Congress Approves First Big Dodd-Frank Rollback(nytimes.com)
nytimes.com
Congress Approves First Big Dodd-Frank Rollback
https://www.nytimes.com/2018/05/22/business/congress-passes-dodd-frank-rollback-for-smaller-banks.html
114 comments
>Regulations exist to protect the whole from the greed of a few.
Regulations exist so that entrenched players can use the lethal force of government to block new challengers. Never quite as blunt as I put it, but that is the threat backing all the actual outcomes.
And the overall solution is to allow them to fail next time. Don't fix it, let it crash and burn. Stop socializing the losses since the profits were privatized.
Regulations exist so that entrenched players can use the lethal force of government to block new challengers. Never quite as blunt as I put it, but that is the threat backing all the actual outcomes.
And the overall solution is to allow them to fail next time. Don't fix it, let it crash and burn. Stop socializing the losses since the profits were privatized.
>And the overall solution is to allow them to fail next time
Then pass a regulation barring the US from ever giving another "bailout". In the aftermath of '08 those corporations played the US like a fiddle to get their billions of dollars in free loans because "our whole financial system could collapse if you dont". Why wouldn't they play this game again, perhaps even more brazenly than last time?
Then pass a regulation barring the US from ever giving another "bailout". In the aftermath of '08 those corporations played the US like a fiddle to get their billions of dollars in free loans because "our whole financial system could collapse if you dont". Why wouldn't they play this game again, perhaps even more brazenly than last time?
> Regulations exist so that entrenched players can use the lethal force of government to block new challengers.
That's not how it appears to everyone. That's often how they are crafted, but this is not a problem with the concept.
That's not how it appears to everyone. That's often how they are crafted, but this is not a problem with the concept.
There's actually a middle ground - EPA requirements, food and safety. True, most of the good ones end up repealed...
At least bail out the victims instead of the perpetrators.
Just that. My own view is that regulations are antithetical to competition. Sometimes regulations are necessary but it's not true that they come without a cost.
>In a democracy the government is you, not an organization out to get you.
Don't know if you missed this bit, but these rollbacks were voted on and approved by Republican (and Democrat) representatives, who in turn were voted for by the people.
>Either you believe in democracy or you do not.
It is possible to believe in democracy and also believe in limited government.
Don't know if you missed this bit, but these rollbacks were voted on and approved by Republican (and Democrat) representatives, who in turn were voted for by the people.
>Either you believe in democracy or you do not.
It is possible to believe in democracy and also believe in limited government.
You seem to have selective memory -- those who are against these regulations and gov't welfare came out against the bank bailout back in 2008 and 2009 while those who are for regulation and gov't largess silently sat back and looked away.
I also found it quite ironic that the law that supposedly regulates the finance industry bears the names of two most corrupt politicians with close ties with banks (one with Fannie/Freddie and the other with AIG or the banking industry in general).
I also found it quite ironic that the law that supposedly regulates the finance industry bears the names of two most corrupt politicians with close ties with banks (one with Fannie/Freddie and the other with AIG or the banking industry in general).
[deleted]
If anything is mythological, it's this:
> Regulations exist to protect the whole from the greed of a few.
That's clearly one reason, and certainly the most commonly cited reason, but it's equally clearly not the only one, and it's certainly not the only outcome, whether intended or not.
The best buffer against "the greed of a few" is to allow real competition. Lightening regulations on smaller banks is quite likely to encourage competition.
> Regulations exist to protect the whole from the greed of a few.
That's clearly one reason, and certainly the most commonly cited reason, but it's equally clearly not the only one, and it's certainly not the only outcome, whether intended or not.
The best buffer against "the greed of a few" is to allow real competition. Lightening regulations on smaller banks is quite likely to encourage competition.
This ignores the natural tendency toward oligopoly in mature markets.
Ironically, the opposition to the rollback ignores how in this case the regulation unintendedly encouraged and cemented said oligopoly.
I don't think it's fair for you to pretend you understand the psyche of everyone commenting on this thread and their opinions on "too big to fail" just because you don't agree with their viewpoints.
HN has a sizable portion of commenters with libertarianesque views, who would be in favor of reduced regulation while simultaneously deadset against subsidies and guarantees to banks and megacorps.
HN has a sizable portion of commenters with libertarianesque views, who would be in favor of reduced regulation while simultaneously deadset against subsidies and guarantees to banks and megacorps.
I'd like to point out an apparent oddity - that I, as a free market libertarian, agree with you that rolling back recent banking regulations is likely to lead to greater levels of exploitation of the populous by the banking/financial elite.
This does not negate the free market idea, rather we are just looking at a small detail in a larger picture. Without context things can be confusing.
The larger picture is that the banking system is not a free market entity. It was designed to prevent bank runs on insolvent banks - so that banks could practice currency inflation without, effectively, being called on it by other banks. (long story on inflation - most economists of course argue that it does not hurt the populous - some dissent...)
So anyway, the initial extra-market act - setting up the banking system, was designed to aid the banking elite in expropriating the wealth of the populous via systematic currency inflation - of course the stated aim was to "stabilize the banking system" and that is also true - prevent bank runs on insolvent banks so they can inflate more$$.
That stability, plus lots of greed, gave smart financial thinkers freedom to come up with yet more ways to exploit the system for their own benefit. Speculation in one kind of asset or another, etc etc.
Hence people decided the system "needed to be regulated" -- this new round of regulation needed to essentially quell the disturbances made possible by the first round - (the laws passed which created the banking system in the first place, here renamed as "the first round of regulation")
So sure - if we are going to have an artificial banking system propped up by law in the first place, it is only natural that it will require ever more regulation to keep it upright. After all, it is no longer "of the ecosystem" but "on top of it" - not subject to the full guidance of market forces.
Free market people who want to roll back recent, stabilizing, regulations, but support the banking system in general may not, in some cases, understand what they are asking for.
This does not negate the free market idea, rather we are just looking at a small detail in a larger picture. Without context things can be confusing.
The larger picture is that the banking system is not a free market entity. It was designed to prevent bank runs on insolvent banks - so that banks could practice currency inflation without, effectively, being called on it by other banks. (long story on inflation - most economists of course argue that it does not hurt the populous - some dissent...)
