Politics: Trump, Banking, and the Economy

Before I begin this blog post, I want to put in a disclaimer. When I started this blog, I had no intention of talking much about either politics or business. Business is my professional field and I wanted to get away from it. Politics is too volatile. But, I’ve had a lot of questions about the effect of a Trump Presidency on certain segments of the economy and on our lives that I feel compelled to answer them to the best of my ability. I’m going to try to be non-partisan, but (full disclosure), I was not and am not a Trump supporter. I will still try to be non-partisan. If I sound like a teacher, let me apologize in advance. I am a teacher :)……it’s hard not to sound like one!

The Trump transition team has made it known that they intend to repeal or, at least significantly change, a piece of legislation called the Dodd-Frank bill. They also intend to repeal the Volcker Rule. Let me explain what that means to me, you, and the man on the street.

The Dodd-Frank bill is a very complex (and long) piece of legislation that was enacted after the economic and banking collapse that happened at the end of 2007 and the beginning of 2008 and the recession that resulted. Large banks were the primary cause of this collapse. The general consensus is that the large banks invested in too many subprime (risky) mortgages in order to beef up their income by charging high interest rates. They also invested in speculative securities for the same reason. In other words, these banks took advantage of their customers and took risks with their customers’ money. Banks in the U.S. have never before been allowed to do that. The banks essentially got caught and the economy almost failed because of it.

The Dodd-Frank bill was enacted to protect customers of large banks in the future. Some say that it goes too far and restricts the ability of both individuals and corporations from borrowing money. I have not read the bill so I cannot address that. What I do know is that banks do, indeed, need some checks and balances so what happened in 2007 and 2008 will not happen again. Apparently, Mr. Trump intends to repeal this legislation.

We used to have legislation called the Glass-Steagall Act which prevented banks from engaging in investing. That legislation was unfortunately repealed in the late 1990s. Glass-Steagall would have prevented banks from making these speculative investments and loans.

The Trump transition team has said they also intend to repeal what is called the Volcker rule. Mr. Volcker was once Chair of the Federal Reserve.  A regulation was passed in his name preventing banks from making investments that could endanger their customer accounts by exposing them to too much risk.

The positive side of repealing Dodd-Frank and Volcker is that it would be easier for consumers to obtain mortgages. It would also be easier for businesses and large corporations to borrow money and make investments, including risky investments. #amwriting #amblogging #writing #DoddFrank #VolckerRule