The Fate of Dodd Frank at Eight
By Bartlett Naylor, Public Citizen
Eight years ago, on July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. This followed the financial crash of 2008 that sparked in the waning weeks of the Bush administration. The calamity cost millions of Americans their jobs, homes and savings. Banks teetered on the abyss, even amidst a massive taxpayer bailout. The stock prices of mega-banks such as Citigroup and Bank of America withered to a small fraction of their pre-crash levels.
Since enactment of the law, unemployment has declined, home prices have stabilized, and the stock market has rebounded to reach record highs, restoring some of those savings.
If economic results measure the success of a law, Dodd-Frank has proven itself.
Unfortunately, in Washington, where Wall Street money gushes steadily from some 3,000 K Street lobbyists to Capitol Hill, actual economic results can be drowned out during policy-making.
Under the Republican congress and Trump Administration, Wall Street is winning deconstruction of key financial reforms. Count the ways:
- Trump signed a major measure (S. 2155) to reduce supervision of 25 of the largest 40 banks. It also lets smaller banks gamble with federally-insured deposits. Consumer protections, such as safeguards against discriminatory lending, were reduced.
- Trump-appointed regulators are unfortunately committed to removing more safeguards. At Treasury, he installed Steven Mnuchin, who in his private-sector life evicted more than 100,000 owners when he bought IndyMac and turned it into the OneWest before flipping it to another buyer for a tidy profit. At the Comptroller of the Currency, Trump installed Mnuchin aide Joseph Otting, who ran OneWest. Recall that predatory loans to borrowers without the means to repay inflated a housing bubble whose rupture caused the crash. These OneWest alums do not bode well for the fate of reforms focused on the housing industry.
- Trump provisionally placed Mick Mulvaney at the Consumer Financial Protection Bureau (CFPB), who called the agency a “sad, sick joke” when he was a member of Congress. He appears bent on making it one as Mulvaney has reduced enforcement, embedded political staffers in divisions who can stifle oversight, and severed ties to community engagement. Trump’s official nominee to lead the CFPB is Kathleen Kraninger, who brings no experience to the job. She works now at the Office of Management and Budget under Mulvaney (leading the OMB is his other full time job) and previously served at the Department of Homeland Security. Does she empathize with people? At her Senate confirmation hearing, Kraninger failed to declare an opinion about the morality of caging children at the border as deterrent to other immigrants fleeing oppressions. That failure to denounce such a policy will be a “moral stain”that follows her the rest of her life, opined Sen. Elizabeth Warren (D-Mass).
- Trump regulators are busy diluting existing rules. Five banking agencies are re-writing the Volcker Rule restrictions on proprietary trading—gambling with customer deposits for the bank’s own profits—a limits that were mandated by the Dodd-Frank law. On the surface, these agencies claim to make the rule clearer. In the details, however, they’re permitting more gambling under the guise of hedging and market-making. The Community Reinvestment Act (CRA) also faces assault. This law promotes lending where banks operate, including low-income neighborhoods, and if it is weakened, it will lead to less economic opportunities in areas that need it most.
- Oh, and Congress slashed corporate tax rates, and banks count among the largest beneficiaries. That means Wall Street pays less and average Americans must fill the gap.
Yes, banks may be profiting now, but the future of economic expansion is far from clear in the face of so much deregulation. An industry built on collecting interest payments needs their borrowers to be healthy. Even amidst record stock market gains, wages haven’t grown. What working Americans really need is a rise in income commensurate with the economy they’re helping to grow.
Americans support strong Wall Street safeguards, and that support spans the political spectrum, as reflected in a poll conducted by the libertarian Cato Institute. Nonetheless, campaign spending, not economic reality or constituent wishes, sadly tends to determine the direction of policy in Washington these days. But, this deregulation binge may change in shifting political winds. The Republican chokehold on Congress may relax, as Democrats could take control of the House. That would pave the way for investigatory hearings that have not happened under the current leadership. For example, what are the results of the Volcker Rule restriction on trading? Regulators haven’t reported any results, even as they propose changing it. Or, why is misconduct so widespread at Wells Fargo? Republicans have only staged superficial hearings, essentially scolding the bank’s management for corroding their talking points in favor of light-touch supervision.
In the interim as we wait for Congress to gain the needed political will to call banks to task, it’s up to citizen groups to pull back the curtain on the false claims in support of deregulation, highlight the benefits of existing financial reforms, and outline additional needed changes to better protect our economy from future crashes. In that vein, on July 24, Americans for Financial Reform, the coalition that Public Citizen helps lead, hosts a conference reviewing the crash, Dodd-Frank, and the current state of play. Speakers include Sens. Sherrod Brown (D-Ohio) and Warren, former Treasury official Sarah Bloom Raskin, former FDIC Vice Chair Thomas Hoenig, and SEC Commissioner Robert Jackson, and more. The event is open to the public, you can sign up to attend here.
The thought leaders participating in the July 24 event understand that Dodd-Frank didn’t answer many of the major problems posed by the crash. Such as: Why are the mega-banks that taxpayers bailed out because they were “too big to fail” even larger today? And, if the gambling that fed the crash remains only partly checked by the Volcker Rule why is the full separation between loan-making with government-backed deposits and speculation as would be provided by a reinstatement of the Glass-Steagall policy supported by only a minority of enlightened congressional lawmakers?
Hopefully after November’s election we will find that the deregulatory pendulum has reached its zenith and will begin to swing back the other way. But, whether sound Wall Street reform can be retained and, ideally, improved before America pays with another calamity literally becomes the trillion dollar question.