So anyway, the initial extra-market act - setting up the banking system, was designed to aid the banking elite in expropriating the wealth of the populous via systematic currency inflation - of course the stated aim was to "stabilize the banking system" and that is also true - prevent bank runs on insolvent banks so they can inflate more$$.
That stability, plus lots of greed, gave smart financial thinkers freedom to come up with yet more ways to exploit the system for their own benefit. Speculation in one kind of asset or another, etc etc.
Hence people decided the system "needed to be regulated" -- this new round of regulation needed to essentially quell the disturbances made possible by the first round - (the laws passed which created the banking system in the first place, here renamed as "the first round of regulation")
So sure - if we are going to have an artificial banking system propped up by law in the first place, it is only natural that it will require ever more regulation to keep it upright. After all, it is no longer "of the ecosystem" but "on top of it" - not subject to the full guidance of market forces.
Free market people who want to roll back recent, stabilizing, regulations, but support the banking system in general may not, in some cases, understand what they are asking for.
My wife works in the corporate mortgage department of a fairly large US bank and she told me how many of her fellow employees cheered on this news a few months ago when it became clear regulations would be rolled back. Then a month ago about half of those same people lost they're jobs; turns out spending extra resources checking the accuracy of loans and applicant financials is not something banks do if they don't have to.
The other interesting tidbit I learned form her is that the bare minimal paperwork processing that will still get done is actively being outsourced to India. Just a reminder that one of the large problems to come out of the last financial crisis was that banks couldn't even tell who owned the actual morgages or provide the actual signed loan documents to many borrowers.
If (or rather when) we have the next mortgage crisis it's going to be an absolute mess.
The other interesting tidbit I learned form her is that the bare minimal paperwork processing that will still get done is actively being outsourced to India. Just a reminder that one of the large problems to come out of the last financial crisis was that banks couldn't even tell who owned the actual morgages or provide the actual signed loan documents to many borrowers.
If (or rather when) we have the next mortgage crisis it's going to be an absolute mess.
So basically when that invariably happens (next mortgage crisis) we can expect more of the same...public losses, privatized profits.
The more immediate crisis will probably be due to other types of consumer debt. Take a look at auto lending and bundling as an example.
Not to mention the mountains of leveraged buybacks and leveraged buyouts. In my industry all the big players are bidding prices that can't possibly turn a profit for assets which they evidently hope to flip later. I think that kind of behavior is endemic at this point. So I think it's going to wind up being a corporate debt bubble.
From what I read this is predatory but in a different way - auto lenders want buyers to default, then they repossess the car while keeping the previous payments - basically like leasing out the car but higher profits.
Seems 2008 didn't cause enough misery for voters to understand their own interest.
But maybe the next one will be bad enough, or the one after that worse yet. I gather the last time this happened (1870s-1930s) it was a lot of fun.
But maybe the next one will be bad enough, or the one after that worse yet. I gather the last time this happened (1870s-1930s) it was a lot of fun.
[deleted]
Not being snarky--but did Trump promise anything specifically about bank regulation when he was campaigning?
Maybe the populist "drain the swamp" could be taken as a vague direction on this issue, but in any case he seems to have done the opposite.
Maybe the populist "drain the swamp" could be taken as a vague direction on this issue, but in any case he seems to have done the opposite.
Curious why this was downvoted? It is an honest question.
He said he wanted to "dismantle" Dodd-frank entirely. So he wanted to deregulate much more than this bill does.
[0]: https://www.nytimes.com/2017/01/30/us/politics/trump-dodd-fr...
[0]: https://www.nytimes.com/2017/01/30/us/politics/trump-dodd-fr...
The Treasury Secretary Steven Mnuchin more eloquently broke down their plan during his hearing in where he stated his primary goal is reducing the spurious regulations added to small/medium banks follow the crisis, while leaving the regulations for the large ones (most of which caused the original crisis). Which is exactly what this bill does by excluding big banks from the new reductions in regulation.
He provided many examples and cited data showing how the number of small banks has drastically shrunk since the regulation has passed, and directly related to it, causing the US banking market to further consolidate.
Ironically, there are now 5 major banks who control most of the market now largely as a result, while competition from smaller firms has declined drastically. So much for ending "too big to fail". Like most well intentioned democratic policy during the last decade intended to punish the larger banks for their destructive behavior, if anything they've come our stronger. Not to mention the bail outs with completely neutered terms in terms of bonuses and other potential disincentives for bad behavior.
It's one thing to say you want to restrict the power of banks to manipulate markets and generate risk, it's another to actually do it.
The fact this bill only benefitted small firms and kept the major banks under check sounds completely consistent with the Mnuchin's promises during his congressional hearing. He's on of the few Trump cabinet that seems highly competent and well suited for the job. I'm happy he has stuck around.
https://www.c-span.org/video/?421858-1/treasury-secretary-no...
He provided many examples and cited data showing how the number of small banks has drastically shrunk since the regulation has passed, and directly related to it, causing the US banking market to further consolidate.
Ironically, there are now 5 major banks who control most of the market now largely as a result, while competition from smaller firms has declined drastically. So much for ending "too big to fail". Like most well intentioned democratic policy during the last decade intended to punish the larger banks for their destructive behavior, if anything they've come our stronger. Not to mention the bail outs with completely neutered terms in terms of bonuses and other potential disincentives for bad behavior.
It's one thing to say you want to restrict the power of banks to manipulate markets and generate risk, it's another to actually do it.
The fact this bill only benefitted small firms and kept the major banks under check sounds completely consistent with the Mnuchin's promises during his congressional hearing. He's on of the few Trump cabinet that seems highly competent and well suited for the job. I'm happy he has stuck around.
https://www.c-span.org/video/?421858-1/treasury-secretary-no...
Thank you. I've been disturbed by much (though not all) of the coverage of this as if it's a complete repeal of Dodd-Frank.
This was a bipartisan act of congress, not a Trump thing.
