Repealing Dodd-Frank – A Return To Too Big To Fail, Too Big To Jail

By Richard Cameron

When Donald Trump talks about all the burdensome regulations his administration is going to eliminate, businesspeople wax enthusiastic. After all, there really are thousands upon thousands of reams of bureaucratic red tape that slow down productivity, cost billions to manage and inhibit the growth of small businesses and entrepreneurship.

But headed out with the bathwater are some sensible guidelines that avert economic catastrophe. President Trump wants Congress to jettison Dodd-Frank.  During campaign visits with business leaders, Trump told the audiences, “We’re going to be doing a big number on Dodd-Frank”.  Doing a “big-number” had a different connotation back in the day, but in Trump’s case, maybe it is the same.

Before we discuss the implications of such a move, let’s look briefly at what Dodd-Frank is and why it was put in place.

The Dodd-Frank Wall Street Reform and Consumer Protection Act is a financial reform law that was enacted by Congress in response to the financial meltdown of markets in 2008, brought about by casino gambling involving bad investment bets called derivatives – plus the consequential insolvency of the main player in the credit default swap fiasco, AIG.

As you will recall, the gamblers were deemed “too big to fail” and taxpayers were called in to rescue them. Then the whole economy collapsed. Nine years later, with massive injections of public debt, the gamblers have been made whole again, but during that period the bailout kings bared their teeth on the very people who rescued them, throwing millions of homeowners into the street.

The various components of the law include:

  • The Volker Rule, which keeps nationally chartered banks out of the speculative investment games – hedge funds, proprietary trading and private equity. It creates a wall of separation between retail / commercial banking and trading in securities.
  • The creation of the Office of Credit Rating within the Securities and Exchange Commission (SEC) to regulate credit ratings agencies like Moody’s and Standard & Poor’s. Without oversight, these firms agreed to over-inflated ratings of the very financial houses and financial instruments that most contributed to the implosion on Wall Street.
  • The Financial Stability Oversight Council (FSOC). Its board includes the Treasury Secretary, the Federal Reserve, the SEC and the Consumer Financial Protection Bureau (CFPB). The mission of this council is to maintain risk assessments of the overall financial sector and take action to require banks to increase their reserves against contingencies. Oddly – or perhaps not, the Consumer Financial Protection Bureau is one of the big targets of the Trump administration and the banking lobby. Oversight, apparently, is seen as a bad thing when it cramps the style of the casino players on the Street.
  • The previously mentioned CFPB – Consumer Financial Protection Bureau. Banks resent anyone standing in the way of their attempts to defraud and deceive consumers. Have you ever had a problem with a loan company or the bank that issues your credit card?  This is the agency that was set up to curb the abuses that have stolen literally billions from consumers. Remember when credit reporting agencies were not a level playing field between the loan industry and consumers and it was nearly impossible to get them to remove inaccurate information from your credit report? Donald Trump, Treasury Secretary Steve Mnuchin (Goldman Sachs) and the members of Congress in the back pocket of banks, want to take you back to those good old days. They also would like to have another go at sub-prime lending if given the chance.
  • Whistleblower protection. At present, Dodd-Frank includes protections for people in the industry that see something and say something. That is seen by the banks and their allies on Capitol Hill as an impediment to their illegal behavior, therefore these people need to be silenced.

President Trump signed the executive order on February 3rd, directing Treasury Secretary Mnuchin to review Dodd-Frank and report back to him. But we know, from the confirmation hearings that Mnuchin is pre-disposed to gutting the protections in that law, with the possible exception of the Volker Rule. Prior to the signing, Trump met with J.P. Morgan CEO, Jamie Dimon during which Trump made this incredible statement:

There’s nobody better to tell me about Dodd-Frank than Jamie.  I have so many people, friends of mine, that have nice businesses and they can’t borrow money… because of the rules and regulations and Dodd-Frank.

That is both a very revealing and deceiving comment, because Jamie Dimon is virtually the poster boy for the above the law, untouchable investment house executive deemed, “too big to jail”. Dimon presided over J.P. Morgan’s involvement in fraudulent sub-prime mortgage-backed securities, involvement in Bernie Madoff’s multi-billion-dollar Ponzi scheme, robo-signing, manipulation of energy prices and participation in the LIBOR interest fixing scandal. And that is just a short list.

Of interest to Trump voters, should be the fact that President Trump’s bosom buddy Mr. Dimon, was also Barack Obama’s favorite banker. Obviously, there has been no draining of the swamp. If anything, the swamp was trenched and dredged and refilled with even more voracious alligators. Further betraying the illusion is Trump’s appointment of Goldman Sachs’ COO Gary Cohn as White House National Economic Council director.

It will come as no surprise that House Financial Services Chairman Jeb Hensarling (R-TX), who attended Trump’s signing ceremony and will be leading a four month review of Dodd-Frank, is a major beneficiary of campaign funds from big banks, like Bank of America and what a coincidence – J.P. Morgan Chase!  Here, from OpenSecrets.org, are the Top 5 donor classes for Hensarling:

Hensarlings Financial Donors

The industry and legislative critics of Dodd-Frank, assert that Dodd-Frank is hampering the credit market, but there is no documentary evidence to support that. What there is documentary evidence to support is that Dodd-Frank’s rules such as the fiduciary rule, would put a major crimp on predatory financial advisers who benefit from non-disclosure of conflicts of interest. Prior to the rollout which was scheduled for April, retirement investors alone, were disadvantaged to the tune of $17 billion according to one Congressional estimate.

But if you are still skeptical about the value of Dodd-Frank, may I remind you of the recent Wells Fargo scandal – where they opened up unauthorized accounts in the names of depositors. Eliminate the CFPB and you eliminate just one more layer of protection between you and the banksters. Good idea?  I don’t think so.

What say you?

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