Page 137 - TrumpsEconEra_Flat

Trump’s Economic Era

lobbying efforts of the investment community
succeeded in convincing Congress to repeal the Glass-
Steagall Act with the Financial Services Modernization
Act of 1999. The Financial Services Modernization Act
allows banks to compete with investment banks in these
risky ventures, leading to a repeat of the banking
collapse of the 1930s in 2007.

As part of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, the Volcker Rule
prohibits proprietary trading by banking entities—in
effect, reintroducing a significant portion of the Glass-
Steagall Act’s static divide between banks and security
firms. Proprietary trading occurs when a company
trades stocks, bonds, currencies, commodities, or other
financial instruments, with the firm’s money, as
opposed to customers’ money, making a profit for
itself. The Volcker Rule is 77 pages long with another
882 pages of explanation.
Keynesians tend to support the Dodd-Frank Law
and the Volcker Rule, whereas Austrian economists do
not. Austrian economists believe that the Dodd-Frank
Law encourages rent seeking because businesses can
sway regulators and gain favorable treatment. In the fog
of uncertainty, business interests will always trump
noble intentions. Regulators are usually the last ones to
predict transgressions. Small banks cannot afford
compliance costs of the Dodd-Frank Law.

If you understand the basics behind the Glass-
Steagall Act of 1933 and the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010, you get
a glimpse of the differing philosophies between Keyne-
sians and Austrians. The Glass-Steagall Act was simple
because it made a distinction between commercial

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