Current Events > Bank deregulation passes Senate

(+) Yeah! (+)

http://www.sandiegouniontribune.com/business/la-fi-dodd-frank-deregulation-20180314-story.html

Nearly eight years after Congress dramatically toughened banking regulations in the wake of the financial crisis, the Senate took a rare bipartisan step and voted Wednesday to ease some rules on small and midsize banks.

But larger banks also get some breaks in the legislation, a move that led to strong opposition from liberal Democrats who warned those moves increased the risk of another financial meltdown.

Still, a group of moderate Democrats several of whom face reelection this fall in states handily won by President Trump joined with Republicans in voting 67-31 to enact the first major rollback of the 2010 Dodd-Frank financial overhaul law.

This bill is designed to protect community banks and credit unions and thats why we have such bipartisan support for it, said Senate Banking Committee Chairman Mike Crapo (R-Idaho), the legislations lead sponsor.

At a time of intense political polarization, we have proven we can work together to get things done, he said.

The bill faces an uncertain future in the House, where Republicans last year passed a more sweeping financial deregulation bill. But House Republican leaders could decide the Senates more modest changes are the best Congress can do at this point and pass the Senate bill.

President Trump is likely to sign any bill that reduces regulations.

Most of the Senate bills provisions are designed to ease regulatory burdens on small banks and enjoy broad support.

Those banks would see new mortgage rules reduced if they make fewer than 500 loans a year. And banks with less than $10 billion in assets would be exempted from the Volcker Rule, which prohibits institutions from stock trading for their own profit and limits ownership of risky investments.
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But the bill takes other more controversial steps to help larger banks that have drawn opposition from liberals such as Sen. Elizabeth Warren (D-Mass.), former regulators and the now-retired authors of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

We start off wanting to help the small banks . but then Wall Street gets involved, said Sherrod Brown (D-Ohio), who helped lead opposition to the bill.

The legislation would remove Dodd-Franks mandatory stricter oversight for about two dozen larger banks, those with assets of as much as $250 billion. The bill would give Federal Reserve regulators more flexibility in how they oversees large banks.

New Fed Chairman Jerome H. Powell promised to remain vigilant for threats to the financial system. But critics pointed to the Feds failure to act on subprime mortgages before the 2008 financial crisis and raised concerns about the desire of regulators appointed by Trump to be tough on banks.

The bill would weaken regulators ability to enforce fair-lending requirements by exempting 85% of banks and credit unions from Dodd-Frank data-reporting requirements designed to help identify discriminatory practices.

The bill even includes some benefits for Equifax and other credit reporting companies. They would get immunity from lawsuits over credit monitoring for active-duty service members, and an arcane provision could make it easier for the firms to expand their businesses into providing credit scores for mortgages purchased by Fannie Mae and Freddie Mac.

The Congressional Budget Office estimated that the bill would add $671 million to the federal budget deficit over the next decade, largely because the changes would slightly increase the small chance that a systemically important financial institution would fail or a financial crisis would take place.

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Cool, and so the cycle begins anew.
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Antifar posted...

At a time of intense political polarization, we have proven we can work together to get things done, he said.

It's like they're taunting us.
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*lowers head in a desperate attempt not to show the crack of a smile like Anne Robinson*
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regulations are always bad mkay
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MC_BatCommander posted...

Cool, and so the cycle begins anew.

P much.
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The 2008 bust was caused by low interest rates from the Fed. Sorry to break it to you, but the Fed has been doing the same shit for the last 10 years + quantitative easing.
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Enjoy your recession in a few years when the same shit happens again.

MAKING AMERICA GREAT AGAIN!!
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Chairman Mike Crapo

lol proper name
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MC_BatCommander posted...

Cool, and so the cycle begins anew.

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WAY TO RUIN THE ECONOMY AGAIN, REPUBLICANS.

Bra-fucking-vo
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E32005 posted...

WAY TO RUIN THE ECONOMY AGAIN, REPUBLICANS.

Bra-fucking-vo

This got significant bipartisan support.
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Here we come recession 2.0!!

E32005 posted...

WAY TO RUIN THE ECONOMY AGAIN, REPUBLICANS.

Bra-fucking-vo

They couldn't have passed this without at least 8 Democrats voting for it. They got 16
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This is great news long term for crypto imo
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Antifar posted...

E32005 posted...

WAY TO RUIN THE ECONOMY AGAIN, REPUBLICANS.

