- Politics and Social Issues
Wall Street and the Democrats
Last week, the US Senate introduced and passed bipartisan legislation to erode some of the Obama-era regulations imposed on banks in the aftermath of the 2008 financial crisis. Crafted and labelled The Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, its ongoing mandate is, put simply, to establish firm government oversight and employ periodic stress tests to monitor the stability of banks holding over $50 billion in assets - in other words, banks deemed systemically "too big to fail." This newly introduced legislation will raise the threshold for that strict oversight to banks holding assets over $250 billion, a figure that Senator Elizabeth Warren, among others, say is high enough to defeat the purpose and will lay the groundwork for a future financial crisis.
There are some though, including Barney Frank, co-sponsor of the 2010 bill and half its namesake, who thought from the beginning that $50 billion was too low in terms of job creation and competitive lending power. The new legislation will still allow the government, every so often, to stress test banks that hold between $100 billion and $200 billion in assets, but there is concern that the frequency of those tests will decline or be disregarded entirely. Along with every Republican senator, sixteen Democrats, (most in highly-contested GOP districts), voted to pass the bill, causing a rupture in the party that may threaten to undermine the united front so crucial to success in the upcoming midterm elections.
A book titled 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, by James Kwak and Simon Johnson, chronicles the growth of the US financial sector from its early colonial institution to the colossal and unwieldy behemoth it became in the 2000s. The financial industry has always had its champions and its critics but there was no mistaking its negligence in bringing about the stock market crash of 1929 and the Great Depression the following decade. In emergency response to the crisis, President Roosevelt levied a set of huge socialist regulatory reforms on the sector, collectively known as the New Deal, that had the effect of ushering in previously unknown stability and healthy financial growth well into the 1970s.
Increased expenditure on congressional lobbying and innovatively schooled, ambitious college graduates entering the financial sector during the Carter administration started chipping away at New Deal regulations, a trend that accelerated through Ronald Reagan's two terms until they were completely dismantled during Bill Clinton's. The result was an overextended, bloated, risk-obsessed banking sector singularly focused on raking in mind-boggling profits that nearly tanked the whole system when it was brought to the brink of collapse in 2008. Millions of people lost their homes, their savings, and their jobs because of the allowances given to bankers to gamble with money that wasn't theirs, and because of the frightening cascading effects that the largest banks' insolvency would have on the broader economy, they were bailed out with trillions of taxpayer dollars.
Donald Trump made it one of his election promises to repeal Dodd-Frank, (despite his other contradictory promise to "drain the swamp"), and since the law was implemented during Barack Obama's tenure, he'll likely not forget about it. This new legislation however, doesn't do that. It maintains several key regulations, and seems to me to be closer to a bipartisan compromise than most we've seen during Trump's presidency. Having said that, Wall Street has a history of pushing the envelope to assume greater risks and increase profits, unconcerned with the consequences because the federal government won't let them fail. Senator Warren is correct to be worried about the slippery slope these lax policies could engender and her integrity is commendable, but drawing this particular line in the sand, eight months before arguably the most important midterm election in history might not be the wisest course. Once Democrats control both houses of congress, legislation to tighten regulations back up can be re-introduced and hopefully pass easily.