The subtitle of this book is “What It Does and Why It’s Flawed.” It was edited by Hester Pierce and James Broughel and was written by them and others at the Mercatus Center at George Mason University. I recommend it to anyone who has even the slightest interest in the legislative response to the financial crises that began in mid-2006. You don’t even need to read the entire book to be better informed about the Dodd-Frank Wall Street Reform and Consumer Protection Act. There is a short description of what each of the sixteen “Titles” comprising the act were intended to do followed by a brief summary of why the approach is flawed. “The act requires the creation—by one count—of 398 new rules and will affect the U.S. economy by restricting or requiring specific activity.” Only a small fraction of the regulations that are required by the act have been finalized. “Assuming the remaining regulations are proportionately restrictive…Dodd-Frank would create 13,323 new restrictions in total.”

Politicians often say that no good crisis should go to waste, and the Dodd-Frank act is a classic example. The second paragraph of the introduction says it well. “As is typical of crisis legislation, Dodd-Frank included many provisions crafted in haste and many other provisions drafted before the crisis (and had nothing to do with the crisis) for which the act provided a convenient legislative vehicle.” “Dodd-Frank not only failed …to respond to the crisis, but it also gives rise to a whole new set of problems that could overshadow the act’s good elements and lay the groundwork for a future financial crisis.”

The most obvious failure of Dodd-Frank is that it did not even to attempt to reform the housing-finance process that led to the real estate bubble and collapse. “The legislation ignored Fannie Mae and Freddie Mac, the flawed government-sponsored mortgage giants at the heart of the housing crisis.” Many people would probably say that the greed of big banks was the cause of the crisis while others would assign much of the blame to the three large credit ratings agencies. Dodd-Frank gives large banks and credit rating agencies a distinct competitive advantage.  Only the large banks and credit ratings agencies will realistically be able to have sufficient legal and compliance resources to deal with the requirements of the act.

Title XV, “Requirements for Nonfinancial Companies” is, in my opinion, the strongest proof that legislators used the crisis to pass regulations having nothing to do with the financial crisis. It “…requires companies to publicly disclose their use of conflict minerals from the Democratic Republic of the Congo(DRC)…It directs the State Department to come up with a strategy to address the connection between conflict minerals and violence in the DRC.” It also requires disclosure of  mine safety violations and requires companies engaged in commercial development of oil, gas, or minerals to disclose payments to foreign governments. All of those requirements probably have a legitimate basis. However, it is observed that the DRC conflict minerals provisions are affecting millions of Congolese citizens. Pay to Congolese miners has been cut to the point they can’t afford to feed their children or send them to school. Of less consequence, the act assigns oversight of the requirements to the Securities Exchange Commission (SEC). This is therefore a distraction to the SEC from undertaking reforms that might prevent future financial crises.

For those who don’t feel a connection with Congolese miners, there are many aspects of the act that have or will impact American consumers. Obtaining or refinancing a mortgage certainly will be more difficult for many people. Title X includes a provision called the “Durbin amendment” that was supposed to benefit consumers. A cap was placed on fees that banks can charge merchants for debit card transactions. The banks had charged merchants such as snack and drink kiosks a low percentage of the price of the charged items before the law but increased the fee to the maximum allowed by the act, which cuts into the profits of small businesses.

It isn’t possible to sort out the worst problems created by the act. The remainder of the regulations must be finalized before the impacts can be realistically understood. There is no doubt that the act is a massive expansion of government and bureaucracy that creates confusion and uncertainty that is harming and will continue to harm the economy. There is a saying that “money goes where it is welcome,” and this act will undoubtedly encourage those who have the option to take their businesses offshore. Legislators then will be able to campaign against the evils of companies that try to find a way to operate profitable businesses.