Indivisible Gainesville, a local group of nearly 2000 citizens, is again compelled to address a letter in which Congressman Ted Yoho defends his vote on June 8, 2017 to pass the “Financial CHOICE” legislation that effectively repeals the protections created by the Dodd-Frank Act.
In Congressman Yoho’s letter, he frames this new legislation as relieving the American public of burdensome regulations when in fact it delivers Americans back to the lawless financial environment of 2005. While Mr. Yoho claims that Dodd-Frank normalizes the idea that some banks are “too big to fail”, we find that he overlooks several key issues and makes misleading statements on others, so we decided again that Mr. Yoho’s work deserved to be graded. We invite everyone in Gainesville and the surrounding area to review Congressman Yoho’s justification for supporting the Financial CHOICE Act and our counter argument, so we are making his graded letter publicly available.
Below, we highlight several of the most glaring falsehoods in the Congressman’s letter.
FALSEHOOD #1: The Dodd-Frank Act institutionalizes ”’too big to fail’ provisions which put the American Taxpayer on the line for bailing out big banks.”
TRUTH: The Dodd-Frank Wall Street Reform and Consumer Protection Act put regulations in place that improve bank lending practices so that banks do not extend credit that cannot be repaid; banks are prevented from bundling and repackaging risky loans; and they are more closely monitored. To assume that large organizations such as multinational banks will act in the interest of at least their own shareholders was a mistake in 2005-2008 and is likely to be no different today.
FALSEHOOD #2: Dodd-Frank “put the American taxpayer on the line for bailing out big banks” while CHOICE “facilitates the liquidation of failed firms and businesses.”
TRUTH: We ask Congressman Yoho to explain his assertions that the Financial CHOICE Act actually allows banks to operate in a much more risky environment by removing “capital and liquidity requirements”.
FALSEHOOD #3: “This bill also lifts the burdens on community banks, which are often the financial backing of America’s entrepreneurs.” This statement implies that Dodd-Frank was punishing the ‘little guy, hometown banker’ with onerous regulation, thereby depriving small business owners of local financial support with which to empower their businesses.
TRUTH: Congressman Yoho’s argument is misleading and masks his and the Congress’ moves to deregulate the banking industry, making small business loans even riskier for both community banks and small business. Further, it is blatantly incorrect to insinuate that Dodd-Frank regulations are the source of the demise of community banks, when in fact a segment of community banks had already seen a whopping 80% decrease in the 25 years preceding Dodd-Frank. Experts suggest that the continuing decreases after 2009 were due to economies of scale and FDIC policies eliminating smaller banks, not Dodd-Frank.
If Mr. Yoho is really interested in protecting the interests of the consumer, he would not vote for bills like the Financial Choice Act, that allows the President to eliminate the Consumer Financial Protection Bureau and empowers financial advisors to put their own interests ahead of their clients. It is hard to imagine that Congressman Yoho cannot recall the devastation of the 2008-2009 financial crisis, which resulted in declining stock values, decimated retirement portfolios, and a mortgage and foreclosure crisis like this country has not seen since the Depression. The actions taken, like The Dodd-Frank Act, were put in place to prevent the type of financial lawlessness that resulted in postponed retirements and loss of personal homes. In fact, the Dodd-Frank measures are aligned with the recovery of jobs, a historic decrease in unemployment and the complete payback of the Wall Street bail out. To suggest that we should allow such behavior back into our financial system is irresponsible. The Congressman’s claims are simply wrong and disingenuous and will open our currently stable financial system up to the kind of misdeeds that a lack of oversight allows.
We ask the Congressman to please eliminate the errors of his claims and converse with his constituents in a clear and truthful manner.
1. The phrase “institutionalizing ‘too big to fail’” doesn’t actually mean anything, and is patently untrue. When the Financial Crisis occurred in 2008, many banks were so large that if we allowed them to fail under free market principles, it would have had an even more devastating impact on the economy. The regulations put in place after the Financial Crisis protect consumers by forcing big banks to be accountable and transparent, and therefore free the government from having to bail out banks in the future. Since one of the primary causes of the Financial Crisis was banks making too many risky—aka “Subprime”—loans and bundling them into derivatives, the lawmakers who crafted Dodd-Frank ensured that banks that reach a certain activity threshold, they become “systemically important” and therefore must report more information to regulators to ensure that they aren’t doing anything potentially harmful. This is a way to prevent similar mistakes from occurring again. The CHOICE Act will undo that, putting consumers and the economy at risk of another collapse.
A fundamental misconception that contributed to the Great Recession is the idea that banks will or can regulate themselves. Even former Federal Reserve Chairman, Alan Greenspan, an Ayn Rand acolyte, admitted as much stating in a Congressional hearing in the wake of the Financial Crisis that “a mistake in presuming that the self-interest of organizations, specifically banks and others, was such that they were best capable of protecting their own shareholders.”
Congressman Yoho wants to return America to the rules which allowed for the Financial Crisis to happen. He calls these new regulations “burdensome”. But these regulations are necessary to protect the millions of Americans affected by the banking industry’s actions between 1999, the year Glass-Steagall—the regulations that were enacted in the wake of the Great Depression of the 1930s—was undone, and 2008 when the economy began cratering during the Financial Crisis.
2. Again Yoho asserts that Dodd-Frank enables the “too big to fail” mentality, while stating that the CHOICE Act does not, which are both outright lies. Undoing the “capital and liquidity requirements” of Dodd-Frank would invite banks once again to be “too big to fail”, causing the nation to go through another round of bail outs, not the other way around. We encourage Congressman Yoho to explain this particular line in detail, as from our assessment it is nonsense bordering on intentional deception.
3. Yoho seems to be asserting that Community Banks should be free of reporting and transparency regulations that protect consumers, and allowed to issue riskier loans once again. Conservatives are fond of blaming the decrease in the number of Community Banks on Dodd-Frank. The facts simply do not bear this out.
4. Congressman Yoho has some nerve referring to Main Street while at the same time championing a bill that calls for gutting the Consumer Financial Protection Bureau. More outrageous is the fact that the CHOICE Act would allow financial advisors to put their own financial interests above those of the investors, for whom they are supposedly working and who bear all of the risk of losing their money.
5. Congressman Yoho doesn’t mention these two items, which is very telling. He claims that he’s working for the little guy, but even superficial scrutiny shows that the truth is quite the opposite. Congressman Yoho yet again reveals himself to be aligned with Wall Street rather than Main Street by voting for the CHOICE Act.