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America’s Brewing Debt Crisis

What Dodd-Frank Didn’t Fix

Cash back? Depositors crowding a bank, Cleveland, Ohio, 1933. Franklin D. Roosevelt Library

Almost as soon as the financial crisis struck in late 2007, policymakers began working to prevent another one. The roots of the crisis, they contended, lay in reckless lending and excess debt. Banks had made massive loans to “subprime” borrowers, who had little ability to repay them, and the banks funded these investments with borrowed money. When the U.S. housing bubble burst, millions of Americans defaulted on their mortgages, and the overleveraged banks collapsed. The government had to bail them out, and U.S. taxpayers picked up the bill.

In July 2010, U.S. President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Reformers hoped that the act—known as Dodd-Frank, after its Democratic co-sponsors, Senator Chris Dodd of Connecticut and Congressman Barney Frank of Massachusetts—would make another financial crisis less likely. And to some extent, Dodd-Frank has succeeded. During the crisis, too many financial institutions

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