Written by Alan Binder, a professor of Economics at Princeton and former Vice Chairman of the Federal Research.
One response in Dodd-Frank was a "risk retention" rule requiring issuers of asset-backed securities to retain at least 5% of the credit risk, rather than pass it all on to investors. The idea was that a little "skin in the game" would make Wall Street firms a bit more cautious about what they securitized.
Weitz - insert congress joke here.
Just days ago, the regulators issued yet another notice of proposed rulemaking, soliciting comments on (among many other things) two ways to define QRMs. The lighter-touch option would exempt almost 95% of all mortgages from the skin-in-the-game requirement. The "tougher" option would exempt almost 75%. Does anyone doubt which option will be favored by interested commentators? After that, what will be left of the Dodd-Frank requirement?
In sum, the Dodd-Frank Act is taking on water fast. What can be done to help Americans remember the horrors that led to its passage?
Weitz - obviously, these are just some of the many ineffective tools used to "regulate" the banks. The reality is that the 'Too-Big-To-Fail banks are bigger than ever with more power than ever. I find it repugnant. Its one thing to run a great business and grow to a large size (ie. Microsoft). If you recall, Microsoft faced incredible challenges from the Department of Justice as a monopoly. The banks, on the other hand, were effectively rewarded for their utter failure(s) via bailouts and other benefits that are too numerous to mention in this particular blog-post.
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