How many Dem votes before a bill can be labeled bipartisan? 1? In my mind bipartisan should practically be nearly equal representation from both sides.
In my mind the bill needs significant representation from both sides to be bipartisan, but not necessarily equal. Unfortunately this had that.
It was both. It was a Trump campaign promise and some Democrats voted for it.
> Seems 2008 didn't cause enough misery for voters to understand their own interest.
This is just passive aggressive nonsense echoing the meme that the Dems represent citizens' interest any better than the GOP.
This is just passive aggressive nonsense echoing the meme that the Dems represent citizens' interest any better than the GOP.
So what's the solution? Keep voting Democrat forever?
You can't realistically ask a population to vote a party or politician forever. The real solution is to reform the U.S. political system so that people don't have Republicans as their only alternative to Democrats when the Democrats become too corrupt, as well, or people just grow tired of some of their policies.
You can't realistically ask a population to vote a party or politician forever. The real solution is to reform the U.S. political system so that people don't have Republicans as their only alternative to Democrats when the Democrats become too corrupt, as well, or people just grow tired of some of their policies.
A viable multiple party system is likely ideal but would need reformists in charge to bring it about.
Historically in the US, parties undergo radical change: FDR's party is very different from Wilson and even more so than Andrew Johnson; Harding's is very different than Lincoln's. We are in what is called the 6th party system if I'm not mistaken.
So practically speaking it could be that the primaries are more important than the actual elections.
Historically in the US, parties undergo radical change: FDR's party is very different from Wilson and even more so than Andrew Johnson; Harding's is very different than Lincoln's. We are in what is called the 6th party system if I'm not mistaken.
So practically speaking it could be that the primaries are more important than the actual elections.
First past the post systems generally converge to a two party equilibrium.
https://en.wikipedia.org/wiki/Duverger%27s_law
https://en.wikipedia.org/wiki/Duverger%27s_law
This is true, but it's orthogonal to the changes in parties themselves.
Sometimes a party goes away in name but continues in spirit, at other times an existing name is retained but the core philosophy of the party changes enormously.
For example the ordinary term for members of the Conservative and Unionist Party in England is "Tories" but legally Tories are a different and much older political party. The allegiances and policies shifted, those who opposed Whiggs in parliament hundreds of years ago and those today arguing about how exactly to leave the EU have almost nothing in common beyond being vaguely "centre-right".
Sometimes a party goes away in name but continues in spirit, at other times an existing name is retained but the core philosophy of the party changes enormously.
For example the ordinary term for members of the Conservative and Unionist Party in England is "Tories" but legally Tories are a different and much older political party. The allegiances and policies shifted, those who opposed Whiggs in parliament hundreds of years ago and those today arguing about how exactly to leave the EU have almost nothing in common beyond being vaguely "centre-right".
Vote for sane republicans in the primaries?
People who vote in primaries are often more invested in their party's ideology than those who don't. They then choose people who best represent that ideology best, regardless of their capability of running. Hence why We've seen more and more extreme candidates taking primaries.
So what's the solution? Keep voting Democrat forever?
Remind me who was President when the Glass-Steagall Act was repealed? That’s at the heart of all of this. And the so-called Community Reinvestment Act.
Remind me who was President when the Glass-Steagall Act was repealed? That’s at the heart of all of this. And the so-called Community Reinvestment Act.
Yeah, ever since Bill Clinton the democrats have been Republicans, and the Republicans have been ... something new.
Let's not be stupid... The repeal of Glass Stegal was the "Gramm–Leach–Bliley Act" in 1999. Those are 3 republicans in the name of that act. It was a republican house and Senate and some of the last months of the Clinton administration AFTER Bush had won election. It would've been passed under Bush but this way Clinton was able to also get some policies the Democratic party wanted in a lame duck session before he left.
False equivalencies do not make both parties the same.
False equivalencies do not make both parties the same.
Don't forget the Commodities Futures Modernization Act when assessing the damage of 21st century banking and the, ahem, "Great Recovery"....
https://en.m.wikipedia.org/wiki/Commodity_Futures_Modernizat...
https://en.m.wikipedia.org/wiki/Commodity_Futures_Modernizat...
[deleted]
Yes, Bill Clinton was a triangulating centrist who ended up with a kind of “Republican lite” message: still “business friendly” but now with less treasonous criminal conspiracy or international war crimes or outright war on labor or gross fiscal irresponsibility vs. the previous two administrations.
After his policy agenda got derailed (especially healthcare which he hoped would be one of his signature achievements) and his party was wrecked in the midterms, and then he got dragged into years of frenzied investigations into nothing, he ended up signing a lot of the legislation that the GOP-controlled legislature put on his desk over the coming few years, because he thought that would help him out politically. It didn’t really work, but we got a lot of terrible policy out of it.
I don’t think it’s fair to blame “Democrats” in general for a GOP-driven policy agenda though, just because Clinton didn’t veto every bill that came across his desk.
Also, in comparison to the administrations either before or after him (or if we compare their Supreme Court picks, ugh) Clinton looks positively dreamy.
After his policy agenda got derailed (especially healthcare which he hoped would be one of his signature achievements) and his party was wrecked in the midterms, and then he got dragged into years of frenzied investigations into nothing, he ended up signing a lot of the legislation that the GOP-controlled legislature put on his desk over the coming few years, because he thought that would help him out politically. It didn’t really work, but we got a lot of terrible policy out of it.
I don’t think it’s fair to blame “Democrats” in general for a GOP-driven policy agenda though, just because Clinton didn’t veto every bill that came across his desk.
Also, in comparison to the administrations either before or after him (or if we compare their Supreme Court picks, ugh) Clinton looks positively dreamy.
Bill Clinton
Why is everyone so against this? These types of laws tend to be worthless, except in one thing: Preserving incumbents (large banks in this case).
Large banks can easily deal with the law and keep right on going. All it does is make life much harder for smaller banks.
Large banks can easily deal with the law and keep right on going. All it does is make life much harder for smaller banks.
My vague understanding was that Dodd-Frank was a partial restoration of the pre-Clinton era limits on speculation... Is that not correct? In any case I don't understand how that helps preserve incumbents over small banks.
