Exercise 1 – Listening Comprehension
Instructions:
Answer the questions, based on what is said in the document. For each answer, indicate the time on the audio document.
Question 1
What is the main argument of many Republicans and the financial industry regarding the new regulations passed in the wake of Dodd-Frank?
Question 2
What specific changes in Dodd-Frank are being proposed by House Republicans and the White House?
Question 3
Who is Elizabeth Warren associated with, and what agency was her idea?
Question 4
What is one major case that the CFPB has brought to light?
Question 5
What would be the possible outcome for the average consumer if the changes proposed by the House Republicans and the White House were put into law?
Question 6
What is one deeper problem that needs to be fixed according to Sheila Kohatkar?
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From WNYC, this is Money Talking. I’m Charlie Herman.
These days, when it comes to Washington…
Attorney General Sessions.
Attorney General Sessions.
Attorney General Sessions.
Attorney General Sessions.
Most of the attention has been focused on the probe of the Trump administration in Russia. This week, the Attorney General testified before the Senate Intelligence Committee.
Well, you let me qualify. If I don’t qualify, you’ll accuse me of lying.
So I need to be correct as best I can.
I do want you to be honest.
And I’m not able to be rushed this fast. It makes me nervous.
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But Wall Street is keeping its eye on another issue. The Trump administration will take the next steps toward scaling back banking regulations as early as today.
The House voted to pass the Financial Choice Act 233 to 186 (in June 2017). It’s a positive development for the White House’s deregulatory agenda.
This week, the Treasury Department released a report that includes many proposals to rollback regulations that were put in place after the financial crisis. This comes after House Republicans last week, without any support from Democrats, passed a bill that would go even further in dismantling those regulations.
Well, joining me to explain what this means for finance and for consumers’ pocketbooks, Arana Fruhar with The Financial Times, and Sheila Kohatkar with The New Yorker. And Sheila, what is the administration proposing and what’s the problem it wants to solve?
Well, the big argument that many Republicans have made and many on Wall Street in the financial industry has been that all of this new regulation passed in the wake of Dodd-Frank has been suppressing their ability to make loans. And if we remember what banks are meant to be doing and what their role is in the economy, they are meant to be loaning money to businesses so that those businesses can grow and hire people
and invest in new plants and facilities.
And many of them are not doing that and they’ve been blaming regulation. Now, there are folks who don’t completely buy their argument and believe that they’re just using that as an excuse to push back against new rules that may make it a little harder for them to make money speculating.
Arana, are some of the criticisms of Dodd-Frank…, are they justified?
Actually, Dodd-Frank was made into Swiss cheese and made a lot less effective by the financial industry itself. You know, they were the majority of the voices in the room when that legislation was being crafted.
So I definitely (am……….) asking criticisms about it, but the thing is if you’re going to throw out Dodd-Frank, which has taken almost a decade to craft and implement, you have to replace it with something that’s actually going to make the financial system safer. And I don’t believe that the Financial Choice Act is going to do that. And I really don’t think that the Treasury recommendations overall are a better substitution for what we’ve already got.
Well, Sheila, when you look at what the Treasury Department is proposing and the Financial Choice Act from the House Republicans, will it unleash economic activity when you look at the changes that they’re putting in there or will it unleash maybe something else?
Well, one of the biggest effects of these new Treasury proposals that Mr. Mnuchin released would be that banks keep a lot of capital on hand in case of a problem. And one of the issues we saw during the financial crisis is that all of these banks that held hundreds of millions, potentially billions of dollars of bad mortgage debt, did not have any cash to help cushion those losses.
And we saw some companies go into bankruptcy as a result. So the idea is that if you want to do certain types of things, you’re going to have to keep a big chunk of cash available if you need it, so the government doesn’t need to step in.
Whether it will release a big wave of economic activity and hiring and lending is a very debatable point. And I don’t think they have produced any evidence to at least convince me that these rules will do that.
And let me jump in and say, Sheila made a good point earlier, that the purpose of the financial system is to lend money to real businesses. But actually, the majority of money in the financial system is not going to new businesses. Most of it is going to the buying and selling of existing assets, stocks, bonds, securitization of houses. So basically trading in this closed loop that’s basically making rich people richer.
So, Rana, if the proposal from the House that now the Senate has to debate and consider, or the ideas from the Trump administration were actually put into law, would it make the financial system safer or would it make it a little riskier?
I think it would make it a little riskier. But I want to point out one important exception to that.
One thing I do like in the Treasury Department’s proposals is the idea of banks holding more capital, banks really having to keep a lot more money on hand in case of a crisis. Now, Treasury wants that to be done in exchange for them getting out of a lot of the rules, the Dodd-Frank rules. I’m not so keen on that. I still don’t understand why banks need to be doing a lot of risky trading.
But I think the idea of them becoming more safer and having a bigger sort of wad of cash on hand is a good thing.
Sheila, one thing that is really a target of both the House Republican proposal and the White House proposal is the Consumer Financial Protection Bureau, the CFPB, which has really done a lot to try and protect consumers. Why so much hatred for this agency?
I think it starts with Elizabeth Warren. This agency was her idea. It was a good idea. It has had one enormous case that everyone kind of knows about, which is this Wells Fargo fake account scandal case.
I mean, that was really brought to light by news reports and also by the CFPB, which brought an action against Wells Fargo. So I think there is a very strong argument to be made for this agency.
However, since it came into existence, the Republicans have been trying to strongly water down its independence. They want it to be basically under control of Congress and basically limit its powers.
And of course, if you do that, there’s going to be a trade-off in terms of what the CFPB can do and you’re going to run the risk that it will be operating at the mercy of political whim. And that is at odds with what it’s supposed to be doing.
I think for a lot of people who might be listening, so many of these terms, CFPB, Volcker rule, capital requirements, it’s just kind of financial gobbledygook. Sheila, what does all this mean and the possibility of these changes mean for the average consumer?
Well, for starters, it means that the costs of doing things in your financial life could go up. The cost of another crisis in the system, the chance of that happening again could increase. And I was reading some quotes maybe in the Washington Post from some of the House Republicans working on this choice act, complaining that it is now too difficult to get a mortgage. Well, I would just invite those people to go back a few years prior to 2007 when it was far too easy to get a mortgage. And it led to this enormous financial catastrophe and a lot of real losses up and down the economic spectrum. And I’m shocked at the short-term thinking at play here.
It’s a really good point. I mean, I think what’s really been very interesting is post-crisis. The biggest players in the housing market have been investors. It’s people with cash, lots of cash on hand. Blackstone is now the largest owner of single-family housing in America. And this goes to this deeper problem of what is the financial system for?
I think it should be for creating new jobs and businesses for funneling all of our savings into productive uses. Right now, it’s basically for speculation. And that’s what really needs to be fixed. And sadly, nothing that’s on the table is going to do that.
Rana Fruhar is the global business columnist at the Financial Times. And Sheila Kohatkar is a staff writer at The New Yorker.
Thank you both.
Thanks.
Thank you.
And this is Money Talking from WNYC.