Bad History, Worse Policy

This timely study focuses on how the government-constructed narratives surrounding the collapse of Fannie Mae and Freddie Mac and the 2008 financial crisis shaped the policymaking that led to the Dodd-Frank Act. The book shows that every major provision of the act can be traced directly to that narrative, which ignored the government's own role and focused entirely on the errors of the private sector. In the next Congress, whether or not the Republicans are in control of the House and Senate, there will be a concerted effort to make changes in-or even repeal-the Dodd-Frank Act. The essays in this book, originally published by AEI as Financial Services Outlooks, and the accompanying commentary provide a thorough backgrounder for anyone interested in financial policy.

Introduction: ObamaCare for the Financial System 1Narratives and Policy 3The Narrative on Fannie Mae and Freddie Mac 8The Narrative for the Financial Crisis 10The Narrative and the Dodd-Frank Act 161. Fannie Mae and Freddie Mac 24The GSEs' Narrative and the Sources of Their Power 25AEI Conferences 27A Fortuitous Event Shifts the Narrative 28Financial Services Outlooks on Fannie and Freddie 30Financial Services Outlooks"The Case for Privatizing Fannie Mae and Freddie MacGrows 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 ShowsThat Regulation Cannot Protect U.S. Taxpayers"(July 2006) 73"Fannie and Freddie by Twilight" (August 2008) 85"The Last Trillion-Dollar Commitment: The Destructionof Fannie Mae and Freddie Mac" (September 2008) 98"Cause and Effect: Government Policies and theFinancial Crisis" (November 2008) 116Wallison.indb 5 9/17/12 1:00 PMvi 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 Freddiewithout Slicing Up the Taxpayers" (September 2010) 1472. The Financial Crisis 164The Financial Crisis Inquiry Commission Absolvesthe Government 164Financial Services Outlooks and the Left's Narrative 169Financial Services Outlooks"Bear Facts: The Flawed Case for Tighter Regulationof 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 ThatCaused the Financial Crisis?" (October-November 2010) 296"The Lost Cause: The Failure of the Financial CrisisInquiry Commission" (January-February 2011) 3123. The Dodd-Frank Act 328Financial Services Outlooks on Dodd-Frank 328Financial 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) 377Wallison.indb 6 9/17/12 1:00 PMCONTENTS vii"Unfree to Choose: The Administration's ConsumerFinancial Protection Agency" (July 2009) 396"Unnecessary Intervention: The Administration's Effortto Regulate Credit Default Swaps" (August 2009) 409"TARP Baby: The Administration's Resolution Authorityfor 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 FinancialStability Oversight Council" (October-November 2011) 488"Empty Promise: The Holes in the Administration's HousingFinance Reform Plan (February 2012) 5024. The Case for Repeal 515A Brief History of Deregulation 518Title I. The Financial Stability Oversight Council 522Title II. The Orderly Liquidation Authority 527Title III. Transfer of Office of Thrift Supervision Authoritiesto the Office of the Comptroller of the Currency 00Title IV. Regulation of Advisers to Hedge Funds and Others 528Title V. Insurance 529Title VI. The Volcker Rule and Other Restrictions 530Title VII. Regulation of the Derivatives Markets 534Title VIII. Payment, Clearing, and Settlement Supervision 538Title IX. Regulation of Housing Finance 539Title X. The Consumer Financial Protection Bureau 540Practical Considerations 542Wallison.