Following the quiet rollback of Obama-era Wall Street regulations, the US may be on the verge of yet another crash.
The US financial regulatory agencies have weakened banking rules.
Then in late May, Congress voted to weaken them even further.
They went after the Volcker Rule which prohibits banks from making risky investments with depositors' money.
The Volcker Rule is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which then President Barack Obama signed in 2010 into law after the last crash. It was a response to what was considered the leading causes of the crash, the banks' part in it, the banks' failures, and the necessity for the massive bailout.
Congress also voted to change the threshold of "too big to fail" -- those financial institutions which are deemed important to the system and which have to be put under stricter regulations.
Previously, the threshold was at $50bn in assets, which put 35 banks on the list. The new threshold is $250bn, with only 10 banks that make the list.
The bankers argue that Dodd-Frank "has impeded the efficient operation of the financial system, driving banks away from providing services valued by their customers, reducing competition in affected markets, and overall acting as a drag on the economy." Yet, banks have done fabulously well after they were rescued and since the regulations were introduced. Their profits are at record levels.
Of course, they say that the changes are necessary to help the "small community banks," suffering under the weight of regulations. Of course, the data contradicts that. Earnings of community banks are up and they make business loans at twice the rate of non-community banks.
We've seen this movie before.
After the crash of 1929, banks started failing en masse. It should be noted that before the crash, there was little regulation and less enforcement, and through the 1920s, an average of 600 banks a year went under. Then came the "New Deal." It launched an immediate rescue of the banks and added a host of regulations. Bank failures virtually disappeared from the late 1930s until 1980. During most of those years, the number of bank failures was in the single digits.
In the early 1980s, however, one sector of the banking system, in particular, was deregulated -- savings and loans. These were actually the kind of local, community banks depicted in the movie, "It's A Wonderful Life." They were small, boring, and very safe. With deregulation, savings and loans were suddenly given a license to steal. The owners of the banks were not stealing from the banks, they were using the banks -- with their respectability, their institutional and political clout, and their staffs -- to do the stealing.
Out of 3,234 savings and loans associations, 1,043 went under between 1986 and 1995. Almost every bank that collapsed or had to be closed, had engaged in frauds. The amount of fraud involved in the Crash of 2008 was probably the same.
But while more than 800 people have been convicted of fraud related to the savings and loans crisis, the number of criminal convictions was almost non-existent following the 2008 crash. Not because there was less crime, but due to cultural changes in prosecutors' offices and legal changes coming from a very pro-business Supreme Court.
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