Donald Trump wants to rip up the financial rule book and let the bankers go hog-wild. But haven’t we tried that before?
Last Friday, the president announced a plan to scrap the rules that were put in place in 2010 to prevent another financial meltdown. Trump wants to return to the ‘good old days’ when the financial services industry could rip off clients with impunity, pile on the red ink, and operate trillion dollar brokerage houses on mere slivers of capital. Naturally, Wall Street applauded the president’s ‘bold idea’ by sending all three major stock indices soaring into record territory. The investor class knows a good deal when they see it.
Flanked by his crony friends for an après-announcement photo op, the billionaire president said he was going to roll back the toothless provisions in the 2010 Dodd-Frank financial reform bill so the banks and other financial institutions could resume the destabilizing and predatory activities that vaporized the financial system, wiped out an estimated $14 trillion in capital, forced 9 million homeowners into foreclosure, and left the global economy in a smoldering pile of rubble. According to Trump, the benefits of ditching the rules far exceed the risks which, of course, will be shouldered exclusively by the blue collar working stiffs who naively supported Trump’s bid for president thinking he had their best interests at heart. Hopefully, these people will realize that President Silverspoon has allied himself with the same thieving scoundrels who precipitated the 2008 financial crash and whose sole ambition in life is to feed their voracious appetite for more money.
Trump is particularly annoyed with the so called “fiduciary rule” which requires financial advisors to put the interests of their clients above their own. What kind of crazy idea is that? How’s a guy supposed to pay off his 32-bedroom beachfront estate in the Hamptons if he can’t shake down a few credulous punters from time to time?
Trump sees the rule as another example of onerous over-regulation and namby-pamby government meddling. He thinks it reduces lending and limits investor choice, when in fact it merely protects mom and pop investors from getting fleeced by incentives-driven werewolves who adeptly pick the pockets of gullible clients in order to beef up their own commissions. That’s the name of the game right there; scamming grandma to fatten the bottom line. Here’s more from the Wall Street Journal:
“The Dodd-Frank law spawned thousands of pages of rules designed to make banks safer. Now, with President Donald Trump looking to undo much of that legislation, banks are scurrying to prepare their wish lists….
Next up on bankers’ wish lists are changes to the so-called stress tests administered each year by the Federal Reserve. The exam is meant to gauge a bank’s ability to weather big shocks that could upend the financial system. While banks say stress tests have merit, they want a process that is more quantitative, less unpredictable and more collaborative. This is crucial for them since the tests help determine how much capital banks can return via dividends or share buybacks…
Aside from specific rules changes, many banks would welcome a change in tone among regulators, who have leeway in how they interpret rules. Some say relations between banks and regulators have become too adversarial in recent years.
That is one area where the administration may be able to have the most immediate impact. In the next 18 months, President Trump is expected to get the chance to appoint a variety of financial regulators from key Federal Reserve governors to the heads of the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau.
“There could be major changes just through the changes at the heads of the agencies,” said H. Rodgin Cohen, senior chairman of law firm Sullivan & Cromwell LLP. “And in some critical respects, [bank] supervision is the most important element. You don’t actually need legislation.” (How Big Banks Want Donald Trump to Change Regulation, Wall Street Journal)
Let’s summarize: Dodd-Frank created thousands of pages of rules designed to make banks safer. Trump wants to toss the whole damn rulebook on the burnpile ASAP. Got that?
Second, the banks want weaker stress tests so they don’t have to hold as much capital, that way they can juice stock prices by loading up on more of their own shares and creaming hefty profits off the gains. Unfortunately, “less capital” means more risk for the public because undercapitalized banks are more prone to go belly-up. Naturally, that doesn’t bother Trump who favors the riskier but more profitable option. And, why not? After all, Trump knows from experience that the cost of any meltdown will be borne by US taxpayers just like it was last time. So why worry about it?
Third, the banks want friendlier regulators (“Less adversarial”) that are more willing to bend the rules to make them look safer than they really are. Did I mention that G-Sax alums will hold posts at both the SEC (Jay Clayton) and the US Treasury (Steve Mnuchin)? That oughta do the trick, don’t you think?
So– in other words– whatever regulations President Wreckingball can’t obliterate outright, he’s going to undo by appointing ‘hands off’ regulators who simply ‘look the other way’ and ignore the predatory and fraudulent activities going on right under their noses. The Wall Street Journal even admits it openly. Check it out:
“The administration plans to change how postcrisis rules are enforced, many of which are at the discretion of regulators. This includes lighter enforcement of the so-called Volcker rule, which bars banks from making proprietary trades. The Consumer Financial Protection Bureau also could see a change in personnel.
There could even be some relief on capital requirements. ….The administration has enough power on its own to move the needle considerably, especially for the biggest Wall Street firms. Financial stocks, already among the biggest winners since the election, just got fresh fuel to go higher.” (Trump Reforms Are Stuff of Banker Dreams, Wall Street Journal)
This serious stuff, folks. Trump’s deregulatory rampage is going to impact the lives and living standards of every man, woman and child in this country. He’s going to turn Wall Street into a financial Fukushima that reduces the sputtering US economy to a toxic waste-dump incapable of supporting the nearly-extinct middle class. And, for what? To add a little more helium to a grossly-inflated stock market bubble? It makes no sense.
By the way, when the WSJ talks about “lighter enforcement of the so-called Volcker rule”, what they really mean is that the banks are going to have greater flexibility in the way they use government-insured deposits in their casino operations. Wouldn’t you like that? Wouldn’t you like to plop-down a big chunk of change on Seabiscuit at Churchill Downs, knowing that if you lose, the government will pick up the tab?
Sure, you would. Everyone wants that deal, but Trump thinks the perks should go exclusively to the banks because they’re part of the big club. And as George Carlin says, “You and me are not part of the big club.”
And what’s Trump’s beef with the Consumer Financial Protection Bureau, after all, didn’t they just fine Wells Fargo $100 million for opening bogus accounts without customers’ consent?
Yep, they sure did. And that’s what has Trump so rankled. The president doesn’t like the idea that his banking chums can get their wrists slapped by an upstart regulator on a crusade to clean up Wall Street corruption. He doesn’t like that at all. He’s going to decapitate the pesky CFPB, slash its budget, and make sure its troublemaking Director, Richard Cordray, is put out to pasture. You can’t have consumer advocates in positions of power who actually do their jobs. That just won’t do at all!
Gutting Dodd-Frank is just part of Trump’s masterplan to cozy up to the Wall Street heavyweights in order to consolidate his own personal power. That’s what’s really going on. Trump has already made the same ingratiating appeal to muck-a-mucks in the military, law enforcement and the intelligence community, now he wants to be buddy-buddy with the big money guys. It’s all a powerplay.
It’s just a pity his base hasn’t figured it out yet.
MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at firstname.lastname@example.org.