What Is the Dodd-Frank Act, and How Does It Affect Your Investments?

After the 2007-2008 financial crisis, the U.S. government took American tax dollars and used them to bail out major financial institutions like AIG. These institutions, which were mostly responsible for the recession, were deemed “too big to fail,” as they held many pension plans, portfolios, and other financial products for millions of Americans. Taxpayers were pretty peeved at the idea that their hard-earned money was being used to help out the actors and ne’er-do-wells who caused the problem in the first place.

Thus the Dodd-Frank Wall Street Reform and Consumer Protection Act (or Dodd-Frank Act) was created and voted into place. This act aimed to prevent such things from ever happening again, while imposing strict regulations on banks, hedge funds, and other major financial institutions. It aimed to see that no company was too big to fail and couldn’t get ever get to that point.

Now, the new executive administration is trying to get rid of the Dodd-Frank Act, as they feel it is unnecessary for a great number of reasons. To be fair, many financial experts on both sides of the aisle believe the same. Yet what does the Dodd-Frank act do specifically, and how does it prevent your investments from going belly up? CNBC recently tackled this issue with an informative and unironically hilarious examination of the famous Wall Street reform bill, and what they revealed could mean big changes to come for how you invest.

The Dodd-Frank Act set in protections to prevent the 2007-2008 crisis from ever happening again. Repealing the act could severely decrease the scrutiny of credit rating agencies, regulation of banks and other financial institutions, and more or less roll back the clock on how Wall Street is treated. This means that, yes, such a crisis would have a better chance of happening again in the future. Why one would get rid of consumer protection bureaus and regulations to prevent another crisis is anyone’s guess.

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