Monday, February 6, 2017

Coming Apart at the Seams

The financial system is commonly seen as the point of origin in scenarios that postulate societal breakdown. Its precarious condition is one of the big causes of our ongoing long emergency. If the wrong thread is pulled in the financial system, the whole fabric of civilization could come unraveled pretty quickly.

When one of those threads was pulled out in 2007, the U.S. and other governments went into crisis mode in order to patch up and reinforce damaged areas. One of the reinforcements was a 2,300-page law known as Dodd-Frank which bankers have wheedled and whined against for the past six years and now have a so-called President who is willing to accommodate them in reforming it. In doing so, tRump could loosen the binding behind the crazy quilt of the financial system. After eliminating safeguards, Congress will try to pass a watered-down version of Dodd-Frank or a new manifestation of Glass-Steagall, but as with the ACA, tRump appears to be mainly in demolition mode. The question is, how far can the financial industry stretch a weakened fabric before splitting the seams?

Splitting of those seams along national boundaries may contribute to fulfilling tRump's isolationist ideals, but, even if the financial fabric remains intact, the likely result of gutting Dodd-Frank is more oligopolization of the financial industry. Lip service is being paid to improving the lot of communities and consumers, (and tRump's friends with "nice businesses") but the Consumer Financial Protection Bureau looks like it will be weakened by the reforms. The argument that Dodd-Frank is disproportionately hurting community banks is weak since that sector has been dwindling ever since 1984, probably due to the same oligopolistic environment that this change would magnify.

Rolling back Dodd-Frank requirements for bank liquidity increases the chances that another bail-out will be necessary to prevent a total meltdown. Strengthening Wall Street banks is the opposite of the direction taken in the Green Party platform. The Green Party solution for banking reform wouldn't merely dismantle a set of rules and replace them with other more or less constraining rules. It would break up the big banks and create a more competitive environment, leveling the playing field for community banks and credit unions.The Green platform has this to say about bail-outs:
Oppose the federal government being the final guarantor of speculative investments. During a financial crisis, if the federal government and/or a central bank must provide relief, it should be given in an equal manner and at the most local level possible, so that benefits are equitably dispersed and burdens are equitably borne. So rather than pouring trillions of dollars into the banking system, they should have provided direct mortgage relief to homeowners suffering the most from the housing bubble and negotiated with lenders to provide partial loan forgiveness.
That would not be possible in the current environment because the global financial system is rife with derivatives making the failure of a major bank unthinkable. The tRumpist reforms would aggravate this further by eliminating the Volcker Rule that limits speculation using a bank's capital. As with Obamacare, the Republicans vow that their replacement version will do a better job at what Dodd-Frank promised, but such promises strain credibility.

Photo by Beverly
Thanks to tRump and the Republicans, it looks like America will suffer an even greater economic divide before people wake up to the better way offered by the Green Party. Instead of playing along by trying to regulate TBTF banks, we should try to break them up before they hurt people again. If we don't dismantle these financial behemoths first, capitalists, in an orgy of greed, will cause it to all come crashing down.

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