Bra-fucking-vo

They couldn't have passed this without at least 8 Democrats voting for it. They got 16

republican bill republican backed republican pushed
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tennisdude818 posted...

The 2008 bust was caused by low interest rates from the Fed. Sorry to break it to you, but the Fed has been doing the same shit for the last 10 years + quantitative easing.

Low interest rates by themselves aren't sufficient to explain the recession
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E32005 posted...

Antifar posted...

E32005 posted...

WAY TO RUIN THE ECONOMY AGAIN, REPUBLICANS.

Bra-fucking-vo

They couldn't have passed this without at least 8 Democrats voting for it. They got 16

republican bill republican backed republican pushed

None of those 16 democrats had to vote for it. The democrats certainly had a part in this.
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Balrog0 posted...

tennisdude818 posted...

The 2008 bust was caused by low interest rates from the Fed. Sorry to break it to you, but the Fed has been doing the same shit for the last 10 years + quantitative easing.

Low interest rates by themselves aren't sufficient to explain the recession

Artificially low rates cause the business cycle because they push too much capital into long term projects/investments. If we are specifically talking about 2008, there were other factors that caused housing to be the epicenter of the recession but the Fed provided the fuel. If it wasn't housing, it would have been somewhere else.

Now we have had close to a decade of low rates and QE. The next crash won't look exactly like the last one, but it's running on the same fuel. One possible epicenter is in venture capital funded start up tech companies (and tech in general). Many of these companies will never be profitable but have been able to easily raise both debt and equity anyway.
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tennisdude818 posted...

Balrog0 posted...

tennisdude818 posted...

The 2008 bust was caused by low interest rates from the Fed. Sorry to break it to you, but the Fed has been doing the same shit for the last 10 years + quantitative easing.

Low interest rates by themselves aren't sufficient to explain the recession

Artificially low rates cause the business cycle because they push too much capital into long term projects/investments. If we are specifically talking about 2008, there were other factors that caused housing to be the epicenter of the recession but the Fed provided the fuel. If it wasn't housing, it would have been somewhere else.

Now we have had close to a decade of low rates and QE. The next crash won't look exactly like the last one, but it's running on the same fuel. One possible epicenter is in venture capital funded start up tech companies. Many of these companies will never be profitable but have been able to easily raise both debt and equity anyway.

Mate I think you need to check your facts a bit on the mid naughties
I'm a semi old fixed income trader, and back in 06 07 I used to be able to count the carry on my unencumbered cash when I was bored
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shockthemonkey posted...

This is beyond fucking pathetic. Every single person who voted for this needs to be replaced.

"I don't know anything about financial markets or Dodd-Frank but I am OUTRAGED I tell you! REEEEEEEE!!"

lesidesi posted...

tennisdude818 posted...

Balrog0 posted...

tennisdude818 posted...

The 2008 bust was caused by low interest rates from the Fed. Sorry to break it to you, but the Fed has been doing the same shit for the last 10 years + quantitative easing.

Low interest rates by themselves aren't sufficient to explain the recession

Artificially low rates cause the business cycle because they push too much capital into long term projects/investments. If we are specifically talking about 2008, there were other factors that caused housing to be the epicenter of the recession but the Fed provided the fuel. If it wasn't housing, it would have been somewhere else.

Now we have had close to a decade of low rates and QE. The next crash won't look exactly like the last one, but it's running on the same fuel. One possible epicenter is in venture capital funded start up tech companies. Many of these companies will never be profitable but have been able to easily raise both debt and equity anyway.

Mate I think you need to check your facts a bit on the mid naughties
I'm a semi old fixed income trader, and back in 06 07 I used to be able to count the carry on my unencumbered cash when I was bored

Compared to today the Fed Funds Rate was high. It was still historically quite low during those years.
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Blaming the gfc on the low interest rates from the fed is intellectually lazy at best and dishonest at worst

I don't have any love for the fed, especially since in the past decade they've brought rates vol down so much that my job is boring, but let me tell you there was plenty to do mid naughties
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lesidesi posted...

