Are We Headed For Another Financial Crisis? | Dodd Frank and San Francisco

Remember the too big to fail banks? They are still a problem. I don’t know when the next crisis is coming, but it’s inevitable. Too many of the problems at the root of the 2008 crisis have never been solved. This video lays out how Dodd Frank made everything worse. But it has created a situation that won’t be improved by repeal. It’s one of those catch-22 things basically.

I love it when the environment I’m in inspires a video. San Francisco is an interesting place. There’s a ton of money everywhere, and a ton of poverty too. I’m currently in the midst of a tour of the West Coast, staying anywhere there is a free couch, and San Francisco has probably been the most inspiring city. That’s not necessarily a good thing. Market Street, where the bulk of this video is set, has a ton of history (For California). The street has seen multiple cycles of boom and bust since the mid 19th century. The current vibe is definitely boom.

A few blocks away the Salesforce Tower is currently going up. It will be the tallest building in San Francisco and the second tallest west of the Mississippi. It’s hard not to think of the “edifice complex”. Nothing signals a coming downturn like a massive new skyscraper. NYC’s Empire State and Chrysler Buildings went up during the beginning of the great depression. The buildings that ended US dominance in the Skyscraper game, Malaysia’s Petronas Towers, were finished in 1996, one year before the Asian Financial Crisis. The Burj Khalifa, the biggest of them all (so far) signaled a financial crisis for Dubai.

The Salesforce Tower ends the video, but it definitely cast the mindset for the whole thing. That and Wells Fargo’s hilariously bloated presence in downtown SF put me in mind of financial crises past and future. I don’t know when the crisis will hit. Who knows, we could be at the beginning of a great boom rather than its end. But if our banks continue to be structured the way they are, we’re going to be in trouble eventually regardless. Hugs!

This video convinced me to put together a new playlist “MFF on the Markets“. The channel tends to be a little more focused on history and geopolitics, but I’ve been a stockbroker and a corporate lawyer in my day, so I’ve got some stuff to contribute on the topics of law and markets when I can stomach it. I was surprised that the playlist came to 34 videos. Check ’em out!

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Video Transcript after the jump…

Have you ever noticed the way banks celebrate their kills?

This is one of dozens of Wells Fargo branches on and around Market Street in San Francisco. But if you look closely you can see the bones of the institution that built the building.

I love Capitalism. But I do not like the US banking system. In 2008 the too big to fail banks almost killed us. Everybody has their favorite explanation for the crisis. But nobody disputes the structural issue that faced US regulators in the fall of 2008. Shit went haywire, banks started failing and we had a problem.

Banks that screw up should fail. That’s capitalism, or how it should work anyway. The problem was that US and world banking entities had gotten too big to fail. If they failed they’d take the whole system with them. So they had to be saved. The necessary measures in 2008 and 2009 made the problem worse. The banks got bigger. Wells Fargo in particular made out like a bandit, scooping up the remnants of Wachovia, a bank that was juuust small enough to fail.

Once the crisis passed we took a look at what we could do. The answer Washington, DC gave us was the Dodd Frank act. It was supposed to help with the too big to fail problem, but it also did about a million other things. In 22,000 pages of regulation, it tackled every problem under the sun. It certainly made the business of banking less attractive. I’m no expert, but I wouldn’t be surprised if it also made a lot of other economic activity harder as well.

One thing is not in dispute. It made the too big to fail problem worse. Every bank in the world now needed a couple Wall Street lawyers to comply with all this stuff. The bigger a bank was, the better it was going to be at complying with all these new regulations. The few provisions in Dodd Frank that actually hit big banks, like the Volcker Rule, have been implemented slowly, and against all the road blocks that teams of lawyers can throw up. The legislation has been great at protecting big banks from competition. Many smaller banks, who can’t afford Wall Street lawyers, have given up and closed.

So Dodd Frank failed to address the main problem. The stock markets have been surging lately, largely on the expectation that Trump will do away with the Dodd Frank reforms. 5 of the 30 firms that make up the Dow Jones Industrial average are financial firms, and they’re all surging. This may lead to some short term economic growth, but it’s worth taking a second look.

Dodd Frank protected too big to fail banks throughout the Obama years. Trump may take the leash off, and let them go crazy. This leaves us in the same position we were in the early 2000s, but worse. The structural problems are all still there, and they are getting bigger. So yeah, the dancing days are here again. San Francisco has a new tallest building going up South of Market. But I’m worried about the foundations.

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