History of ECON - Book Report/Review Example

Essay, History 17 June How Dodd-Frank Act impacts wealth accumulation and distribution What is Dodd-Frank Act? This is a piece of legislation that provides the Federal government with the power to control the financial sector including the large banks. The act was adopted in 2010 in response to the financial crisis that hit the globe in the preceding couple of years. On paper, the Dodd-Frank Act aims to push for consumer protection by enforcing accountability on the banks and financial institutions’ end.

It also projects to minimize the overreliance of the economy on the large banks, thereby granting the Federal government the power to easily dissolve them when need be.How Dodd-Frank Act impacts wealth accumulationBefore the Dodd-Frank Act was passed, major banks on the Wall Street remained self-regulated in terms of borrowing and credit supply. This meant that these banks could freely borrow too much from the existing customer deposits and the general financial system. By this, they operated on too much debt that could go to unsafe levels.

On the other hand, the banks would use the borrowed money to fund their crediting exploits and thus creating unrealistic profits out of the loans. As a result, the banks would accumulate too much wealth and assets. This helped them pay their employees very high salaries while also remunerating their investors in the same measure. All this was done at the expense of the rest of the economy whose money fuelled all these activities. Banks did not seem to worry much about plunging into bad debts while engaging in these high-risk deals.

This is because they were aware of their indispensable nature and the knowledge that the economy will always need them. In fact, before the Dodd-Frank Act was adopted, the government had the responsibility to bail out banks which were unable to strike a balance in their financial intermediation role. However, the Act stipulated various new guidelines which now regulates the financial freedom that these banks enjoyed earlier on. Besides, it also provided more power to the Federal government in matters of dissolving the institutions that do not comply with these new regulations.

How Dodd-Frank impacts wealth distributionAs earlier mentioned, the primary reason for the formulation of the Dodd-Frank Act was to enhance consumer protection after years of harassment under the unregulated financial market. For this cause, the law led to creation of the Consumer Financial Protection Bureau that would be tasked with the responsibility of ensuring that consumers get a fair share of the financial benefits from their relationships with the banks.The role of the Dodd-Frank Act in reducing the growing wealth disparity among the American population centered on holding the financial sector players accountable for their actions.

This would be achieved by increasing regulations and enforcing some of the policies that surround the topic of wealth disparity. This would mean that the Federal government could now take more control in reducing the overdependence on the banks. Additionally, the government would also help dissolve any financial institution that proved too big and indispensable. All these regulations were meant to ensure that taxpayers no longer needed to assist in bailing out these banks in related cases in future.

The regulations also included limiting the large banks from engaging in business practices that would more often hurt the consumers, for example, risky lending. The Act also provided the consumer the power to fight corruption in the financial industry while also ensuring making it easy for them to access all the financial information they deem important.Works CitedDavidson, Adam. Wall Street Is Using The Power Of Dodd-Frank Against Itself. Nytimes.com. N.p., 2015. Web. 17 June 2015.