It does a LOT of stuff. Some good, some just paperwork. It's the paperwork part I'm talking about.
But it's such a large act that without knowing which parts were repealed it's very hard to discuss.
But it's such a large act that without knowing which parts were repealed it's very hard to discuss.
Just a note: paperwork is usually just data on disk now. Maybe a database or 10, or just a bunch of logs. But generally not as bureaucratically onerous as one envisions a ton of actual paperwork.
A virtual paper trail isn't a bad thing when you've got to (a) manage risks based on decisions made by these processes and (b) make sure you're obeying the law.
A virtual paper trail isn't a bad thing when you've got to (a) manage risks based on decisions made by these processes and (b) make sure you're obeying the law.
> A virtual paper trail
Having been involved in such a thing, I can tell you that the people writing the paper trail, and the ones actually creating/using the information on the paper trail have little to do with one another.
Those who create the trail are just trying to meet the rules, and care little about what actually is done. Those using the information care little about the rules, and just want some information. If you are lucky they might email and ask a question or two.
It's 100% useless. It just makes it look like there is information, there's nothing real there.
eg: Rule: You must secure your server. Paper writer: we secure our server. Sysadmin: No one talked to me about this, and even if they did I don't understand what you want from me, go away.
You get what I mean? It's worthless work.
Having been involved in such a thing, I can tell you that the people writing the paper trail, and the ones actually creating/using the information on the paper trail have little to do with one another.
Those who create the trail are just trying to meet the rules, and care little about what actually is done. Those using the information care little about the rules, and just want some information. If you are lucky they might email and ask a question or two.
It's 100% useless. It just makes it look like there is information, there's nothing real there.
eg: Rule: You must secure your server. Paper writer: we secure our server. Sysadmin: No one talked to me about this, and even if they did I don't understand what you want from me, go away.
You get what I mean? It's worthless work.
I'm working on regulatory reporting for a major bank and can assure that organizing this data from a database or 10 is a huge headache.
This is not specific to my bank it goes for every player in the industry.
I'm not critisizing this, just pointing out that the process is hugely more complex than just querying a few tables. Especially given that there's no margin for errors since they get hugely expensive.
This is not specific to my bank it goes for every player in the industry.
I'm not critisizing this, just pointing out that the process is hugely more complex than just querying a few tables. Especially given that there's no margin for errors since they get hugely expensive.
Yeah sorry, I wasn't trying to say that it wasn't still a pain in the ass.
Dodd-Frank is hugely costly. The Government Accountability Office estimates the total cost of the banks to reach compliance at almost $3bn over 5 years.
Remind me again what net profit the banking sector had during the same five year period? I know last year alone it was over $48 billion.
Am I surprised that the banks protected from competition by the moat created by Dodd-Frank regulations are highly profitable?
My point was that "$3 billion over five years is very costly" is a largely meaningless statement when applied to the entire backing sector.
Yes. $667M/yr spread over how many different businesses? How much of that was overlapping with work that already had to be done?
are the costs more onerous for smaller banks or are they proportional to bank size?
I imagine the costs can be somewhat seen along the lines of good old `y = ax + b`, where the coefficient `a` (variable cost) is more or less doable but the term `b` (fixed cost) is high enough that it turns into a non-starter for smaller banks.
I seem to remember talk to the effect that the minimum cost for a small bank was something like $20m plus.
Yes, this. Perhaps some of the Dodd-Frank reversal will indeed be good for smaller banks, but my guess without reading the bill is that they also removed a lot of the stuff that only affected the big banks or simply regulated the worst behavior that banks can have, like say over-charging customers on fees and stuff like that.
> All it does is make life much harder for smaller banks.
I don't think that's all it does. That's certainly one polarized way to look at it though.
I think the idea is that speculative lending is a race to the bottom that hurts everyone in the long run (banks and consumers), but it's profitable in the short-term. Instead of another boom/bust and repeating 2008, we try to have banks lend responsibly. That does potentially slow economic growth although some would argue it would go to realistic rather than artificial levels.
Wether the restrictions on the banks outweigh the protection for consumers is typically the debate.
I don't think that's all it does. That's certainly one polarized way to look at it though.
I think the idea is that speculative lending is a race to the bottom that hurts everyone in the long run (banks and consumers), but it's profitable in the short-term. Instead of another boom/bust and repeating 2008, we try to have banks lend responsibly. That does potentially slow economic growth although some would argue it would go to realistic rather than artificial levels.
Wether the restrictions on the banks outweigh the protection for consumers is typically the debate.
Sadly because HN suffers from way too many posters who are irrational when politics intrudes in the discussion. they just stop thinking and off the rails. just reading some of the comments for this story disappoint me to the point I flagged the article because its embarrassing.
Flagging people you disagree with does not further the discussion.
My understanding of the issue is that it was mostly a scaling falicy. A ratio of assets to loans was asserted by the federal government that banks and credit unions must operate within, but that ratio was too onerous for small players like credit unions with less than $1B in assets. I did marketing for a credit union that had to constantly stop doing auto loans or quickly double down to maintain a tightrope walk to stay inside those ratios. It was much easier to comply with at larger scale. Bad maths made a decent rule into something that had unintended consequences.
I can see it both ways. I have heard that the original restrictions were too onerous on small banks. But on the other hand, a failing asset class will affect multiple banks. It's possible that multiple community bank failures could act like a bigger bank failing.
I've been holding off buying a house until the next crash. Won't have to wait much longer.
You'll be waiting a LONG time. The next crash will be student loans. The one after that will be something else entirely.
There won't be another house price crash until there is another generation of people who forgot the old one. You could be waiting 20 to 30 years.
A truism of the financial world is that if you thought of it, so did everyone else. That means that unless you are truly original (you probably aren't) you can only make money on a particular position if that position is one that makes money if everyone does it.
A position that requires you to do it, and everyone else to do something else (like waiting on a crash to buy a house, while everyone else doesn't) isn't going to work. If you are waiting, so is everyone else, and that means everyone will buy, which means the price won't go down, and you have a self-canceling prophecy.
