Bernie Frank: Trump’s Executive Order Against Dodd-Frank Is Meaningless

Posted by on February 8, 2017 2:23 am
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Considering how the stock market reacted thus far, that indeed appears to be the case.

Donald Trump's executive order to roll back Dodd-Frank is basically futile, says Barney Frank

Former Massachusetts congressman Barney Frank lambasted President Donald Trump’s executive order aimed at reversing the financial reform law he authored, saying that the action does nothing.

Mr Trump signed two executive orders before the weekend that would relax Dodd-Frank, the finance reform law signed by President Barack Obama in 2010, to tighten regulations on US financial institutions in the aftermath of the 2008 economic collapse.

Among the many achievements he highlighted in his farewell speech, Mr Obama cited his efforts as saving the country from the historic recession. That success was due in large part to Dodd-Frank.

“Much of that law is popular,” Mr Frank said in a radio interview Sunday morning. “The executive order that the President offered with a lot of hype has no specifics. In fact, it doesn’t do anything.”

Mr Trump campaigned on “draining the swamp” and expelling Wall Street influence from Washington. But during his first two weeks in office, he has by and large demonstrated that key players in American finance have an important ally in the White House.

“We expect to be cutting a lot out of Dodd-Frank because, frankly, I have so many people, friends of mine, who have nice businesses who can’t borrow money,” Mr Trump said before signing the order.

“They just can’t get any money because the banks just won’t let them borrow,” he added, “because of the rules and regulations in Dodd-Frank.”

But Mr Frank was quick to correct the President, who still has significant ties to his business Trump Organisation.

“There are no restrictions on lending in this bill,” he said. “There are restrictions on the manipulation of derivatives of complex financial instruments like the ones AIG used that got people into serious trouble.”

“What I’m afraid of is that we are going to get back to the period when large financial institutions, to make some short-term money, get themselves into situations where they won’t be able to pay off their debt and we will get back into a crisis,” he said.

His concerns aside, Mr Frank remains confident that the President will fail in his quest to repeal the law.

“I do not think he’s going to get 60 senators to vote to get rid of all this,” he said. “So what you then have, I believe, is he’s going to appoint people who won’t enforce the law.”

Once again, I believe President Trump is confusing cause and effect here.

It is not the matter that banks cannot lend or that borrowers cannot borrow, quite the opposite, it is the matter of not being able to deploy capital properly.

Allow me to give me an example.

Let's assume that Goldman Sachs decides to gives me a $100 million credit line at 3%.

I would probably say thank you, then scratch my head wondering what the f#$* am I going to do with the money. My options would be.

  • Invest in the stock market at Shiller's S&P P/E Ratio of 28.5 (second highest in history) - No thank you.
  • Buy real estate at Bubble Levels California’s Real Estate Goes Full Retard – Again -I think I'll pass.
  • Buy Bitcoin, lever it up  and then invest in SnapChat IPO - might not be a bad idea.
  • Start a business or invest in one? Perhaps, but it is getting harder to do as we are dealing with overcapacity in nearly all industries.
  • Etc...

You get the idea.

That is the fundamental issue. Too much credit and too many bubbles. Not availability of such credit.

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