The Reuters headline yesterday said it all: “Wall Street left to rebuild Obama ties after backing Romney.” And so it begins. The government has become so powerful in the financial services field that private sector firms now have to “rebuild ties” after an election to avoid adverse rulings from their regulators.
If you are worried about crony capitalism, this is where it starts. Because of Dodd-Frank, Wall Street and the financial services industry generally will now be firmly in the control of the government. In the future, as long as the act remains in force, we can expect that Wall Street firms will be solid supporters of the administration in power. No CEO will risk the possibility that opposing administration policy will bring an adverse regulatory finding or an enforcement action.
However, that isn’t all. Under Dodd-Frank, if the secretary of the treasury believes that a financial firm in danger of failing could cause instability in the US financial system, he is has the power to seize the firm and turn it over to the FDIC for liquidation. If the company objects, the secretary can invoke the power of a court, but the court has only one day to decide whether the secretary’s act was reasonable. If the court does not act in that one day, the firm is turned over to the FDIC “by operation of law.” It does not take much political savvy for financial firms to realize that opposing the secretary of the treasury could be dangerous to their continued existence. [AEIdeas, November 8]
It also does not take much savvy to imagine the mischief politicians will perpetrate under Dodd-Frank.