There won't be another house price crash until there is another generation of people who forgot the old one. You could be waiting 20 to 30 years.
A truism of the financial world is that if you thought of it, so did everyone else. That means that unless you are truly original (you probably aren't) you can only make money on a particular position if that position is one that makes money if everyone does it.
A position that requires you to do it, and everyone else to do something else (like waiting on a crash to buy a house, while everyone else doesn't) isn't going to work. If you are waiting, so is everyone else, and that means everyone will buy, which means the price won't go down, and you have a self-canceling prophecy.
Student loans are not large enough to matter in the regard you're referring to. The housing market mess was at least 30 times larger than the student loan mess.
Most student loans are in the government's hands, most of the interest goes to the Federal Government, not to eg JP Morgan or Bank of America. The US financial system has minimal exposure to student loans and the default problems.
You're talking about $400 billion of present high risk default potential. The housing market crash wiped out ~$25 trillion in paper wealth just in the US, including in the stock market. American wealth dropped by 40%.
That drop would be equal to $40 trillion today. The entire student loan market is $1.4 trillion, a fraction of that is a default problem.
The Fed was running $85 billion per month QE programs just to stabilize the housing market.
If it were necessary, the Fed could fix the student loan mess in six months of casual QE.
The 2008-2010 great recession took down dozens of global banks, including making two of the big four in the US insolvent. Dozens of large corporations from around the globe required short-term Federal Reserve loans to remain operational as the global monetary & banking system froze.
Student loan defaults are a $50 billion per year problem. The loaned out money was conjured out of thin air by the Fed and US Government (which does not have a surplus to lend); the interest being paid is paid on that same magic money. The Fed shovels large piles of cash back to the US Government every year. If they need $300 billion to fix it, they've got more magic money (ie the Fed will debase the dollar and 0.2% of the value of all dollar assets globally and they'll do a program with the US Treasury).
Most student loans are in the government's hands, most of the interest goes to the Federal Government, not to eg JP Morgan or Bank of America. The US financial system has minimal exposure to student loans and the default problems.
You're talking about $400 billion of present high risk default potential. The housing market crash wiped out ~$25 trillion in paper wealth just in the US, including in the stock market. American wealth dropped by 40%.
That drop would be equal to $40 trillion today. The entire student loan market is $1.4 trillion, a fraction of that is a default problem.
The Fed was running $85 billion per month QE programs just to stabilize the housing market.
If it were necessary, the Fed could fix the student loan mess in six months of casual QE.
The 2008-2010 great recession took down dozens of global banks, including making two of the big four in the US insolvent. Dozens of large corporations from around the globe required short-term Federal Reserve loans to remain operational as the global monetary & banking system froze.
Student loan defaults are a $50 billion per year problem. The loaned out money was conjured out of thin air by the Fed and US Government (which does not have a surplus to lend); the interest being paid is paid on that same magic money. The Fed shovels large piles of cash back to the US Government every year. If they need $300 billion to fix it, they've got more magic money (ie the Fed will debase the dollar and 0.2% of the value of all dollar assets globally and they'll do a program with the US Treasury).
This is really insightful, thanks!!!
1. Apply to graduate school
2. Max out student loans
3. Use funds to speculate on Real Estate, Dogecoins and/or Moviepass stock
4. ???
5. Profit!!!
On a more serious note, I agree with you that it doesn't make sense to wait for a crash. It is better to position yourself such that when a crash happens (whether it be real estate, equities or baseball cards) one is in a reasonable position to take advantage.
On a more serious note, I agree with you that it doesn't make sense to wait for a crash. It is better to position yourself such that when a crash happens (whether it be real estate, equities or baseball cards) one is in a reasonable position to take advantage.
> The next crash will be student loans.
Yes, and it will be ugly. It was already getting bad before the tax code overhaul, but now that the payment of interest on student loans is not deductible (by anyone, namely diligent debt-paying low-income grads for whom the tax deduction was originally intended, those making < $80K), it is kind of inevitable.
Yes, and it will be ugly. It was already getting bad before the tax code overhaul, but now that the payment of interest on student loans is not deductible (by anyone, namely diligent debt-paying low-income grads for whom the tax deduction was originally intended, those making < $80K), it is kind of inevitable.
The hot take is that the next crash will be the dollar.
Trying to time the market in real estate is probably as dumb and counterproductive as trying to time the stock market.
The biggest difference is that owning a home has tax advantages over stocks, so it's even worse to sit on the sidelines if you can get in responsibly.
If you're looking for a big gain in real estate, you'd do better to understand which local markets are heating up--this can be predicted from data with some reliability, unlike global crashes. (Note: sitting on the sidelines until a crash happens is not the same thing as predicting when a crash will happen.)
Whether buying a home is a good decision depends primarily on your own factors--savings, income, tax status, family status, job stability, where you want to live, etc. External factors like global financial trends have little impact.
The biggest difference is that owning a home has tax advantages over stocks, so it's even worse to sit on the sidelines if you can get in responsibly.
If you're looking for a big gain in real estate, you'd do better to understand which local markets are heating up--this can be predicted from data with some reliability, unlike global crashes. (Note: sitting on the sidelines until a crash happens is not the same thing as predicting when a crash will happen.)
Whether buying a home is a good decision depends primarily on your own factors--savings, income, tax status, family status, job stability, where you want to live, etc. External factors like global financial trends have little impact.
Can you share with the rest of hacker news why you think there will be a crash within the next 5 to 10 years?
It's nice that you're an optimist and you believe you'll easily be able to take your money out of the bank to buy a house when the next crash happens.
The risk of a run on US retail deposits is negligible due to the FDIC. The credit crisis in 2007-2008 was driven by run-prone shadow banking assets outside the purview of the FDIC, not by retail banking.
However, there is a significant risk of not being able to get a mortgage under reasonable terms in the event of another credit crisis.
However, there is a significant risk of not being able to get a mortgage under reasonable terms in the event of another credit crisis.
Nobody knows what's actually in Dodd-Frank, but a lot of people have opinions about it!
Sorry for the naive question, but what actually happened? WSJ is reporting that the big change is the increase from $50B to $250B for the definition of "large bank" subject to automatic "too big to fail" regulations.
