finance Archives — Laissez FaireLaissez Faire

If you would like to ask me a question, you can submit it here.

If you would like to ask me a question, you can submit it here.

If you would like to ask me a question, you can submit it here.

Thomas Sowell’s analysis of the Federal Reserve is spot on: it has been a disaster for the economy.

The Federal Reserve was supposed to prevent shocks to the economy that can come from drastic inflation or deflation, and reduce the dangers that can come from widespread bank failures. These are all good goals. But what is the Fed’s track record?

In the hundred years before there was a Federal Reserve System, inflation was less than half of what it became in the hundred years after the Fed was founded. The biggest deflation in the history of the country came after the Fed was founded, and that deflation contributed to the Great Depression of the 1930s. As for bank failures, they reached levels unheard of before there was a Federal Reserve System.

Whole thing here.

Hey, at least there are only 10!

As Dodd-Frank comes to life, its harmful effects will come into plain view. Solutions crafted without a clear focus on the problems that need fixing can create new, even more severe consequences. These issues are described in detail in an upcoming book entitledDodd Frank: What it Does and Why It’s Flawed, due out tomorrow by the Mercatus Center at George Mason University. A quick overview of the law’s shortcomings is a stark reminder of the dangers of legislating in haste:

1. Codifies Too-Big-to-Fail. Rather than eliminating the market’s expectation that certain big financial firms are too big to fail, Dodd-Frank creates an explicit set of too-big-to-fail entities—those selected by the Financial Stability Oversight Council  for special regulation by the Fed.

2. Threatens Small Businesses. Dodd-Frank’s complex web of regulations favors large financial firms that can afford the lawyers to analyze them. New requirements will be disproportionately costly for small banks and small credit rating agencies. Dodd-Frank’s complex derivatives rules will further concentrate an already concentrated industry.

3. Hurts Retail Investors. Dodd-Frank gives the Securities and Exchange Commission a new set of responsibilities that distracts it from its core mission. New rules impose costs on nonfinancial companies that will be passed on to investors and consumers. Commission resources will be diverted to protecting the wealthiest investors.

Whole list here.