Does Dodd-Frank really help with ‘Too Big to Fail?”

Ted_Kaufman_credit_Business_InsiderHuffingtonPost carried a column by Ted Kaufman, former U.S. Senator from Delaware.  Kaufman’s article questions if the Dodd-Frank reform; “Would it actually prevent another taxpayer bailout of a bank or banks to avoid a financial meltdown?” Delaware’s former senator briefly outlined the history of mortgage instruments, which in the 1960s were recorded in that county.  By the 1990s,  “…banks developed a system that combined many individual mortgages into a security that was then sold to investors. This securitization led to a dramatic increase in the rate at which ownership of mortgages changed hands.”  To avoid repeated county record changes, major banks devised the Mortgage Electronic Registration System. MERS was supposed to fix the problems inherent in securitization. Recent legal actions have proven otherwise. Major banks are in settlement negotiations with the 50 states’ attorneys general. With mistakes, abuses, and fraudulent activity, hundreds of billions are be at stake. Kaufman asks: “Could the financial system survive the failure of one or more megabanks or would the government once again have to use taxpayer finds to bail them out?” and added “It is time for all the regulators to commit to increasing capital requirements on the megabanks, and reducing their size. A good first step would be to unwind the mergers made by the megabanks during the financial crisis.”

(photo credit: Business Insider)

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