In 2010, Barack Obama signed the Dodd-Frank bill. That bill, which came after the 2008 financial crisis during George W. Bush’s second term, put in safeguards to protect Americans from bankers who took big risks. Risks that led to the 2008 crisis. That bill set up a two tier regulation system. One was for community banks. One was for regional and national banks. The 1st tier didn’t cause the crisis and generally have a pretty solid business model. They didn’t cause the 2008 crisis and didn’t need the heavy hand of regulation. The 2nd tier needed a higher level of regulation to prevent further crisis. Elizabeth Warren was a big supporter of this legislation and helped push it over the finish line.
Of course, the banks hated it. They lobbied and lobbied to eliminate or at least water down the regulations. In 2018, President Trump boastfully signed a bill that essentially rolled back many of the safeguards that Dodd-Frank installed. In particular, it gave those regional banks the ability to take on bigger risks and would not be subject to those pesky “stress tests” that would ensure solvency and keep American’s deposits safe.
Banks loved it. And immediately some went into high gear straight for those bigger risks including things like investing in cryptocurrency and other highly speculative ventures.
On the eve of that signing, Elizabeth Warren predicted what would come. Namely, those big risks would lead to bank failures and government needing to come in to attempt to save Americans from financial peril. A much higher price.
Elizabeth Warren was proven right last week when two banks went bust. Signature Bank and SVB bank became the 2nd and 3rd largest bank collapses in US History. The government had to step in (funny how the libertarians seem to go ghost when banks collapse) and is now in the process of rescuing depositors from financial ruin. Just like in 2008, it will be the American taxpayer paying for the sins of reckless bankers and the politicians (mostly Republicans led by Trump, but also a handful of Democrats) that danced to their music in 2018.
Elizabeth Warren joined Rachel Maddow Monday night — not to take a victory lap, but to offer solutions, as she always does. Warren isn’t a chest thumping egomaniac, but rather a pragmatic student of history and finance.
Warren identified 3 parts that led us here. First, was Trump and the members of Congress that went along with him. Second, was Jerome Powell, who was the chairman of the Federal Reserve in 2018. He took Trump’s ball and ran with it — deregulating things even further. Third, was the bank executives themselves. They were the ones who went out and “loaded up” on risk. Those big risks brought them bigger banks, bigger paydays for themselves, all at our expense, as it turns out.
So, how do we get back to a point where we don’t have to worry about the stability of these large regional banks? According to Warren, the answer is pretty obvious. Banking, especially at the big level, has to “be boring” again. Those banks need to be reregulated as they were before. Leaving things as they are is just too dangerous for Americans.
She also gave credit to President Joe Biden for his calm and measured leadership. He has done what is necessary to ensure that all the depositors will be made whole.
But now, the rest of the job needs to be done. Again, as Warren put it — banking shouldn’t be a playground for speculators who are ready, willing, and able to take these huge risks. They should not be where they go for bigger and bigger salaries, bigger and better private jets, and all those other perks. Banking needs “to be boring again.” The Trump bill needs to be repealed and we need to go back to the Dodd Frank regulations that kept Americans safe and banks in check.
Check out Elizabeth Warren and Rachel Maddow’s full conversation below …