Blaming the gfc on the low interest rates from the fed is intellectually lazy at best and dishonest at worst

I don't have any love for the fed, especially since in the past decade they've brought rates vol down so much that my job is boring, but let me tell you there was plenty to do mid naughties

I'm not just blaming that recession on the Fed, I'm blaming the entire modern boom-bust cycle on the Fed. It's one thing when a few players in the economy make a mistake, it's quite another when everybody does. My point is that when central planners manipulate the price of money and credit, there will be unintended consequences. Just like if you manipulate the price of copper.
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I don't disagree with the overall view that the fed (more broadly we should say central banks because it's not just the fed that's guilty of this) artificially raises asset prices - some people would say fraudulently but I think that's slightly overstepping

But its a little irresponsible to put all the blame on the central banks and somewhat call the other financial institutions free of blame - I saw plenty of shady shit when I was a trader on the sell side - and know enough about how bank trading books work to strongly believe that it's suicidal for the economy to let them go unchecked and unregulated
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MC_BatCommander posted...

Cool, and so the cycle begins anew.

It wasn't the banks that caused the crash though, it was the government regulating them so they couldn't deny high risk loans. As much as you can hate banks, they were just a scapegoat.
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Anyway tennis dude good to chat about this with you, nice to see someone with at least some sophistication in their economic giews, pretty rare around here (see: tropical woods intellectually lazy post)

I'm off to bed as it's past midnight here in London

All the best
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Tropicalwood posted...

MC_BatCommander posted...

Cool, and so the cycle begins anew.

It wasn't the banks that caused the crash though, it was the government regulating them so they couldn't deny high risk loans. As much as you can hate banks, they were just a scapegoat.

That's not exactly what happened. The banks got government subsidies to give out loans in risky areas.

Basically, there was a practice called "redlining" where lenders would have maps with certain "risky zones" that we'll just be straight up honest with ourselves they were the ghettos and other ethnic neighborhoods.

If you attempted to apply for a mortgage in that area you were effectively automatically denied regardless of your credit so the only way to buy a place in those areas was to pay cash which nobody with that kind of cash would actually do.

The government decided this was causing a problem and gave out subsidies to banks to give out loans in those areas. Basically, the government would pay a part of your mortgage--oh except you still had to pay the full mortgage, so like (example, I actually don't know the correct numbers) on a $60,000 property, the government might pay the bank $20,000 for giving them the loan, and you still had to pay $60,000 with interest. This resulted in "reverse red lining" where you were more likely to get a mortgage if you applied for one in the risky area.

Now this worked out really well for a while until a recession happened and lots of people who were already poor couldn't afford to pay their mortgages which caused the housing crisis / TBTF.

And you should all know the history from there.

The short answer is the banks did it to themselves. The government didn't force them to give out those loans. They were just given incentives to do it.
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lesidesi posted...

I don't disagree with the overall view that the fed (more broadly we should say central banks because it's not just the fed that's guilty of this) artificially raises asset prices - some people would say fraudulently but I think that's slightly overstepping

But its a little irresponsible to put all the blame on the central banks and somewhat call the other financial institutions free of blame - I saw plenty of shady shit when I was a trader on the sell side - and know enough about how bank trading books work to strongly believe that it's suicidal for the economy to let them go unchecked and unregulated

I think the banks should have been allowed to fail. It's possible that some of those guys belong in jail right now. There are clearly different standards for the big guys than for us.

I'm not saying the bankers were good guys. I'm just saying that the Fed fuels bubbles, and the condition of the economy at that particular time determines where those bubbles will be. Today I'm most worried about auto loans, student loans, and tech.

You're right to be concerned about the behemoth banks today. I think government privilege allows them to get so large that their downfall would be a major crisis.
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lesidesi posted...

Anyway tennis dude good to chat about this with you, nice to see someone with at least some sophistication in their economic giews, pretty rare around here (see: tropical woods intellectually lazy post)

I'm off to bed as it's past midnight here in London

All the best

Take care and it was nice talking to you.
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Tyranthraxus posted...

Tropicalwood posted...

MC_BatCommander posted...

Cool, and so the cycle begins anew.

It wasn't the banks that caused the crash though, it was the government regulating them so they couldn't deny high risk loans. As much as you can hate banks, they were just a scapegoat.

That's not exactly what happened. The banks got government subsidies to give out loans in risky areas.

Basically, there was a practice called "redlining" where lenders would have maps with certain "risky zones" that we'll just be straight up honest with ourselves they were the ghettos and other ethnic neighborhoods.

If you attempted to apply for a mortgage in that area you were effectively automatically denied regardless of your credit so the only way to buy a place in those areas was to pay cash which nobody with that kind of cash would actually do.

