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Four years later, Dodd-Frank fails to turn banks into pet shops
| Stephen Gandel
Posted on 07/28/2014 12:05:45 PM PDT by Citizen Zed
The paper argues that when you prevent banks from making risky bets with their own money, they wont stop betting. Theyre banks, after all. Instead, they will put more of their money into stuff that is less risky. And they will lend more, which is also risky, but allowed by Dodd-Frank. Also, the banks will pay dividends, which doesnt sound risky. But if you allow banks to use their capital to pay dividends, they wont have as much money around to cover loans when they go bad.
(Excerpt) Read more at fortune.com ...
Obama: "So it will never happen again"
To: Citizen Zed
The mistakes that were made were:
- Reducing the bank Reserve ratio to effectively 1%.
- Allowing banks to engage in risky behavior, the result of repealing Glass-Steagall, and failure to regulate credit default swaps.
- Allowing foreign competition that didn't play by our rules. And lowering our standards to compete with foreign competition.
- Relaxing mortgage standards only to tighten them again.
The following weren't banking mistakes but were contributory:
- Failing to prepare for another oil price shock.
- Lowering the import tariffs, resulting in much lost industry overseas.
posted on 07/28/2014 12:26:45 PM PDT
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