By: Bryce Block
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Our ever-impressive President, Mr. Donald J. Trump, is making waves once again in the Financial sector. This week he exerted his presidential authority unilaterally issuing an executive order scaling back key components of the 2010 Dodd-Frank regulatory act. This move signals his intent to keep one of the many promises made during his campaign to dismantle the Dodd-Frank Act, passed in response to the global financial crisis of 2008.
For the uninitiated, the Dodd-Frank Act can be a bit difficult nut to crack. The 2,300-page bill implemented 400 regulatory changes from increasing securitization in lending to establishing the rights of consumers and their credit. The bill was debated for many months, but the final version includes many provisions that were added quickly right before signing. Due to the hasty nature in which it was passed, various components have proven to be less effective than others. On a whole, the bill represents the single most comprehensive financial reform passed since the Great Depression.
Financial policy can be tough to create, evaluate and modify. Good intentions can go awry quickly as practice ends up being far from theory. Dodd-Frank was and is not perfect. But it represents a response to a time of unbridled, unregulated risk that eventually collapsed on the American public. Our legislators allowed Wall Street to take greater and greater risks without preparing for the possible downsides that naturally follow. The costs ended up being massive (over $11 trillion in the stock market alone) and were born primarily by everyday Americans and the federal government (in the form of $23 trillion in bailouts). Dodd-Frank pushed back on that system and tried to repair the major faults that allowed a few key players to take advantage of the rest. But now our President is keeping his promise to reduce whatever was enacted to a pile of ashes.
Thank you, Mr. President, from all of us. Thanks for keeping your promise to remove the most significant protections enacted for United States citizens as well as increasing risk for every person on the globe (those few astronauts on the international space station will also likely be affected once they return). Thank you for putting the interests of a few of your banking lackeys over the interests of millions of hardworking Americans. Thanks for showing how you truly care.
“But Bryce, it’s easy to complain without providing an alternative”, say my critics. Just wait, I do have a few suggestions of my own to reverse the too-swift actions of Mr. Trump:
· First, identify problem areas that both industry and government would be happy to reverse. See my post on the effects on the asset-backed securitization market for a clear example on a provision that would be easily removable and agreeable to all.
· Second, solicit commentary to industry for suggestions on areas needing improvement. And I mean actual areas that are causing bottlenecks and not simply complaining to complain. I mentioned in another post how the new reporting requirements under the CRA take one employee less than 40 hours to complete but have been complained about by 20+ CEOs in recent weeks.
· Finally, remove provisions that are enormous pains, but only with an exchange for additional consumer protections in areas that Dodd-Frank initially missed. A good example of this includes the too big to fail discussion from last fall, where I looked at the failures of Fannie Mae and Freddie Mac and the non-response from congress.
By following my advice, the world of banking would be safer for banks and consumers, while also reducing that overemphasized red tape allowing everyone to make better financial decisions. Disagree? Let me know why!
Bryce Block is a Senior Director at the Institute for International Finance. He’s spent the past 7 years researching and commenting on financial policy within the United States and around the world. He enjoys rolling around in Zimbabwean currency and reading large tomes on austerity measures. You can read more of his commentary at his personal blog or reach out directly through email.