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Dodd-Frank EO

Discussion in 'Economy' started by cmhbob, Feb 3, 2017.

  1. cmhbob

    cmhbob Did...did I do that? Staff Member

    I'm still processing the latest EO, this one regarding Dodd-Frank. My gut feeling is that rolling it back, or rolling back the protections that it was supposed to have offered is a bad thing, but I'm not savvy enough on exactly what it does/did, and I know others here are, so talk me through it.

    I'm working my way through a thread at /r/RealEstate, trying to figure out what this might do for our tiny little RE investing LLC (4 residential, plus a commercial pending).

    The fiduciary rule seems like a bad thing to get rid of too.
  2. SixofNine

    SixofNine Jedi Sage Staff Member

    First, yes, eliminating the fiduciary rule is bad for clients.

    There are certainly elements of Dodd Frank that I like, as it was after all a response to the the financial industry cratering itself. Things that I like:

    - Better oversight over credit default swaps and other derivatives, the former being a major instrument in the financial meltdown
    - The Volcker Rule, which prohibits banks from "proprietary trading," i.e., trading securities, derivatives, and other financial instruments with their own money (not depositors'). The motivation is that it's too risky for commercial banks to speculate, especially given the fact that derivatives, which were originally designed to hedge risk, wound up having the opposite effect in the way that they were used.
  3. ethics

    ethics Pomp-Dumpster Staff Member

    Arc and cmhbob like this.
  4. Arc

    Arc Full Member

  5. Arc

    Arc Full Member

    I'm far from being sophisticated or knowledgeable regarding the broad field of what we will call "Wall Street" and all of its ins and outs.

    Regarding your comments about the Volcker Rule: I've never looked at exactly what it says, (something I should do in the immediate future), but from your comments it seems at least superficially to me that we may be in disagreement about that area.

    I say that because my understanding of the past was investment banks in general before deregulation could only use their own money and much of that money was the Investment Bank's partners money. Naturally when it comes to spending your own money one tends to be more cautious than spending other peoples' monies. With the deregulation the investment banks and or their partners now could make investments in so on using all the assets of the bank including other peoples' monies. That was like breaking all the locks safeguards and barriers on what you could do with everyone's money. Now the banks had virtually unlimited money to "play" with in anyway they wanted including new and inventive or creative ways.

    From the above you now created unlimited resources for things like the CDO mortgage bonds comprised and packaged in the most imaginative but ticking time bomb ways followed and then followed by credit default swaps, etc. (Just one singular example of a much larger imaginative picture or state of financial affairs and choices.)
  6. SixofNine

    SixofNine Jedi Sage Staff Member

    You could talk me out of supporting the Volcker Rule as long as banks that crater themselves by unsuccessfully using derivatives as speculative rather than risk-hedging instruments don't get any bailouts.

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