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Letter of Support: DeMint-Bachmann's Dodd-Frank Repeal, S. 712 and H.R. 87

January 14, 2011 J

Dear Senator DeMint and Congresswoman Bachmann,

On behalf of more than 1.5 million Americans for Prosperity activists in all 50 states, I am writing to applaud your introduction of S. 712 and H.R. 87, a bill to repeal the so-called Wall Street Reform and Consumer Protection Act. This bill greatly expands bureaucratic control over the financial sector and is sure to have a litany of unintended consequences that will hamper the economic recovery, limit the availability of credit and harm those the bill was intended to protect.

The impetus behind the Dodd-Frank bill was purportedly to end “too big to fail;” however, the bill does no such thing. While granting regulators the power to step in and claim province over firms they deem to be failing, it also gives regulators the power to bailout firms with so-called systemic risk. The Special Inspector General for TARP reported Secretary Geithner admitted, “while the Dodd-Frank Act gives the Government ‘better tools,’ and reduced the risk of failures, ‘in the future we may have to do exceptional things again’ if the shock to the financial system is sufficiently large.” This admission that “too big to fail” is still part of the government’s strategy institutionalizes moral hazard and threatens a repeat of the 2008 financial crisis.

Dodd-Frank also created the ill-named Consumer Financial Protection Bureau, now being stood up by Financial Czar Elizabeth Warren, an extreme ideologue that even Senator Chris Dodd, the bill’s drafter, opposed. Regardless of the bill’s substantive flaws, the empowerment of another unelected and unaccountable czar with power over consumer finance is enough to repeal the bill.

We have already seen the market distortions that Dodd-Frank will wreak on the economy. Debit cards are now the largest form of noncash payment in the country, representing 35% of all noncash transactions. However, the Federal Reserve is proposing a Dodd-Frank rule that is sure to hamper their usage. The Durbin Amendment to Dodd-Frank gave the Fed the power to place price controls on debit card interchange fees, which card issuers charge retailers to process the transaction. On December 16th, the Fed announced an arbitrary price of 12 cents per transaction; this is a huge 90 percent reduction from current levels. Price controls on popular market functions always leads to either shortages or fee shifting. Consumers will begin to see either debit card availability shrink or other fees on their checking accounts rise. Many banks are already beginning to do away with overwhelmingly popular free checking accounts. As Dodd-Frank regulators move from one consumer financial instrument to the next consumers should expect to see their own preferences give way to those of bureaucrats.

Dodd-Frank also requires nearly a dozen agencies to make over 200 rulemakings in the next ten years. This broad and deep uncertainty about the regulatory landscape is sure to hamper investment. By comparison, the Sarbanes-Oxley financial regulation bill contained only 16 rulemakings. The dreaded Section 404 audit provision chased capital offerings out of American financial markets and into global markets. The damage this one provision has done will pale in comparison to the Dodd-Frank regulatory behemoth.

Americans for Prosperity is proud to support your legislation. I urge your colleagues to support its passage and look forward to working with you in the future.

Sincerely,

James Valvo
Director of Government Affairs
Americans for Prosperity

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