Banking regulator nominees Joseph Otting and Randy Quarles shake hands with Donald Trump (illustrated)

So far, Donald Trump has not hired all “the best people”: Ask him about Mike Flynn, Paul Manafort, or Anthony Scaramucci.

His picks for top banking regulators don’t sound especially promising, either. One named Joseph Otting ran a bank that illegally foreclosed on thousands of people’s homes and faked a degree from Dartmouth. The other, Randal Quarles, previously worked at the Treasury Department — where he didn’t do much to prevent the housing crisis — and admits he wants to change some of the regulations that created the CFPB.

But on one big point, I find myself in the weird position of agreeing with Trump’s nominees for the Office of the Comptroller of the Currency (Otting) and vice chair for supervision of the Federal Reserve (Quarles). Here’s a snippet from their testimony to the Senate Banking Committee…

Sen. Joe Donnelly, an Indiana Democrat, pressed the pair on what they fear was the most likely to ruin the economy the way housing did during the Great Recession.

 

“Is there anything on the horizon you look at and say, ‘this could be a problem,’” Donnelly said.

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“I think student loans are an issue, if you really look at it from an underwriting perspective,” said Otting. “I think the auto loan market got a little overcooked. I think it’s pulled back a little bit now where terms were getting aggressive, loans to value were getting aggressive.”

 

“I would agree with both of those points,” added Quarles.

They almost sound like Debt.com readers.

A mountain of debt and no action

Debt.com chairman Howard Dvorkin has argued auto loans will trigger the next recession, while I’ve shared my fear it will be student loans. Each type of consumer debt tops a trillion dollars right now, and student loans have the highest delinquency rate of all consumer debts. New statistics from the Fed for Q2 2017 came out just this week…

  • Student loan debt: $1.45 trillion
  • Student loan delinquency: 11 percent (not including loans in deferment, forbearance, or grace periods)
  • Auto loans: $1.13 trillion
  • Auto loan delinquency: 3.8 percent

Rather than addressing the problems, Congress is busy with still trying to repeal Obamacare. When they and Trump get back from vacation, they need to focus on a spending bill just funding the basic functions of the federal government. That is to say, they can’t deal with the federal debt, much less consumers’.

Meanwhile, the Education Department is still fighting against students who are doing everything they’re supposed to do to get rid of their student loans.

If either of these guys does anything to help shield taxpayers from the risks of these giant consumer debts, they’ll instantly shoot to the top of my favorite-Trump-people list. (Which, admittedly, isn’t much of a list.)

Do they fit the bill?

Trump tends to hire two types of people. There’s the group that is clueless about how government works, but are utterly loyal — the Ben Carsons of the administration. Then there’s the group that is competent enough to be dangerous, and in my view, hostile to their job’s role — the Mick Mulvaneys and Scott Pruitts.

I’m not sure yet that Otting and Quarles fit in either category, which makes me wonder how involved he was in vetting them. But they certainly seem closer to the latter type: the dangerous type.

Quarles wants to provide more transparent guidelines to big banks before they get “stress tests.” Democrats worry that’s like giving them a cheatsheet so they can make their business practices look more sound than they actually are and hide any problem areas before the regulators come knocking. He wants to relax other post-recession regulations, too.

He’s previously said “the government should not be a player in the financial sector. It should be a referee.” While it was in the context of bailing out banks, which he thinks should be allowed to fail, it makes me wonder if he thinks privatizing student loans is a solution.

But The Wall Street Journal rounded up a lot of things Quarles has said over the years, and there is some light. Quarles also said “In some ways Dodd-Frank was not ambitious enough and I think there are lots of ways to refine,” and that removing government-sponsored housing entities like Fannie Mae and Freddie Mac is “politically achievable.”

So, he sounds like a bit of a realist, or at least more thoughtful than the typical Trump nominee. And that’s important. Quarles would be the first — but probably not the last — Trump pick to serve on the board of the Federal Reserve, which has a lot of power over the economy through setting interest rates and overseeing the banking system.

Then there’s Joseph Otting. He has a lot of banking experience, and his job as the head of the Office of the Comptroller of the Currency would be regulating the roughly 1,000 banks left standing in the U.S.

He worked closely with Treasury Secretary Steve Mnuchin at OneWest, a bank that settled with the Department of Justice earlier this year for defrauding the government out of insurance payments and which was notorious for its role in the big “robo-signing” foreclosure scandal. It’s not clear he would step up enforcement of anything, but it’s also not clear he would go for wholesale dismantling like we’re seeing at, say, the Environmental Protection Agency.

Both Otting and Quarles said “they believed the 2010 Dodd-Frank overhaul of financial regulations had made the banking system stronger but indicated that they supported some changes,” the Los Angeles Times pointed out. That’s quite different from Trump’s vision — and probably the best we could hope for until we have a president who believes in bigger financial reforms.

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Article last modified on August 29, 2017. Published by Debt.com, LLC . Mobile users may also access the AMP Version: I Agree With Trump’s Top Banking Regulators - AMP.

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Article last modified on August 29, 2017. Published by Debt.com, LLC .

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