Trump and House Republicans Have Started Dismantling the Dodd-Frank Act, Setting Up the Economy for a Repeat of the 2008 Financial Crisis

On Monday, President Trump went on a tangent about the Dodd-Frank Act while talking to those waiting for him to sign yet another (unrelated) executive order. That same day, Rep. Bill Huizenga (R-MI) introduced a piece of legislation aimed at eliminating the need for oil companies to inform the SEC when they make payments to foreign governments while developing their oil processing and/or drilling infrastructure.

This is likely just the start of a process that could take as little as a year to complete since Republicans have control of both the House and the Senate, though lack the supermajority needed to push bills through without the threat of a filibuster.

Dodd-Frank was enacted in response to the 2008 financial crisis which saw millions of Americans lose their homes or jobs, along with a significant portion of their retirement savings. In short, it prevented banks from taking on too much risk with money they are supposed to hold for average Americans.

When the sub-prime mortgage crisis hit investment banks, it wasn’t the bankers who were at risk of losing everything (they were bailed out), it was the ordinary people who were pressured into taking loans that they couldn’t afford. These loans were then packaged and sold as investment-worthy commodities to the big banks, many of which were also in charge of the savings and other banking needs of tens of millions of Americans.

What the investors didn’t know, what some of the bankers knew, and what almost everyone involved in granting the loans probably knew, was that the borrowers were much more likely to default than most other homeowners. Their income was lower, debt to income ratio higher, and credit scores about 30 points lower on average (currently 710, you can find your credit score online), than borrowers today. During the financial crisis, delinquency rates on home mortgages jumped to 11% and still haven’t come down to the pre-crisis level of 1.5%

The Dodd-Frank Act essentially put great restrictions on how depositors’ money can be used, ensuring that another bank bailout would not be necessary. If the act does get dismantled piece by piece, it wouldn’t be surprising to see history repeat itself and the American taxpayer, especially the younger generation, will get to foot most of the bill when the banks need bailed out at the next market downturn.