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What is Dodd-Frank? | CNBC Explains - YouTube
Channel: CNBC International
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oh it's 2009 and people are furious the
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world is trying to dig itself out of the
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worst global recession since World War
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two millions have lost their jobs banks
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are falling like a pack of cards and
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there's a new US president in town
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trying to figure out what to do about it
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all you see all this pain can be traced
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back to banks and more specifically the
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risky behaviors that triggered the
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subprime mortgage and global financial
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crisis that's where the dodd-frank Wall
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Street Reform and Consumer Protection
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Act more commonly known as dodd-frank
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comes in the law was first proposed by
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the Obama administration in June 2009
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and after a series of revisions from
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Senator Chris Dodd and representative
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Barney Frank yes that's where the name
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comes from President Obama signed it
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into law in 2010 with almost no
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Republican support
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so what's inside dodd-frank and how is
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it supposed to prevent something like
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the financial crisis from happening
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again well it's a long and complex piece
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of legislation we're talking hundreds of
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pages long
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they're brought about the most
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significant changes to financial
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regulation in the u.s. since the reform
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that followed the Great Depression so
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how is dodd-frank supposed to protect
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you and me we brought in a few experts
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to explain
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dodd-frank created a new council made up
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of bigwigs from the Treasury secretary
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the Fed the SEC and more its goal is to
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keep banks hedge funds and companies
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from becoming too big to fail it does
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that by making firms keep more money on
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hand and they even have the power to
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break up companies that are a grave
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threat financial stability agencies such
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as Moody's and Standard & Poor's
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evaluate how risky an individual company
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or even a government is to lend to so in
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theory a bad rating warns investors that
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these debtors may not pay back their
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loan but during the financial crisis we
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learned a lot of risky debt was being
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given good ratings now these agencies
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are monitored and unreliable ratings
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could mean they lose their standing so
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the feds emergency loans during the
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financial crisis raised a lot of
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eyebrows which is why dodd-frank gave
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the government new power to audit these
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loans now the government has authority
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to audit the Fed again in the future and
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all emergency loans must be approved by
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the Treasury okay there are many types
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of derivatives ones that help keep the
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economy stable and ones that did the
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complete opposite one of the more
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controversial of these is the credit
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default swap here's how it works say
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you're giving a company a big loan it's
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a great deal you get all that money's
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back but what happens if the company
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goes bankrupt well that's where the
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correct default swap comes in it's sure
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insurance but before dodd-frank swaps
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weren't regulated and the sellers of
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credit default swaps didn't actually
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have enough money to pay out if the
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worst happened now thanks to dodd-frank
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these insurance type products are more
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heavily supervised
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so when you deposit your money into a
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bank you expect for it to be kept safe
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and sound
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but before dodd-frank banks could use
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your money to trade for their own
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personal gain now they have to get out
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of that business unless you specifically
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ask them to trade on your behalf so do
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all these new rules mean we'll never see
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something like the financial crisis
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again the jury's still out on that one
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supporters of the bill savers improve
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regulation and has made the US financial
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systems more stable but critics see
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dodd-frank as the Obamacare for the
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economy and argue it leaves Americans
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with fewer choices higher costs and less
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freedom so what is the future hold for
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an act which regulators even after five
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years have only completed two-thirds of
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dodd-frank was never popular with
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Republicans so it's likely with a
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Republican president and Congress some
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if not all could be pulled leaving its
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future an uncertain one still watching
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perfect click here to watch another
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watching
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