MEMBERS ONLY: Republicans Are About to Gut Crucial Financial Protections You Didn’t Know Existed

by Justin Rosario

Talk to any Greenwaldian anti-establishment liberal and they will assure you that the Dodd-Frank Wall Street Reform and Consumer Protection Act is worthless. They’ll complain that no bankers have been arrested and that the Democrats are totally all the way in bed with Wall Street. Here’s why they’re wrong.

Dodd-Frank could be better, obviously, but contrary to the fantasies of the hard left, there’s no such thing as a perfect new law. Even if we passed Medicare for all tomorrow, we would still have to spend years tweaking it to make it run as smoothly and efficiently as possible. That’s just reality; you start with a foundational law and build up towards the goal you want. Social Security is one of most important (and popular) programs in the country’s history. No one on the left would deny its importance or necessity today. Yet, as it was originally passed, it was for whites only. Should we not have passed it, then? Granted, that’s an extreme example (by today’s standards) but it speaks to the mindset of people who rail against Dodd-Frank because it didn’t check off every box on their wishlist.

When there’s a feral and rabid dog loose in your neighborhood, you get it under control first and worry about how to deal with it later. And make no mistake, by the time of the 2008 crash, Wall Street was foaming at the mouth.

Wall Street Blues

Putting people in jail immediately was never the intent of Dodd-Frank (besides, ex post facto laws are unconstitutional in America). DF is a tool for the government to use to prevent the kind of abuses that lead to the collapse of 2008. It forced several massive corporations to get out of the shadow banking business (more on that in a bit). It forced banks to stop recklessly gambling with their customer’s money. It created the Consumer Financial Protection Bureau and I’ll bet money most anti DF people don’t even know that. 

There’s a reason that Wall Street threw a massive temper tantrum after the passage of Dodd-Frank and it wasn’t because the law was worthless. For the 2012 election, Wall Street overwhelmingly donated to Republicans whereas before they spread it more or less evenly. The rich literally whined that they were being persecuted like the Jews in 1930s Germany. You don’t do that if you own the people allegedly persecuting you.

But they were whining for a reason; by the end of Obama’s second term, the Department of Justice had started to force banks to admit guilt. A tectonic yet under-reported and unappreciated shift in how our government dealt with the greed of the banksters. Before, whenever a bank would get caught breaking the law, they paid a small fine and admitted no wrong doing. Before Trump took over, banks were paying enormous fines as well as legally admitting to wrongdoing. Once a legally binding admission was on record, continuing to break the law becomes much more risky for the executives. 

The DoJ could do this because Dodd-Frank gave them all the leverage they needed to force banks to acquiesce. That’s all over now, of course, but it put the lie to the hard left’s claims that the law didn’t do anything.

Our Shield And Our Strength 

The Consumer Financial Protection Bureau alone justifies the entire law. You know about the CFPB, don’t you? The only agency Republicans hate as much as the EPA? The one that they are frantically trying to destroy while they have the power to do so? House Democrats certainly appreciate the agency and they’re fighting like hell to protect it from Republican depredations. 

This is from the amicus brief they sent to the courts to push back against the GOP’s attempt to cripple the CFPB:

The Consumer Bureau has a proven track record of protecting hardworking American consumers from predatory practices. Since the Consumer Bureau was established, it has implemented new rules for mortgage markets and prepaid cards, released comprehensive studies on credit reporting, and successfully recovered nearly $12 billion for 29 million consumers harmed by predatory and illegal financial practices, including a record $100 million fine on Wells Fargo for creating fake accounts for its customers. The Consumer Bureau has established a transparent and robust consumer complaint mechanism, which has received over 1 million complaints, and to date, an impressive 97 percent of the complaints that were sent to companies for review have received timely responses.

I’m not entirely sure how recovering $12 billion for the public amounts to “worthless” in the eyes of Dodd-Frank’s liberal detractors, but what does a few billion matter when there’s a Democratic president to hate on? 

Much of the blame for the CFPB’s relative obscurity lies with a media that never seems all that interested in reporting on banks and corporations ripping off the public on a massive scale, much less those banks being caught and punished for it. Part of the blame lies with Obama’s really annoying habit of not taking loud victory laps. But a not so small part of the blame also lies with the people who can’t acknowledge the incredible good the government does in regulating the financial industry. A black and white narrative of the Democrats being corporate stooges is much easier to digest and regurgitate. But the CFPB is exactly what the left believes government exists for and it’s doing amazing work. However, since Dodd-Frank wasn’t “good enough”, instead of praise we get  “LALALALALALA I can’t hear you!” when it comes to the CFPB.