Here's the list of ~30 banks affected according to wikipedia as of ~Jan 1, 2018:
rank, name, location, marketcap
13 Charles Schwab Corporation San Francisco, California $243B
14 State Street Corporation Boston, Massachusetts $238
15 BB&T Winston-Salem, North Carolina $221
16 SunTrust Banks Atlanta, Georgia $205
17 American Express New York, New York $181
18 Ally Financial Detroit, Michigan $167
19 Barclays New York, New York $157
20 USAA San Antonio, Texas $155
21 MUFG Union Bank New York, New York $154
22 Citizens Financial Group Providence, Rhode Island $151
23 Deutsche Bank New York, New York $148
24 Fifth Third Bank Cincinnati, Ohio $142
25 Royal Bank of Canada New York, New York $141
26 Credit Suisse New York, New York $141
27 UBS New York, New York $140
28 BNP Paribas New York, New York $139
29 Northern Trust Chicago, Illinois $138
30 KeyCorp Cleveland, Ohio $137
31 BMO Harris Bank Chicago, Illinois $131
32 Santander Bank Boston, Massachusetts $128
33 Regions Financial Corporation Birmingham, Alabama $124
34 M&T Bank Buffalo, New York $118
35 Huntington Bancshares Columbus, Ohio $104
36 Discover Financial Riverwoods, Illinois $100
37 Synchrony Financial Stamford, Connecticut $95
38 First Republic Bank San Francisco, California $87
39 BBVA Compass Birmingham, Alabama $87
40 Comerica Dallas, Texas $71
41 Zions Bancorporation Salt Lake City, Utah $66
42 E-Trade New York, New York $63
43 Silicon Valley Bank Santa Clara, California $51
What else is there? (besides partisan histrionics)
Xpost from Reddit: https://www.reddit.com/r/politics/comments/8ldxmj/comment/dz...
Here's the list of ~30 banks affected according to wikipedia as of ~Jan 1, 2018:
rank, name, location, marketcap
13 Charles Schwab Corporation San Francisco, California $243B
14 State Street Corporation Boston, Massachusetts $238
15 BB&T Winston-Salem, North Carolina $221
16 SunTrust Banks Atlanta, Georgia $205
17 American Express New York, New York $181
18 Ally Financial Detroit, Michigan $167
19 Barclays New York, New York $157
20 USAA San Antonio, Texas $155
21 MUFG Union Bank New York, New York $154
22 Citizens Financial Group Providence, Rhode Island $151
23 Deutsche Bank New York, New York $148
24 Fifth Third Bank Cincinnati, Ohio $142
25 Royal Bank of Canada New York, New York $141
26 Credit Suisse New York, New York $141
27 UBS New York, New York $140
28 BNP Paribas New York, New York $139
29 Northern Trust Chicago, Illinois $138
30 KeyCorp Cleveland, Ohio $137
31 BMO Harris Bank Chicago, Illinois $131
32 Santander Bank Boston, Massachusetts $128
33 Regions Financial Corporation Birmingham, Alabama $124
34 M&T Bank Buffalo, New York $118
35 Huntington Bancshares Columbus, Ohio $104
36 Discover Financial Riverwoods, Illinois $100
37 Synchrony Financial Stamford, Connecticut $95
38 First Republic Bank San Francisco, California $87
39 BBVA Compass Birmingham, Alabama $87
40 Comerica Dallas, Texas $71
41 Zions Bancorporation Salt Lake City, Utah $66
42 E-Trade New York, New York $63
43 Silicon Valley Bank Santa Clara, California $51
What else is there? (besides partisan histrionics)
Xpost from Reddit: https://www.reddit.com/r/politics/comments/8ldxmj/comment/dz...
Will be interesting to see what with some of these banks as they grow and start approaching the new $250B cliff. I suspect a lot of creative accounting and a glut of banks at the $249B level in a few years.
To be fair, deregulating small banks might make some sense..
If it's not too big to fail, then by all means let it fail :)
Ideally, you would follow it up by putting even stronger regulation on big banks.
Ideally, you would follow it up by putting even stronger regulation on big banks.
Apparently they would like a financial crash and a violent revolution?
In bound...
"A decade after the global financial crisis tipped the United States into a recession..."
should read:
A decade after the global financial cluster f#ck - orchestrated by irresponsibility and negligence on the past of the United States government, and its puppet master, Wall Street - politely refereed to as a recession..."
should read:
A decade after the global financial cluster f#ck - orchestrated by irresponsibility and negligence on the past of the United States government, and its puppet master, Wall Street - politely refereed to as a recession..."
That also pushed most of the western world and some other financial hubs into meltdown too! This doesn’t just affect the USA :(
My point was, the USA was the means and the ends, not just the ends. The USA was the perp, not the victim.
The NYT's wording attempts to rewrite history, badly. This is journalism?
The NYT's wording attempts to rewrite history, badly. This is journalism?
I wasn’t disagreeing with ya, just expanding on your point. The quote and article seemed to ignore the world wide impact 2007 had
Meanwhile what's being done about Fannie Mae and Freddie Mac? Nothing. It's being pushed around with the hope that everyone will forget about them until the next crisis.
This is actually a good thing, the regulations were a big burden to small banks. The roll back doesnt affect the "too big to fall" institutions but it really eases the pressure on local and regional players.
Dodd-Frank costs banks a lot of many but it doesnt scale with the size of the bank, smaller banks are subject to the same constraints as the biggest banks though they are not capable of causing a systemic crash. They should not be penalized for the actions of the bigger players.
Dodd-Frank costs banks a lot of many but it doesnt scale with the size of the bank, smaller banks are subject to the same constraints as the biggest banks though they are not capable of causing a systemic crash. They should not be penalized for the actions of the bigger players.
> smaller banks are subject to the same constraints as the biggest banks though they are not capable of causing a systemic crash.
Contagion (https://en.wikipedia.org/wiki/Financial_contagion) can still take place with a (literal) local bankruptcy depending on the exposure of larger institutions to that smaller firm's losses.
