April 30, 2010

April 30, 2010 | Factsheet on Regulation, Financial Regulation

TARP II: How It Will Affect You and Your Tax Dollars

You Will Pay Higher Costs and There Will Be Fewer Jobs

  • Higher Cost of Living: The Restoring American Financial Stability Act of 2010 by Senator Chris Dodd (D–CT) will raise costs across the economy. Americans will suffer higher fees, interest rates, and closing costs and lower rates on savings accounts. Customers with marginal credit scores will have fewer opportunities for credit.
  • Jobs Lost: If this bill passes, financial firms will likely move to cities with more favorable regulatory conditions like London or Hong Kong. That will reportedly move hundreds of thousands of financial services jobs overseas—not to mention the restaurateurs, dry cleaners, etc., that will go out of business without those customers there to serve.

You Will Have Fewer Credit and Banking Options

  • Consequences of the Restoring American Financial Stability Act of 2010Fewer Ways to Finance Things You Want: Because the bill defines “financial institution” so broadly, any company that holds a line of credit will be affected—including companies like Dell, Home Depot, and Wal-Mart. So getting your new LCD TV now and paying it off over two years may no longer be an option.
  • Fewer Financial Products: The consumer protection agency created in the bill will limit the types of products that can be offered to customers. This means that consumers and small businesses will have fewer options for loans and investments, and many will be shut out of the system entirely.
  • Regulations Stifle Innovation: New financial products are created all the time, but the new onslaught of regulations threatens that trend. For example, if this bill had passed a decade ago, debit cards, PayPal, or the Starbucks card may never have been created.
  • Less Competition Among Financial Institutions: Because the bill allows financial institutions deemed important to the economy to be singled out for special treatment, those institutions will enjoy an implicit guarantee against failure. The ultimate result? Less competition from smaller banks and greater unjustified risk-taking by those receiving guarantees.

You Will Not Be Protected from Another Credit Crisis

  • No Real Reform: Dodd’s plan neglects to address the structural problems within our financial system and instead showers the broken system with more money and smothers the banks with more regulations.
  • No Less Risk: The bill doesn’t encourage financial institutions to be less risky. If anything, it will encourage some firms to take more risks, because their creditors could be bailed out if they fail. This stops a modern economy from doing what it should: shift risk around.
  • No Better Foresight: Under the Dodd bill, the people charged with regulating the financial industry are the same ones who missed the last credit crisis. So, short of giving them psychic powers, this bill will not prevent another crisis.

Your Tax Money (and Possibly Your Bank Fees) Will Go to More Bailouts

  • Perpetual “Too Big to Fail” Mentality: The government picks winners and losers in the Dodd bill by putting certain large financial institutions on a list of companies that the federal government will bail out if they ever need it.
  • More Harmful Bailouts: The system doesn’t work if companies are protected from failure. No matter what these financial institutions do or how irresponsibly they act, they will get a free ride, as will their creditors like Deutche Bank and Credit Suisse.

For more information, please visit: http://www.heritage.org/Issues/Regulation.

About the Author

Related Issues: Regulation, Financial Regulation