Regulation was absolutely necessary following the financial crisis of 2007-2008; however, Dodd-Frank was too restrictive in that it hurt the productivity of "smaller" financial institutions ($100B - $250B in assets) that had to meet the same liquidity and stress tests as the large banks. Reserve-level standards should differ based on the size of institutions. As with everything, there needs to be balance. This specific regulation did not provide that. It punished with a broad stroke, instead of solely targeting the large banks.
https://www.realclearpolicy.com/articles/2018/05/23/how_dodd-frank_hurts_the_little_guy_110645.html
On a side note, I would argue that the United States does not actually operate under a capitalist system. The U.S. operates under a crony-capitalist system. If we operated under true capitalism, the banks wouldn't have been bailed out following the financial crisis of 2007-2008. Look at the Troubled Asset Relief Program (TARP) and the large monetary bonuses that were paid out to executive bankers after they contributed to a horrific crisis. There is a strong nexus that exists between the political and business classes. In pure capitalism, the banks should have failed without a bailout. You take on the risk, you take on the failure (or the success for that matter).
I don't subscribe to Keynesian economics as much as I do to Austrian economics. For instance, I believe the Keynesian multiplier is not as effective as it is acclaimed to be. The more the government spends does not always correlate to higher economic growth. Non-efficient asset allocation is very much a thing. We have finite resources, and political administrations do not always make the best use of these resources. Critical opportunity costs are neglected and pushed aside. I believe free-market trade with limited restrictions produces the best results, ceteris paribus.
https://mises.org/library/keynesian-multiplier-concept-ignores-crucial-opportunity-costs
Thanks for engaging in productive and civil discourse,
@Christiaan. While it appears we disagree on many of these items, it is great to share differing ideas on how we think things should go. After all, we all want what's best for society; we just have different ways of getting there.
Hi
@Emgee. Likewise
Despite our political differences, I think that we both share a common ideal for a political economy that works for the common good . You really know your stuff BTW. Did you study Economics?
I've read your article (Real Clear Policy ) and I tend to agree with you that Franklin-Dodd hurts smaller financial institutions (community / local banks), and by extension Main Street. It's indeed a matter of balance and how much red tape needs to be used to let the economy work in a way that best serves the interest of as many people as possible. Like you, I belief small businesses and banks are the backbone of the economy (in importance often underestimated vis-à vis major corporations) and need to be fully supported: they create 2/3rds new jobs, more competition, more innovation, less income inequality, more mobility (=less hierarchical bureaucracy in small businesses) .
https://smallbusiness.chron.com/important-small-businesses-local-economies-5251.html
It may be the case that Americans live in a crony-capitalist state. You may be right that this creates a democratic deficit, and still it doesn't change the fact that these financial institutions are just too big to fail, as they have a big stake in the entire economy, which also involves a lot of other banks, lenders and companies who had nothing to do with their failings, but are financial dependent of them. For that reason, the Emergency Ecnonomic Stabilisation Act of 2008 was put into effect, as it was necessary to avoid the US economy from collapsing. This bailout bill authorised a financial stimulus of 250 billion dollars into the banking system to facilitate and encourage bank-to-bank loans and other types of lending. With the Treasury's purchase of a bank's or mortgage lender's bad debt, the resulting cash infusion restored liquidity & confidence to the banking system. The US economy depends mostly on lending to finance many business expenditures, e.g. wages, purchase critical goods/services, new hiring, marketing, R&D, etc. Iceland was an exception to this rule: they let their banking sector collapse and the country's economic system survived (though it hurt the economy initially). Essentially, Iceland is a ''small enough country'' that has sufficient pre-existing trust networks available to keep its society & economy together.
https://www.investopedia.com/articles/economics/08/government-financial-bailout.asp
https://www.bbc.com/news/business-35485876
We have the same problem here that big corporations often use their economic power/dominance to change governmental policy. It happened a few years ago when certain big concerns (Shell & Unilever) threatened to leave the country if they have to pay the same rate of taxes on profit as smaller businesses (so called 'dividend belasting''). The previous government even complied as these companies were 'too big to leave'' and were considered essential for job creation , innovation, etc. It happened at the same time that the government announced austerity measures (budget cuts in social services and public infrastructure). Well, it made almost everyone mad and it led to a lot of protests. Eventually the government succumbed to the pressure and decided to withdraw the tax exemption. Well, the big corporations are still hell bent on leaving our country, but a politician from a left wing party (Green Left/ Groen Links)recently wrote a bill (which has popular support) to fine big corporations if they decided to leave the country, which could end up in billions. The aforementioned companies already noted that they will not move their business elsewhere if this bill is put into effect.
https://www.dutchnews.nl/news/2020/08/proposed-fine-for-moving-to-london-would-cost-unilever-e11bn/
I'm not married to Keynesianism either (if we're talking about old school Keynesianism, that is). It's certainly not perfect, as you mentioned (budget deficit or efficient allocation of funds, such as the FDR example), and the same is true about trying to kickstart the economy by lowering taxes and government spending, as is the case in the time of president Hoover and quite recently recently with Portugal (The Coelho administration from 2011-2015, which implemented austerity measures which was less beneficial to the economy than the more market interventionist Costa administration in the specific case of dealing with economic recession). I think we both agree that Keynesianism and laissez-faire economics are not one size fits all measures that will help the economy going in times of growth or in times of recession. Although, I think we both differ in the approach to kickstarting the economy by focusing on boosting the demand side(you) or supply side (me) & that balancing the budget is not the holy grail for me, as it is for you.
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Sky is falling. Bankers and Elites etc. don't run the USA... Putin does.