Contagion (https://en.wikipedia.org/wiki/Financial_contagion) can still take place with a (literal) local bankruptcy depending on the exposure of larger institutions to that smaller firm's losses.
It's about time. Dodd-Frank is an absolute embarrassment and is just bureaucratic nonsense, created so the gov can pretend they've done something.
Excellent, now if we can just stop manipulating risk assessment in the student loan market we'll be on track. Glad to be moving to the U.S. in the middle of what appears to a policy renaissance. Maybe something can be done about the budget, though I can't exactly judge each administration for not taking on such an abstract marketing challenge.
Pretty sure this only applies to banks with small holdings, so I'm not really sure why anyone's getting their panties in a knot.
Pretty sure this only applies to banks with small holdings, so I'm not really sure why anyone's getting their panties in a knot.
>Pretty sure this only applies to banks with small holdings, so I'm not really sure why anyone's getting their panties in a knot.
Definitely not small, maybe medium but even then depends how you define it. The relevant regulations are rolled back for banks with less than $250 billion in assets. So the megacorps like BoA and JPMorgan are still regulated but other very large entities aren't - American Express and BB&T were the examples I read earlier.
Definitely not small, maybe medium but even then depends how you define it. The relevant regulations are rolled back for banks with less than $250 billion in assets. So the megacorps like BoA and JPMorgan are still regulated but other very large entities aren't - American Express and BB&T were the examples I read earlier.
American Express is not a bank, and BB&T isn't a particularly big one (though they'll possibly cross this line soon). Apple Inc. has more assets than BB&T.
> Apple Inc. has more assets than BB&T.
it is Apple own assets, not deposited by somebody. Apple also is the biggest by valuation and in the first 10 by revenue worldwide. Not a good yardstick to compare with to showcase that somebody isn't a big one. I mean it is like saying that USS Enterprise isn't a big one because Caribean Princess is bigger :)
it is Apple own assets, not deposited by somebody. Apple also is the biggest by valuation and in the first 10 by revenue worldwide. Not a good yardstick to compare with to showcase that somebody isn't a big one. I mean it is like saying that USS Enterprise isn't a big one because Caribean Princess is bigger :)
thanks to fractional reserves most banks dont have any money
Why pick on student loans and not mortgages? The home interest tax deduction is a much, much bigger subsidy, with rather worse externalities ("housing crisis" vs. "a bunch of 20-somethings with worthless degrees).
Housing has collateral, the house and land it sits on.
A useless degree has zero value and can’t be resold to cover the dollars lost to unrepaid student loans.
A useless degree has zero value and can’t be resold to cover the dollars lost to unrepaid student loans.
That's talking about bank risk. The upthread point was about the government guarantee mucking with the market. And I pointed out that we're mucking with the market in much worse ways already. Leave the students alone.
How do you figure what degree is useless?
I mean, an art degree can easily lead to retail management. A business management degree often leads to the same sort of job. In some companies, you can earn these jobs working, but you are more likely to reach that management position at 30 instead of 23. These jobs don't pay all that much, true. But it is better than nothing and hey, if you went to college, you'll likely be a few years ahead of the peers that didn't. Theoretically, this will be a bonus. A teacher might not earn enough to cover their loan, especially if the person has an early childhood education (pre-school) degree as those jobs tend to be just slightly more than minimum wage. Yet few would argue that these are useless degrees. Some degrees become useless over time when a field is phased out, and others produce a few too many degrees when the field changes, rendering a few useless. Lawyers have experienced this - and not only that, but those lawyers that decide to do community work and be a criminal lawyer (especially a public defender) might not be able to afford his or her loans.
This is the problem with writing degrees off as useless due to earnings. Lots of professions will fall into that category, even if I get the feeling they are talking about things like art degrees - which some folks would argue are necessary. The only real way to avoid this is to make sure the student loans are affordable even in the worst situations. Make college not cost as much. Use alternative ways to provide education other than loans. Taxes are a good start for funding since overall, college degrees are good for the college at large.
I mean, an art degree can easily lead to retail management. A business management degree often leads to the same sort of job. In some companies, you can earn these jobs working, but you are more likely to reach that management position at 30 instead of 23. These jobs don't pay all that much, true. But it is better than nothing and hey, if you went to college, you'll likely be a few years ahead of the peers that didn't. Theoretically, this will be a bonus. A teacher might not earn enough to cover their loan, especially if the person has an early childhood education (pre-school) degree as those jobs tend to be just slightly more than minimum wage. Yet few would argue that these are useless degrees. Some degrees become useless over time when a field is phased out, and others produce a few too many degrees when the field changes, rendering a few useless. Lawyers have experienced this - and not only that, but those lawyers that decide to do community work and be a criminal lawyer (especially a public defender) might not be able to afford his or her loans.
This is the problem with writing degrees off as useless due to earnings. Lots of professions will fall into that category, even if I get the feeling they are talking about things like art degrees - which some folks would argue are necessary. The only real way to avoid this is to make sure the student loans are affordable even in the worst situations. Make college not cost as much. Use alternative ways to provide education other than loans. Taxes are a good start for funding since overall, college degrees are good for the college at large.
> How do you figure what degree is useless?
If it has no positive bearing on your employment prospects then, for the purposes of producing a livelihood, it's useless.
> I mean, an art degree can easily lead to retail management. A business management degree often leads to the same sort of job. In some companies, you can earn these jobs working, but you are more likely to reach that management position at 30 instead of 23. These jobs don't pay all that much, true. But it is better than nothing and hey, if you went to college, you'll likely be a few years ahead of the peers that didn't. Theoretically, this will be a bonus.
Spending tens of thousands of dollars for something that's "better than nothing" is lunacy. Might as well just give the money directly to those people so they can use it as a down payment for a house.
> A teacher might not earn enough to cover their loan, especially if the person has an early childhood education (pre-school) degree as those jobs tend to be just slightly more than minimum wage. Yet few would argue that these are useless degrees.
Most teacher's degrees are useless. I'm not suggesting we eliminate training or education entirely but a preschool or elementary school teacher does not need to spend four years at university to teach children ABCs or 123s.
