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R.I.P. Dodd-Frank: Wall Street Is Unleashed – Again

Courtesy of Pam Martens

Yesterday the Office of the Comptroller of the Currency, the regulator of national banks, and the FDIC, which provides the taxpayer-backstopped Federal insurance to deposits at these banks, announced that they were going to “simplify” the Volcker Rule. Under the Trump administration, “simplify” is code for “gut.”

The Volcker Rule was part of the 2010 financial reform legislation known as Dodd-Frank. It outlawed deposit-taking banks from using those deposits to make wild gambles for the house, known as proprietary trading. It also required the banks to end their ownership of hedge funds and private equity funds where the banks can secretly dump losing positions or hide enormous losses in hard to price instruments. 

Wall Street hated the Volcker Rule so much that it made sure the rule never came into being. It has stonewalled the implementation of the rule for nine years and one month. Now the rule has been stripped of all of its meaningful components.

The gutting of the Volcker Rule was snuck through in the dog days of summer as families are busy getting kids ready to return to school. Five years ago, as families were busy preparing for the Christmas holidays, Citigroup’s lobbyists pushed through the repeal of the second most important aspect of Dodd-Frank. It was called the “push-out” rule which would have forced banks to move their tens of trillions of dollars in derivatives out of the Federally-insured bank unit into another unit that could be placed into bankruptcy or wound-down in the event of insolvency.

By keeping these dangerous derivatives in the Federally-insured bank, Wall Street effectively guaranteed itself another bailout if it blew up the U.S. economy again.

Vox explained on December 17, 2014 how the dirty deal on the “push-out” rule went down:

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