The Heritage Foundation
Bad History, Worse Policy
How a False Narrative about the Financial Crisis Led to the Dodd-Frank Act
Peter J. Wallison
Arthur F. Burns Fellow in Financial Policy Studies, American Enterprise Institute,
and author, Bad History, Worse Policy
Wednesday, February 27, 2013
The Heritage Foundation’s Lehrman Auditorium
214 Massachusetts Avenue, NE
Washington, DC 20002
Peter Wallison sounded the alarm about Fannie Mae and Freddie Mac in 1999 in The New York Times. “This is another thrift industry growing up around us,” he said. “If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”
Now, in his new book, Bad History, Worse Policy, Wallison posits that the Dodd-Frank Act – the Obama Administration’s sweeping financial regulation law passed after the financial crisis caused in part by Fannie Mae and Freddie Mac – was based on a false and ideologically motivated narrative about the crisis. He argues that the Act will actually serve to suppress competition, reduce liquidity, raise borrowing costs, increase crony-capitalism, and suppress economic growth for years to come. While large financial institutions are designated under the Act as threats to the stability of U.S. financial markets, they will have advantages under the act over smaller rivals, and may ultimately come to dominate the financial markets. The Act’s substantial new costs imposed on small businesses will force them out of business or into mergers and stifle innovations in consumer products.
All of these consequences flow directly from a narrative that blames the financial crisis on deregulation and private-sector risk-taking. The reality is that the government itself has escaped blame for housing policies that deliberately degraded mortgage-underwriting standards and built a housing bubble in which too many mortgages were subprime or otherwise low quality.
Copies of Bad History, Worse Policy will be available.