> Some degrees become useless over time when a field is phased out, and others produce a few too many degrees when the field changes, rendering a few useless. Lawyers have experienced this - and not only that, but those lawyers that decide to do community work and be a criminal lawyer (especially a public defender) might not be able to afford his or her loans.
And it naturally sorts itself out over time. It happens to people without degrees as well. There were plenty of horse carriage drivers that had to find alternative work.
> This is the problem with writing degrees off as useless due to earnings. Lots of professions will fall into that category, even if I get the feeling they are talking about things like art degrees - which some folks would argue are necessary. The only real way to avoid this is to make sure the student loans are affordable even in the worst situations.
I'm not against people pursuing their dreams. I'm against them doing it with my tax dollars. If a future barista wants to spend four years partying at a liberal arts school studying underwater basket weaving then let her find her own sugar daddy to pay for it.
> Make college not cost as much.
Stop handing out boat loads of cash via student loans and college prices will plummet immediately.
> Use alternative ways to provide education other than loans. Taxes are a good start for funding since overall, college degrees are good for the college at large.
Or starve the beast and let it fix itself in the private sector.
Honestly the only government involvement I'd be on board with is on the supply side, primarily through nominally priced community colleges. At least there the outlays are fixed (i.e. fixed local budget), there's no money flowing to shady private sectors, there's no conflict of interest in juicing the price higher as it's coming out of the same pocket. I suggest nominal pricing over free as there needs to be some skin in the game for students as well though I'd want it to be low enough that a min wage job should cover it.
This approach also has the pleasant side effect of forcing private institutions to compete against nearly-free community colleges. Without Federal loans juicing their prices, they'd be forced to come down as well.
If it has no positive bearing on your employment prospects then, for the purposes of producing a livelihood, it's useless.
> I mean, an art degree can easily lead to retail management. A business management degree often leads to the same sort of job. In some companies, you can earn these jobs working, but you are more likely to reach that management position at 30 instead of 23. These jobs don't pay all that much, true. But it is better than nothing and hey, if you went to college, you'll likely be a few years ahead of the peers that didn't. Theoretically, this will be a bonus.
Spending tens of thousands of dollars for something that's "better than nothing" is lunacy. Might as well just give the money directly to those people so they can use it as a down payment for a house.
> A teacher might not earn enough to cover their loan, especially if the person has an early childhood education (pre-school) degree as those jobs tend to be just slightly more than minimum wage. Yet few would argue that these are useless degrees.
Most teacher's degrees are useless. I'm not suggesting we eliminate training or education entirely but a preschool or elementary school teacher does not need to spend four years at university to teach children ABCs or 123s.
> Some degrees become useless over time when a field is phased out, and others produce a few too many degrees when the field changes, rendering a few useless. Lawyers have experienced this - and not only that, but those lawyers that decide to do community work and be a criminal lawyer (especially a public defender) might not be able to afford his or her loans.
And it naturally sorts itself out over time. It happens to people without degrees as well. There were plenty of horse carriage drivers that had to find alternative work.
> This is the problem with writing degrees off as useless due to earnings. Lots of professions will fall into that category, even if I get the feeling they are talking about things like art degrees - which some folks would argue are necessary. The only real way to avoid this is to make sure the student loans are affordable even in the worst situations.
I'm not against people pursuing their dreams. I'm against them doing it with my tax dollars. If a future barista wants to spend four years partying at a liberal arts school studying underwater basket weaving then let her find her own sugar daddy to pay for it.
> Make college not cost as much.
Stop handing out boat loads of cash via student loans and college prices will plummet immediately.
> Use alternative ways to provide education other than loans. Taxes are a good start for funding since overall, college degrees are good for the college at large.
Or starve the beast and let it fix itself in the private sector.
Honestly the only government involvement I'd be on board with is on the supply side, primarily through nominally priced community colleges. At least there the outlays are fixed (i.e. fixed local budget), there's no money flowing to shady private sectors, there's no conflict of interest in juicing the price higher as it's coming out of the same pocket. I suggest nominal pricing over free as there needs to be some skin in the game for students as well though I'd want it to be low enough that a min wage job should cover it.
This approach also has the pleasant side effect of forcing private institutions to compete against nearly-free community colleges. Without Federal loans juicing their prices, they'd be forced to come down as well.
or discharged in bankruptcy... a student loan is repackaged indentured servitude
The problems are potentially even worse, because unfinished degrees are even more useless than abandoned houses. Nothing can be repossessed, so the consequence of defaulting more often than accounted for in the actuarials is a complete collapse with not even depreciated assets to repossess.
Interest being deductible is just one way of incentive ownership. In Canada they don't make interest deductible for your primary residence (you can deduct it for rental properties however), but you're exempt from Capital Gains tax when you sell your primary residence. It's not exactly the same, but it's trying to create similar behaviors. I imagine if you took away one, people would look for another deduction here.
Bitcoin should jump up in price.
lol i was going to say same thing, but seriously if this relaxes the prop trading at larger firms, and they decide to invest in bitcoin, bitcoin will go up. now, whether of not this portion does that, i don't know.
People really need to stop predicting market prices on internet forums. You have no hope of being right better than chance. Bitcoin is liquid enough that any news about law changes will have been incorporated into the price before you hear about it on Hacker News. If you actually believed yourself, you'd be betting money on it, not telling everyone. That shows that you don't believe what you're saying, so it's wrong to try to persuade other people. Wait till you got rich being right more than you were wrong, then tell people about it.
Are you familiar with the phrase, “shooting the shit”? That’s all we do in the comments here. You shouldn’t take them seriously.
I took GP's comment as somewhat tongue-in-cheek
These are the same anti-government folks who will whine endlessly about social services as 'handouts' and 'freebies' and look the other way while trillions go to subsidize the rich and powerful. This is ideology.
Either you believe in democracy or you do not. In a democracy the government is you, not an organization out to get you. Regulations exist to protect the whole from the greed of a few.
This mythical anti-government civilization full of freedom only works in a farming based frontier society that has occupied land and can give parts of it away for free to all new comers, where any government can only take away rights. But that time is long gone.