- By David FrancisDavid Francis is a senior reporter for Foreign Policy, where he covers international finance. An award-winning journalist, David has reported from all over Europe, Nigeria, Kenya, Mexico, and Afghanistan on terrorism, national security, the geopolitics of energy, global economics, and the European financial crisis. His work has been published in outlets including the Christian Science Monitor, the Financial Times Deutschland, Slate, and SportsIllustrated.com.
On Thursday, while the country (and the world) watched ousted FBI director James Comey call President Donald Trump a liar with whom he did not want to be left alone, the Republican-controlled House of Representatives quietly rolled back financial regulations meant to prevent a repeat of the 2008 financial crash which led to the Great Recession.
Late Thursday, lawmakers in the lower chamber voted passed the Republican bill, called the Financial Choice Act, along strict party lines by a vote of 233-186. (One Republican voted against; not a single Democrat voted in favor.) The legislation essentially guts the Dodd-Frank financial regulations former President Barack Obama put in place in 2010.
Trump and other Republicans have long complained that Dodd-Frank saddled business with burdensome regulations that stunted economic growth; Trump famously noted during the campaign that friends of his couldn’t get loans, supposedly due to the minimal regulations put in place after the financial meltdown.
Under the terms of the law passed yesterday, some financial institutions with enough cash on hand would be exempt from limits on taking risks with its investments. It would also rid U.S. law of the notion of “too big to fail,” meaning taxpayers could no longer bail out large financial institutions that run out of cash, thus making sure that any future financial failures would guarantee a systemic threat to the entire global economy.
In addition, the bill would weaken the Consumer Financial Protection Bureau, a GOP target since its inception in 2010. It also would eliminate the Labor Department’s fiduciary rule, which requires brokers to act in the best interest of clients when providing advice about retirement.
“Every promise of Dodd-Frank has been broken,” House Financial Services Committee Chairman Jeb Hensarling, (R-Texas), the architect of the bill, Thursday to explain the need to dismantle protections meant to help people ravaged by Wall Street’s implosion.
“We will replace economic stagnation with a growing healthy economy.”
According to an analysis by the Congressional Budget Office, the bill would reduce federal deficits by $24.1 billion over a decade. But it also introduces an element of risk, as a “systemically important” financial institution could fail, just like Lehman Brothers did in 2008, triggering the near-meltdown of the global financial order.
The House GOP victory is likely to be short-lived. A bipartisan group of lawmakers in the Senate is working on their own proposal that would keep many Dodd-Frank protections in place.
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