The Dodd-Frank Dilemma

[broncofan]

As an add on to my last post, consider the best way to describe what's wrong with the bill is to consider the most direct route for enabling people who need loans to get loans. There are many more direct ways to allow single families and small businesses to borrow money, including through HUD subsidized mortgages, than to allow banks to make risky investments or to remove consumer protections. It is true that consumer protections may prevent some usurious loans from being made, but it is not a reasonable objective to increase borrowing activity by making the terms so unfavorable a person is likely to go bankrupt. The repeal of the Volcker rule is most directly an attempt to increase bank profitability, and will only have indirect, uncertain effects on lending activity. A more profitable bank will be more likely to lend with less stringent underwriting.

I am not certain what the new bill does with mortgage backed securities and their transfer or to the public exchanges for trading credit default swaps, which were among the most important regulations in Dodd Frank. By creating and selling mortgage backed securities, the underwriter does not carry the risk he created when he authorized the loan, and by allowing the sale of unregulated insurance products like credit default swaps to insure the mortgage back securities, regulators were not able to keep track of how systemic the risk was.

[Stavros]

Although I appreciate the technical arguments in your last two posts, Broncofan, and we can see that loose regulations on the flow of money benefits some people if not others, and usually those who have 'spare cash' to plug a hole when it appears, but is there not a cultural issue here. And that is the Canada Question. Why have so many banks failed in the last 100 years in the USA but no Canadian banks? You can count on the fingers of one hand the number of banking failures in Canada since 1800, I think it is three. You need a forest of hands to number US bank failures.
A conservative attitude to borrowing and lending is at the core of the stability of the Canadian system, and the willingness of the banking and financial sectors to be regulated by government. There are times when government is good for the people, even the most fanatical free market capitalist can agree on that, it is a pity that in the USA they deny that there are inherent perils in the system if it is not regulated properly. But until the attitude to regulation changes, the ebb and flow of regulation-regulation lite as one government follows another will continue, and in the long run banks will fail again. And make no mistake, part of this repeal is motivated by revenge, to undo what Obama did regardless of the damage it may cause.

[broncofan]

I'm certain you're right, both on the cultural question and the purpose behind the Republican bill. I think there is a common thread though between this bill and our exit from the Paris agreement. Others are willing to tie their hands and give up some potential for growth in return for safety, while we quickly become complacent and want to restore some American ideal, related to speculation, entrepreneurship, and whatever other way we idealize ourselves. Safety does not sell well to our public.

[Stavros]

And yet the President who presided over a booming economy with high taxes, minimal foreign adventures, and cautious government spending was Eisenhower, a Republican. Historically, the USA does well when taxes are high, the banking and financial sector is regulated, and the US military is not intervening in conflicts without end as it is today. But then maybe there is some truth in the view attributed to Bannon that the system must first be destroyed before it can be re-built using the template of 1776...you might want to find out of your local bank will finance a bunker stocked with canned food and barrels of water. You may need it in your lifetime.

[Stavros]

So, farewell then, Silicon Valley Bank....another day, another banking failure in the US. No banking failures in Canada. Hmmm, now why is that?

Congress Was Told Deregulating Banks Increased Crisis Risks. They Did It Anyway. (yahoo.com)

Why Canada Didn't Have a Banking Crisis in 2008 | NBER

[filghy2]

Never fear: Republicans are onto the real cause of bank failure. You guessed it; wokeness!

https://www.vox.com/money/23638473/s...ic-republicans