Donald The Destroyer Aims at the Dodd-Frank Act

Trump 1 Nothing will set the DB flashing quite like a threat to deregulate the financial sector.  And  Donald the Destroyer has done it.

“The presumptive Republican presidential nominee told Reuters in an interview published Tuesday that in two weeks he’ll release a financial regulation platform that includes repealing most of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“I would say it’ll be close to a dismantling of Dodd-Frank,” Trump said. “Dodd-Frank is a very negative force, which has developed a very bad name.” [TheHill]

Let’s be very clear at this point.  Here’s what the Dodd-Frank Act contains:

“Taxpayers will not have to bear the costs of Wall Street’s irresponsibility: If a firm fails in the future it will be Wall Street – not the taxpayers – that pays the price.

Separates “proprietary trading” from the business of banking: The “Volcker Rule” will ensure that banks are no longer allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. Responsible trading is a good thing for the markets and the economy, but firms should not be allowed to run hedge funds and private equity funds while running a bank.

Ending bailouts: Reform will constrain the growth of the largest financial firms, restrict the riskiest financial activities, and create a mechanism for the government to shut down failing financial companies without precipitating a financial panic that leaves taxpayers and small businesses on the hook.” [Link for more information]

So, let’s review.  What Donald the Destroyer is proposing is that in repealing the Dodd-Frank Act – taxpayers WILL be on the hook for Wall Street debacles, and there will be NO mechanism by which a failing financial institution can be shut down without damaging taxpayers and small business.  What Mr. Trump is advocating is essentially more taxpayer secured bailouts, more financial system insecurity, and more games played by bankers/hedge fund managers with depositors money.  Like that?

Dodd-Frank is a very negative force?  Says whom?  Certainly not the writers at Fortune magazine

“The U.S. economy has recovered since the financial crisis, and it’s impossible to know how much lending would have increased without Dodd-Frank. Indeed, the amount of cash that banks hold collectively is up nearly $700 billion in the same time. At least some of the jump has to do with the fact that Dodd-Frank was passed after lending had dropped considerably. But even factoring in that plunge, there are now $800 billion more in bank loans outstanding than there were before the financial crisis, when everyone seems to agree there was less financial regulation.”

What “negative force?”  With $800 billion more in outstanding bank loans than there were before the crash and smash of 2007-2008, the provisions of the bill obviously haven’t diminished lending.  But wait, as they say in the infomercials, there’s more:

“Recently, business lending—the kind that Donald Trump says Dodd-Frank has hurt the most—has increased rapidly. Lending to commercial and industrial companies, which often referred to as C&I lending, jumped $71 billion in the first quarter, and it is up 60% since Congress passed Dodd-Frank. In the first quarter, C&I lending eclipsed residential mortgage lending for the first time since the 1980s.”  [Fortune] (emphasis added)

But, why take Fortune’s word for it? Let’s take a look at the Federal Reserve’s tracking of C&I loans for the last ten years.

FRED C&I lending

Does the line on this chart indicate to you that anything (the Dodd-Frank Act included) has a “negative impact” on commercial and industrial lending by all commercial banks?  As of April 2016 all commercial banks in this country had loaned $2,047.4917 Billion in U.S. dollars.  The current level is a 72.36% increase over the commercial lending level of $1187.9395 in August 2010.  So, the Dodd-Frank Act was signed into law on July 21, 2010 and now we see a 72.36% increase in C&I lending by commercial banks.   Only by turning the FRED chart upside down, could we remotely conclude that the Dodd-Frank Act has been a negative force on commercial bank lending.

Perhaps he’s talking (through his hat) about mortgage lending?  FRED has some handy data in its Make-A-Chart system for that too.

FRED Mortgage lending

The direction of the line on the chart since August 2010? UP.  Not quite up all the way to the $13,830,587.23 million level of the 4th Quarter of 2010 as the housing bubble fizzled, but close enough to call it a recovery, i.e. a decrease of 0.2513%.

The one chart that is “down” is that for residential mortgage holders in one to four family housing units.

FRED Family mortgage lending

At the height of the housing bubble (Q1 2008) the total was $11,320,563.29 million; as of Q4 2015 the total was $9.986,024.00 million.  However, before attributing that to the “negative force” of the Dodd-Frank Act there are some other factors which ought to be considered:

  1. Some of the loans made during the Housing Bubble should never have been made in the first place.  That was the era in which Wall Street demanded, and got, subprime and other faulty loans from mortgage lenders who were anxious to sell them to those banking institutions which wanted to securitize them.
  2. Wage growth hasn’t increased to an extent that families can afford to purchase new homes, which in turn puts some pressure on the housing marker. [BusInsider]
  3. The 2016 “spring housing season” kicked off with a record low supply. [cnbc]

In short, Mr. Trump is simply parroting some line he heard on the golf course?  Some quote he got from the American Enterprise Institute, the American Bankers Association? The Heritage Foundation? From an amalgam of opponents of Wall Street regulation?  He’s certainly not done any serious thinking about the state of commercial and mortgage lending in this country.

Let’s save a discussion of what dismantling the Dodd-Frank Act would do to the average American in terms of personal financial products, student loans, and consumer loans for another post – which I’m sure will yield the same result – Donald the Destroyer doesn’t have a clue what he’s talking about.

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