Hopefully, just as with Obamacare, the hard left will suddenly realize just how useful Dodd-Frank is now that Republicans are planning on repealing and weakening as much of the law as they can.

The Dangerous Role Of Shadow Banking

It’s hard to overstate the incredible dangers of a fully resurrected shadow banking system. I’m far from an expert in economics but I’ve been telling people for the past 4 years that if you don’t know what shadow banking is and how much Dodd-Frank did to corral it, you literally have no business giving an opinion on the efficacy of the law. 

A short hand description of shadow banking is that after Bill Clinton deregulated banking in the 90s, large companies like General Electric realized they could act like a bank, take enormous risks like a bank, make billions (and billions and billions) like a bank and not be under any of the regulations of a bank. If you want a more comprehensive explanation of what shadow banking is, go here. It’s bad.

Shadow banking played a large role (how large is still being debated) in the 2008 financial disaster and when GE, like a number of other non-bank financial institutions, got in over their head, we were forced to bail them out to the tune of hundreds of billions of taxpayer dollars. Dodd-Frank (the worthless law) had a rather neat solution to prevent this from happening again: Instead of trying to claim that a non-bank like GE was actually a bank (which would have been tied up in the courts forever as GE continued to make the financial industry unstable), the law simply created a new kind of catch-all designation: “Systemically Important Financial Institutions.”

You don’t have to be a bank to be a SIFI but there’s all these pesky rules you have to abide by now, like being forced to keep enough money on hand to cover your gambling debts. You can still gamble all you want but now you’re gambling with your own money instead of little Timmy’s college fund. Faced with this reality, GE and others decided shadow banking wasn’t fun anymore and quit.

Somehow, the media spent very little time this story. Some of the most major players in the financial crisis were pushed out of the industry they crashed, making the entire world’s economy safer, but almost no one knows about it.

This doesn’t excuse the law’s critics, however. If you’re going to insist that a law doesn’t do anything useful, you should actually know what the law does first.

Republicans are out for blood

Perhaps sensing that time is not on their side, Republicans are rushing to destroy as many regulations as possible as quickly as possible and after Obamacare, Dodd-Frank is #1 on their hit list. It’s literally everything the GOP hates; it protects the public from being fleeced, forces the 1% to behave itself and keeps the “free market” from self-destructing.

But Republicans, feeling their oats, want to do more than just get rid of Dodd-Frank, they want to guarantee another massive economic catastrophe:

The CHOICE Act that has been proposed by Republicans in the House would repeal or dismantle virtually every part of Dodd-Frank, from the Volcker Rule (which prevents commercial banks from making certain kinds of speculative trades), to the Consumer Financial Protection Bureau, to the ability to prevent a collapsing financial firm from bringing down the broader economy.

But the CHOICE Act goes still further, splitting the Federal Reserve in half and preventing it from coordinating financial regulations and monetary policy, something that will make bubbles more likely — and more dangerous to the economy. It would reduce the deference given to regulatory agencies, making regulations harder to pass, and harder to interpret.

That’s a recipe for the banks to run amok and Republicans know it. But, let’s be honest, that’s the entire point. The right people get rich, the rest of us get screwed out of our homes, our jobs, our life savings and our retirements and, here’s the best part for the GOP, they can use the resulting economic disaster to justify massive cuts to the social safety net. If you’ll recall, almost immediately after the collapse of 2008, Republicans started demanding austerity and they didn’t stop screaming for it for years. And that was after we saw, in real time, how austerity pushed the UK back into a recession and crippled their economy.

Defending Dodd-Frank

Dodd-Frank isn’t perfect. It still allows too much monkey business and Wall Street lobbyists have been able to further hobble it. But there’s a world of difference between a law being inherently worthless and a law that is actually quite useful but being constantly weakened because it’s a serious threat to the monied powers that be. The fact that Wall Street is pouring untold millions into its effort to break it should be an clear indicator that it’s worth fighting tooth and nail for. 

Unfortunately, American liberal politics being the way they are, the perfect is the enemy of the good. Combine that mindset with the obtuse nature of the banking industry and it makes people not want to be bothered with anything less than huge sweeping changes they can easily understand. Break up the banks! Put CEOs in jail! But this is like saying that unless your pace maker only has three easy-to-understand components and you can install it yourself, you don’t want it.

Just as Obamacare was not the be all, end all of healthcare reform, Dodd-Frank was just the opening salvo in a long and extremely difficult war to constrain the wild excesses of the financial industry. Let’s just hope we don’t surrender before the fight really gets going.