The Trickle Down is Salute Magazine‘s weekly column by Political Writer Amanda Godula. The Trickle Down is a weekly look into what’s need-to-know, fresh takes on trends, and the inevitable controversies from the political arena. Let’s dig in and see what’s happening this week.
Is rolling back Dodd-Frank leading to another recession?
In an expected outcome, Congress voted to repealing parts of the Dodd-Frank Act. The Obama-era regulation on the financial banking industry was passed after the 2008 collapse of the financial sector, stemming from the Lehman Bros bankruptcy.
By filing for bankruptcy, the financial titans triggered a global economic ripple, but left Americans teetering on the edge of repeating the early century’s Great Depression. And, with less than 10 years in place, bipartisan support began rolling back its regulations.
And policymakers have reasons to dislike Dodd-Frank. Community banks aren’t big enough to decipher and comply with rules and regulations, issues with private student loans continued to snowball, among other things.
Breaking news→ The House just voted to free our economy from overregulation. Main Street banks are engines of growth, and now it will be easier for these banks to lend to #SmallBiz and families.
— Paul Ryan (@SpeakerRyan) May 22, 2018
Repealing Dodd-Frank, or even parts of it, should be welcomed – right? Some believe we are repeating dangerous patterns.
Instead of reporting that Congress repealed Dodd-Frank they should just announce that we're all getting a sequel to "The Big Short."
— John Fugelsang (@JohnFugelsang) May 22, 2018
The Congressional Business Office estimates the bank failure rate under Dodd-Frank is low, but ”would be slightly greater under the legislation”. Additionally, “enacting the bill would increase federal deficits by $671 million over the 2018-2027 period.”
Not necessarily the red flags to indicate deregulation is egregiously bad. But, consider previous history and deregulation. The rollback of Glass-Steagall, or Banking Act of 1933, which enacted reform after the Great Depression, eased regulations on predatory lenders and allowed repackagings of Collateralized Debt Obligations instead of making the bank responsible for defaulting debts. Although deregulation was not intended to create an unprecedented 8.7 million fewer jobs, it did.
A commission found the former Chairman of the Federal Reserve Alan Greenspan to have exhibited negligence when encouraging deregulation but also failed to stop toxic mortgages.
Are we headed for a sequel to The Big Short? Maybe. Could partial deregulation be beneficial? Maybe. We don’t know, but we do have lots of cause to worry. Our very recent history has shown the major effects of decades worth of systemic deregulation without proper failsafes.
What’s the comprehensive plan for the banking industry? It seems we are still working on it. Dodd-Frank was a bandage, but we stopped treating the hemorrhaging financial industry. We ascended to a place where it became comfortable with the economy and relaxed our defenses.
“It’s a bad bill under the guise of helping community banks,” Minority House Leader Nancy Pelosi said.
Sadly, we will have to anxiously wait to see if Pelosi is right. We can’t afford another 8.7 million lost jobs. The repeal should be concerning to anyone who lived through 2008.