There has been a lot of buzz around the prospect that President Trump might repeal the infamous Dodd-Frank act, put into place in 2010, and now it appears that it wasn't just talk. Trump, once again, put his money where his mouth is just signed the repeal of the act and it is getting a huge reaction.

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BRAVO! President Trump just signed the repeal of the horrible 2010 Dodd-Frank law, putting an end to one of the most draconian regulations on the US financial market since the Great Depression.

Liberals such as the law’s co-authors, former Reps. Barney Frank (D-MA) and Christopher Dodd (D-CT), pretend that the law is about protecting consumers. However, the only thing that Dodd-Frank is doing is protecting American families from buying a home.

Dodd-Frank restricts the types of loans that American banks and non-banks are allowed to offer consumers. The law also outlaws pre-payment penalties, effectively freezing lower-income borrowers out of the mortgage loan market. Unless lenders can protect themselves against a below-prime borrower’s prepaying a home loan in the first couple of years, there is no incentive to make the loan in the first place.

Watch Trump signing the appeal of this draconian law:

William K. Black – professor of economics and law, and the senior regulator during the S & L crisis – explained to the Financial Crisis Inquiry Commission why banks gave home loans to people who they knew couldn’t repay.

Zero Hedge explains the situation in further detail:

The whole piece is a must-read, but here are excerpts from the introduction:

The data demonstrates conclusively that most liar’s loans were fraudulent, which means that there were millions of fraudulent mortgage loans because liar’s loans became common (Credit Suisse estimates that they represented 49% of new originations by 2006). The data also demonstrate that even minimal underwriting of the loan files was sufficient to detect the overwhelming majority of such fraudulent liar’s loans. No honest, rational lender would make large numbers of liar’s loans. The epidemic of mortgage fraud was so large that it hyper-inflated the housing bubble, which allowed refinancing to further extend the life of the bubble (and the depth of the ultimate Great
Recession.

In the cases where there have been even minimal investigations (New Century, Aurora/Lehman, Citi, WaMu, Countrywide, and IndyMac) senior lender officials were aware that liar’s loans were typically fraudulent.

The lenders could not make an honest business out of selling overwhelmingly fraudulent mortgages.

Liar’s loans were done for the usual reason – they optimized (fictional) short-term accounting income by creating a “sure thing” (Akerlof & Romer 1993). A fraudulent lender optimizes short-term fictional accounting income and longer term (real) losses by following a four-part recipe:
A. Extreme Growth
B. Making bad loans at a premium yield
C. Extreme leverage
D. Grossly inadequate loss reserves

Note that this same recipe maximizes fictional profits and real losses.

This destroys the lender, but it makes senior officers that control the lender wealthy. This explains Akerlof & Romer’s title – Looting: The Economic Underworld of Bankruptcy for Profit.
The failure of the firm is not a failure of the fraud scheme.
(Modern bailouts may even recapitalize the looted bank and leave the looters in charge of it.)

There is no honest reason for a secured lender to seek or permit inflated appraisal values. This is a sure marker of accounting control fraud – a marker that juries easily understand.

In other words, banks made loans to borrowers who they knew couldn’t really repay because the heads of the banks could make huge bonuses based on high volumes and fraudulent appraisals, and they didn’t care if their own companies later failed.

In short, they looted their companies and the economy as a whole.

Professor Black brings us current to where we are today:

History demonstrates that if the control frauds get away with their frauds they will strike again.

Please share this story on Facebook if you think Trump made the right call.

 

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