The Consumer Protection Act

As a response to the 2008 – 2009 recession the Federal Government enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. This act gives unprecedented power of the economy to the federal government. Milton Friedman must have been turning in his grave right about the time these passed thru congress. “The worst element of this system is that the extraordinary power given to regulators--and particularly the Federal Reserve--is likely to change the nature of the U.S. financial system” reads the Wall Street Journal. This will probably destroy the free market as we know it by creating a situation where banks must collude with the government to operate. The Journal continues “Where financial firms once focused on beating their competitors, they will now focus on currying favor with their regulator, which will have the power to control their every move. What may ultimately emerge is a partnership between the largest financial firms and the Federal Reserve”.

Key points in this Outlook:
•The Dodd-Frank Act gives the Federal Reserve, under light supervision by a council of regulators, unprecedented control over the largest firms in the U.S. financial system.
•The result may be a public-private partnership, in which the Fed protects the largest firms from excessive competition and failure and they in turn follow the government's directions.
•In the interest of protecting consumers, the act sacrifices the basic protections built into the U.S. Constitution, creating an agency--the Consumer Financial Protection Bureau--that is answerable to no one.
•Ultimately, the act's effort to suppress risk taking will result in a decline in U.S. competitiveness, innovation, and economic growth.

This means more oversight over the economy and less risky investments for the banks. Loans, credit and mortgages will be less accessible as a result and this will lower the revenue that companies collect. In the short run this policy seems bad for business. It remains to be seen if it prevents future recessions.