The Dodd-Frank Banking Law was designed and enacted after the 2008 boom and bust of the housing market. It was created to protect the public from continued taxpayer bailouts of failed banks. It greatly tightened regulations on the banking industry. All the current hoopla about loosening those regulations overlooks a critical point, that under Bill Clinton, banks were forced to make bad loans. The Clinton administration wanted more or most people to own homes. In order for that to happen, banks had to make subprime loans to people who had no money down, who had poor income to loan ratios, and who even had credit problems. Dumping all those people into the housing market resulted in drive-by appraisals, poorly assembled loan packages, credit default swaps and derivative speculation. The situation was exacerbated by the Greenspan policies that kept interest rates way too low. Dodd-Frank's higher reserve requirements caused banks to hold more of the deposited money to meet those reserves so there was less money to lend and a real hesitation by banks to make even very good loans.
The Senate proposal to ease some of the Dodd-Frank rules will help stimulate the housing market, which in some places is so deficient that low and middle income earners cannot afford a rental much less to own a home. It will help community banks while still keeping a tight rein on the very large institutions. Dodd-Frank has some good points regarding banking practices which are only going to be effective if we remember how we got to the bursting of the bubble. If we have learned nothing else, let us remember that lending to people who have no ability to repay only hurts them and the lender.
