PROTECTING OUR ECONOMY FROM WALL STREET SPECULATION

After the collapse of the financial corporations in 2008 due to their greed, predatory and illegal practices, and malfeasance, Congress and the President enacted legislation to try to prevent such a collapse in the future. This was the Dodd-Frank Wall Street Reform and Consumer Protection Act (known as Dodd-Frank).

The Dodd-Frank law is not as strong as many people thought it should be, because Wall St. executives, along with their lobbyists and friends in Congress, worked hard to weaken it as it was being written and passed. For example, it did not break up the “too-big-too-fail” financial corporations or limit their growth. (They are now all bigger than they were in 2008.)

A key provision of Dodd-Frank, known as the Volcker Rule, restricts banks from making certain kinds of speculative investments that do not benefit their customers and actually put customers’ deposits (and the banks and the economy) at risk if large investment losses result. Such speculative investments and big losses from them played a key role in causing the 2008 financial collapse. The Volcker Rule restricts but does not ban such investments, as many people thought it should and as had been the case from 1933 to 1999 under the Glass-Steagall Act. [1] In particular, many people believe that banks with deposits insured by the Federal Deposit Insurance Corporation (FDIC) should be prohibited from making such risky investments because these investments, which only benefit the bank’s executives and shareholders, are, in effect, insured against big losses by the FDIC, i.e., the federal government and taxpayers.

The Volcker Rule was supposed to be implemented in 2010, but continuing opposition from Wall St. and its supporters has continued to delay (and further weaken) the rule. It finally went into effect in 2015, but banks continue to be granted extensions for when they have to come into compliance with its provisions.

The Trump Administration, through the five agencies that regulate the financial industry, is currently working to rewrite and further weaken the Volcker Rule. They are moving to loosen the restrictions on risky investments, even though they were a major cause of the 2008 financial collapse. [2]

The Dodd-Frank law in general, not just its Volcker Rule, has been a target for weakening and delaying tactics ever since its original drafting and passage, as well as at every step in its implementation. The US House recently passed the so-called Financial Choice Act that would significantly weaken Dodd-Frank’s regulation of the financial industry.

I urge you to contact your US Representative and Senators and ask them to:

• Oppose efforts to weaken the Volcker Rule and to support an outright ban on speculative investment activity by banks that have customer deposits and FDIC insurance, and
• Oppose efforts to weaken the Dodd-Frank law in general and its regulations that reduce the likelihood of another financial industry collapse.

[1]      Wikipedia, retrieved 8/15/17, “Volcker Rule,” (https://en.wikipedia.org/wiki/Volcker_Rule)

[2]      Bain, B., & Hamilton, J., 8/1/17, “Wall Street regulators are set to rewrite the Volcker Rule,” Bloomberg News (https://www.bloomberg.com/news/articles/2017-08-01/volcker-rewrite-is-said-to-start-as-trump-regulators-grab-reins)