The edifice of the Dodd-Frank protection wall has been cracked. And congressional Republicans are planning to whittle it down to rubble.
The first stone to be thrown is a doozy. Representative Kevin Yoder, Republican from Kansas inserted a repeal of the “swap push out” provision into the spending bill voted in the House for 2015. This provision was meant to prevent what many top economists have known and agreed to be the source of the 2008 financial collapse.
The provision “pushes out” the ability of banks to use the bank deposits of everyday people in their commercial banks for risky investments in their investment banks. Pre-2008, banks used commercial deposits while paying very little interest to depositors claiming that they were providing a service -and for many low income depositors they also charged fees for this service.
People’s deposits were used as low interest and zero interest “free money” by which banks turned around and made millions for themselves by risking your money in investments in securities, derivatives and real estate. And depositors did not share in the wealth – but they did share in the risk.
By law, deposits have to be insured by the government. Therefore, if banks lose money in risky investments made on your deposits, banks have no fear of going bankrupt. Eventually, the American taxpayer will foot the bill. Another corporate bailout is always in the cards because banks are too big to fail.
What the “swap push out” provision did was to provide a thin wall between a bank’s commercial and investment interests. This, along with other provisions and regulations in Dodd-Frank, are meant to keep a 2008 type financial meltdown from happening again. Many economists saw Dodd-Frank as a Band-Aid towards more solid reforms.
Wall Street, on the other hand, has not been too happy about the government regulations since 2008 and have argued, lobbied, and demanded repeal. One of the most vocal opponents is Jamie Dimon of JP Morgan Chase, a man who is currently being investigated by the Federal Reserve for an unexplained loss of 2 billion dollars, yet holds tremendous influence over the banking industry.
Citigroup, a bank that paid 7 billion dollars to quietly resolve a probe into their role in the mortgage backed securities debacle which precipitated the 2008 crash, took the initiative in writing the wording for the repeal of the provision.
All this has happened with very little public protest. During the last few years, Occupy Wall Street movement had dwindled while the Tea Party influence has grown strong. Though they were opposed to the bailouts, the Tea Party has long argued that government regulations are the problem.
And while OWS opposed voting in general, regardless of the candidates, the Tea Party pushed for radical Republicans and helped them gain power. With the landslide victory of Republicans in 2014, both the House and Senate have Republican majorities ready to chip away and dismantle Dodd-Frank.
What this will mean is a return to the policies that brought about the financial collapse of 2008 and this without the slightest protest from the working and middle classes who will transfer more of their wealth to the mega rich.