–Frank Wall Street Reform and Consumer Protection Act. Enacted five years ago, the mammoth law of all laws to fix our financial system has only succeeded in leading us down the road to socialism.
This can be seen by looking at what Dodd-Frank has “accomplished” to date. Since 2010, some 1,341 commercial (usually smaller) banks have simply disappeared. By contrast, only two new banks were chartered in the same period.
This is not normal. Even in the worst of times, like that of the Great Depression of the '30s, there was an average of 19 new banks chartered every year. Prior to the financial crisis, the market gave rise to nearly 100 new banks annually.
The Citibank Corporate Office & Headquarters is viewed in midtown Manhattan July 14, 2014. TIMOTHY A. CLARY/AFP/Getty Images
Of course, while small banks are getting fewer, big banks are getting bigger. This is another “accomplishment” of Dodd-Frank. It has led to the establishment of a financial system dominated by a few big banks and increasingly controlled by regulators.
The Dodd-Frank law mandated the implementation of a massive body of new regulations that requires an army of compliance officers from banks. While big banks had the resources to absorb this great weight, compliance overwhelmed the ability of many small banks. The problem is confounded by the fact the regulations themselves are ill-defined and ambiguous; regulators make their own rules as time goes on.
Moreover, those surviving banks deemed systemically important are subject to even more stringent regulations and capital requirements. On top of massive compliance obligations, Dodd-Frank goes yet further by embedding regulators or commissars inside the highest levels of firms where they even advise and monitor executives.
In such an atmosphere of insecurity and ambiguity, the financial system and consequently the economy as a whole is deprived of legal and regulatory certainty that is needed to return the economy to prosperity. Banks cannot fulfill their functions of employing capital where needed in an economy. The recovery has thus been choppy and unsteady.
Some might think it strange that a government policy that favors giant “capitalistic” banking institutions might be termed socialistic. In this case, it would seem that big government is favoring big business and thus pushing the “capitalist” agenda ahead. Such was the rant of Occupy Wall Street activists against the 1 percent.
Yet the concentration of gigantic banking blocs into the hands of a privileged few only favors socialism. This is because the industry becomes much easier to target. A few giant surviving banks become vulnerable targets to be confiscated or controlled by intrusive governments.
By suppressing all intermediary leaders who might come to his defense, for example, the absolutist king prepares his own way to the guillotine. Likewise, when huge commercial banks devour smaller banks, they prepare their own way to socialist confiscation since it is much more difficult to confiscate a 1,000 medium-size banks than a single huge one.
Afterwards, when such blocs falter, as they often do, they are deemed “too big to fail,” and the government is already in position (indeed embedded in the CEO’s office) to be the only player big enough to bail out the ailing industry—and put it under its control. In this way, private property easily becomes collective property.
The evil genius of Dodd-Frank is that it did not directly destroy the smaller banks but rather created conditions whereby the bank establishment itself would have to destroy or absorb its own intermediary structures. The small banks themselves left the market to those better able to adjust to the government-created conditions.
Eerily similar is the way Obamacare is leading to the concentration of insurance and health care providers, or how Common Core seeks to override local and state intermediary educational institutions.
The strategy of Dodd-Frank and other schemes is not divide and conquer, but concentrate and conquer. The result is the terrible and looming threat of socialism.
John Horvat II is a scholar, researcher, educator, international speaker, and author of the book Return to Order,as well as the author of hundreds of published articles. He lives in Spring Grove, Pennsylvania where he is the vice president of the American Society for the Defense of Tradition, Family and Property (TFP).
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