The government decided this was causing a problem and gave out subsidies to banks to give out loans in those areas. Basically, the government would pay a part of your mortgage--oh except you still had to pay the full mortgage, so like (example, I actually don't know the correct numbers) on a $60,000 property, the government might pay the bank $20,000 for giving them the loan, and you still had to pay $60,000 with interest. This resulted in "reverse red lining" where you were more likely to get a mortgage if you applied for one in the risky area.

Now this worked out really well for a while until a recession happened and lots of people who were already poor couldn't afford to pay their mortgages which caused the housing crisis / TBTF.

And you should all know the history from there.

The short answer is the banks did it to themselves. The government didn't force them to give out those loans. They were just given incentives to do it.

No, Community Reinvestment Act wasn't just government subsidies, it was a mandate requiring the banks to make such loans to low income areas.
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Tyranthraxus posted...

The short answer is the banks did it to themselves.

spot on but you missed a key detail that lesidesi was hinting at-- the credit default swap. this is the long answer.

during the process you described, certain hedge funds (scion) noticed that a lot of those subprime mortgages were rated incorrectly by the credit rating agencies, and took significant positions against them because they were doomed but being sold as AAA assets, meaning a position against them had high profit potential if they failed.

banks eventually joined scion (at much higher costs) and paid for those costs by taking a net leveraged long position on non-subprime mortgages, specifically in a form analogous to selling puts.

when you naked sell puts the way they did, your potential loss can be greater than the value of the asset itself (or the position against subprimes they were used to buy). and it was--a LOT greater.

what brought the subprimes down, ultimately, was the fed finally raising rates, creating mild contractions in the economy that the bubble could not withstand--the slightest pressure was enough to pop it.

when the subprimes finally went (making the credit default swaps profitable for those who bought them at low prices with cash like scion did) they took the whole housing market down with them, causing regular mortgages to fail. this brought down the general mortgage backed securities, and with them the banks themselves (as well as pension funds and pretty much the rest of the economy).

in order of blame, IMO:

1) the credit rating agencies, particularly Standard and Poors
2) the banks that over-leveraged their 'safe' assets to chase returns from shorting subprime mortgage assets
3) the clinton administration for making subprime mortgage assets an asset at all, and letting mortgage banks also operate as investment banks
4) the fed for leaving interest rates low during the expansion stages of the business cycle

the fed was late in doing their job, which is bad for the business cycle, but had there not been a massive bubble in place, they wouldn't have created a severe recession. in this case, it was not that the fed would've created a problem somewhere else; had the fed done their job correctly the subprime bubble would still have popped, just earlier.
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Tropicalwood posted...

No, Community Reinvestment Act wasn't just government subsidies, it was a mandate requiring the banks to make such loans to low income areas.

and if those loans had been appropriately rated by S&P none of this would've been an issue because only speculators would be buying them, rather than pension funds.
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So darkman, how bad is this bill?

tennisdude818 posted...

The 2008 bust was caused by low interest rates from the Fed. Sorry to break it to you, but the Fed has been doing the same shit for the last 10 years + quantitative easing.

Not so much. It was caused by a mandate by the Clinton administration to lower income thresholds for home loans to increase minority home ownership.
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Darkman124 posted...

Tropicalwood posted...

No, Community Reinvestment Act wasn't just government subsidies, it was a mandate requiring the banks to make such loans to low income areas.

and if those loans had been appropriately rated by S&P none of this would've been an issue because only speculators would be buying them, rather than pension funds.

Or, if the loans had never been forced to go to people who couldn't afford to pay them back to begin with, nothing would have happened in the first place.

But, hey - social justice over literally everything else, right?
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darkjedilink posted...

tennisdude818 posted...

The 2008 bust was caused by low interest rates from the Fed. Sorry to break it to you, but the Fed has been doing the same shit for the last 10 years + quantitative easing.

Not so much. It was caused by a mandate by the Clinton administration to lower income thresholds for home loans to increase minority home ownership.

I'm talking about why excess credit flooded the economy. You are talking about a bad government policy that directed some of that excess credit. They aren't mutually exclusive.
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KarmaMuffin posted...

So darkman, how bad is this bill?

it won't let BoA-ML participate in a new round of credit default swaps or massive overleveraging

but it will let a 50B+ asset bank do so

in theory the federal reserve can prevent banks of size 100B+ from taking such actions if they were motivated to do so

but with the new chair a republican appointee, you can be confident than they won't

it also strips veterans of their right to file class action lawsuits against credit monitoring agencies, in exchange for giving them free credit monitoring, which is pretty silly
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