AEI Press
Pages: 552
•
Trim: 6½ x 9¼
978-0-8447-7238-7 • Hardback • January 2013 • $124.00 • (£95.00)
978-0-8447-7240-0 • eBook • January 2013 • $117.50 • (£91.00)
Peter J. Wallison is the Arthur F. Burns Fellow in Financial Policy Studies at AEI. He served as general counsel of the US Treasury Department and as White House counsel to President Ronald Reagan.
Introduction: ObamaCare for the Financial System 1
Narratives and Policy 3
The Narrative on Fannie Mae and Freddie Mac 8
The Narrative for the Financial Crisis 10
The Narrative and the Dodd-Frank Act 16
1. Fannie Mae and Freddie Mac 24
The GSEs’ Narrative and the Sources of Their Power 25
AEI Conferences 27
A Fortuitous Event Shifts the Narrative 28
Financial Services Outlooks on Fannie and Freddie 30
Financial Services Outlooks
“The Case for Privatizing Fannie Mae and Freddie Mac
Grows Stronger” (May 2004) 38
“Regulating Fannie Mae and Freddie Mac:
Now It Gets Serious” (May 2005) 48
“Regulating Fannie Mae and Freddie Mac:
Now It Gets Serious (Continued)”
(September 2005) 63
“Moral Hazard on Steroids: The OFHEO Report Shows
That Regulation Cannot Protect U.S. Taxpayers”
(July 2006) 73
“Fannie and Freddie by Twilight” (August 2008) 85
“The Last Trillion-Dollar Commitment: The Destruction
of Fannie Mae and Freddie Mac” (September 2008) 98
“Cause and Effect: Government Policies and the
Financial Crisis” (November 2008) 116
Wallison.indb 5 9/17/12 1:00 PM
vi The Dodd-Frank Act: ESSAYS IN OPPOSITION
“The Dead Shall Be Raised: The Future of Fannie and Freddie”
(January–February 2010) 133
“Going Cold Turkey: Three Ways to End Fannie and Freddie
without Slicing Up the Taxpayers” (September 2010) 147
2. The Financial Crisis 164
The Financial Crisis Inquiry Commission Absolves
the Government 164
Financial Services Outlooks and the Left’s Narrative 169
Financial Services Outlooks
“Bear Facts: The Flawed Case for Tighter Regulation
of Securities Firms” (April 2008) 184
“Fair Value Accounting: A Critique” (July 2008) 199
“Systemic Risk and the Financial Crisis” (October 2008) 213
“Everything You Wanted to Know about Credit Default Swaps—
But Were Never Told” (December 2008) 223
“Stress for Success: The Bank Stress Tests Buy Time”
(May 2009) 243
“Deregulation and the Financial Crisis: Another Urban Myth”
(October 2009) 255
“Ideas Have Consequences: The Importance of a Narrative”
(May 2010) 273
“Missing the Point: Lessons from The Big Short” (June 2010) 284
“Slaughter of the Innocents: Who Was Taking the Risks That
Caused the Financial Crisis?” (October–November 2010) 296
“The Lost Cause: The Failure of the Financial Crisis
Inquiry Commission” (January–February 2011) 312
3. The Dodd-Frank Act 328
Financial Services Outlooks on Dodd-Frank 328
Financial Services Outlooks
“Regulation without Reason: The Group of Thirty Report”
(January 2009) 345
“Risky Business: Casting the Fed as a Systemic Risk Regulator”
(February 2009) 361
“Reinventing GSEs: Treasury’s Plan for Financial Restructuring”
(March–April 2009) 377
Wallison.indb 6 9/17/12 1:00 PM
CONTENTS vii
“Unfree to Choose: The Administration’s Consumer
Financial Protection Agency” (July 2009) 396
“Unnecessary Intervention: The Administration’s Effort
to Regulate Credit Default Swaps” (August 2009) 409
“TARP Baby: The Administration’s Resolution Authority
for Nonbank Financial Firms” (September 2009) 422
“The Dodd-Frank Act: Creative Destruction, Destroyed”
(July–August 2010) 439
“Is Obama’s New Deal Better Than the Old One?”
(July 2011) 452
“The Error at the Heart of the Dodd-Frank Act”
(August–September 2011) 470
“Magical Thinking: The Latest Regulation from the Financial
Stability Oversight Council” (October–November 2011) 488
“Empty Promise: The Holes in the Administration’s Housing
Finance Reform Plan (February 2012) 502
4. The Case for Repeal 515
A Brief History of Deregulation 518
Title I. The Financial Stability Oversight Council 522
Title II. The Orderly Liquidation Authority 527
Title III. Transfer of Office of Thrift Supervision Authorities
to the Office of the Comptroller of the Currency 00
Title IV. Regulation of Advisers to Hedge Funds and Others 528
Title V. Insurance 529
Title VI. The Volcker Rule and Other Restrictions 530
Title VII. Regulation of the Derivatives Markets 534
Title VIII. Payment, Clearing, and Settlement Supervision 538
Title IX. Regulation of Housing Finance 539
Title X. The Consumer Financial Protection Bureau 540
Practical Considerations 542
Wallison.
I don’t remember any period in modern history when the analysis of historic economic events has been more dominated by the clear thinking of one person. That person’s name is Peter Wallison. He has dispelled more myths and provided more insights than all other scholars and commentators combined. If you want to know what triggered the financial crisis and why Federal policy misdiagnosed both the illness and the appropriate treatment, all you have to do is read this book.
— Phil Gramm, Former Chairman of the Senate Banking Committee and Senior Partner of US Policy Metrics
This book is indispensable reading for anyone seeking to understand the actual causes of the financial crisis and why the Dodd-Frank Act should be reconsidered. Peter Wallison reveals how government failures, not market failures, produced the financial crisis. With sound logic and solid evidence, he explains how the Left’s blind faith in unaccountable regulators and its institutionalization of government bailouts have made our financial system less safe. Peter Wallison was right on the dangers posed by the GSEs; in time he will also be proven right on the origins of the financial crisis and the flaws of the Dodd-Frank Act.
— Senator Richard C. Shelby, (R-AL) Ranking Member of the U.S. Senate’s Committee on Banking, Housing and Urban Affairs
In a sense, this volume consists of two books. One is a compilation of 30 essays written from 2004 to 2012 by Wallison (fellow and codirector, American Enterprise Institute's program on financial policy studies) for the "Financial Services Outlook" series. The essays are divided into three topical sections: Fannie Mae and Freddie Mac and other government-sponsored enterprises, the financial crisis, and a critique of the Dodd-Frank Act. The second, shorter book consists of original narratives introducing each section, plus an introductory and a concluding chapter showing how provisions of the Dodd-Frank Act are based on flawed premises about causes of the financial breakdown beginning in 2007, and suggesting section-by-section changes to the act. The former book provides an account of the financial crisis beginning in 2007 as it developed; the latter, an interpretation of those events with the benefit of hindsight. This volume is polemical in dealing with this topic. General readers; students, upper-division undergraduate and up; professionals.
— CHOICE