Trump whined about the “rigged system” behind Hillary Clinton. How she gave speeches to Goldman Sachs.
Then he won and stacked his cabinet with Goldman Sachs executives — including key roles like Treasury secretary and director of the White House National Economic Council.
That’s not the difference between a guy looking for votes and someone stuck staffing the federal government. Every president goes through those growing pains. But Trump is full of contradictions, especially when it comes to finance. I spend time every day trying to follow his gold-plated train of thought, and I have no clue what he thinks. I’m not sure he does, either.
Most people are like Trump here — they don’t know Dodd-Frank from any other Tom, Dick, or Harry. And since you’re not president, you don’t really have to. But since it affects your wallet, it sure wouldn’t hurt to learn. Check out the video below, and then I’ll explain the key points Trump can’t be bothered with.
The big question is what Trump thinks about the Financial CHOICE Act. (That’s short for “create hope and opportunity for investors, consumers, and entrepreneurs” Act. Congress loves stupid acronyms.) It would effectively be a Republican repeal-and-replace of the Dodd-Frank Act, and it’s much further along than their alternative to Obamacare.
What is Dodd-Frank about?
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was the biggest financial regulatory reform since the Great Depression — and it happened because we almost had another one. (Hence the nickname Great Recession.) The law gave us three big things.
1. The Consumer Financial Protection Bureau, my favorite federal agency. It has a lot of regulatory powers that Republicans hate because, it seems, the agency does things with them. The CFPB has saved consumers millions of dollars in ridiculous and unfair bank fees, and introduced regulations to keep lenders more honest and less abusive. It’s fought everyone from America’s largest student loan servicers to the credit bureaus to medical debt collectors — and won.
The CHOICE Act would render the CFPB toothless, just like its author Rep. Jeb Hensarling (R-TX) — whose top campaign donors are banks, rent-to-own companies, pawn shops, and insurers — wants. Every new financial regulation would have to be explicitly authorized by Congress, which currently seems incapable of legislating its way out of a paper bag. (But it could probably give the bag a pretty name, or undo any rules President Obama made about the bag’s color.)
2. Protections against another financial crisis caused by a too-big-to-fail investment bank like Lehman Brothers. These work in two ways — they make the actual likelihood of a bank failing go down, and they provide investor confidence in the banking system as a whole, which in a twisted way also helps prevent the bank from failing.
Essentially, banks have to maintain an emergency fund just like experts tell consumers to — quick-access cash they can use when things get rough so they don’t have to take on debt and get in over their heads. The biggest banks also have to draw up a “living will” of sorts, providing regulators with a bankruptcy contingency plan every year so the federal government won’t have to step in and make snap decisions if things start falling apart. The CHOICE Act would take away that option and go back to the old choices of “economy-wrecking bankruptcy” or “taxpayer bailout nobody wants.” Yay, choices.
Banks also have to submit to periodic “stress tests” to see if they would survive a hypothetical financial crash, and get regulatory approval to make stock changes like increasing dividends. The CHOICE Act would make these tests less frequent, and let them opt out of many other Dodd-Frank requirements if they hold onto enough cash.
3. The Volcker Rule. In some ways this is the centerpiece of the law. It’s an echo of the Depression-era Glass-Steagall law that was finally repealed in the 90s after being repeatedly watered down over the years. It essentially restricts banks from making high-risk, high-reward investments like in hedge funds.
While the rule was put in place two years ago, it’s still being phased in to give banks time to get out of complicated investments — the deadline is July 21 of this year. That’s likely why the Financial CHOICE Act is being pushed now.
Trump has called the Volcker Rule “a disaster,” and we already know Trump wants to rework the CFPB — if he can get away from self-inflicted scandals long enough to figure out how. And now we’re hearing he wants to change the Volcker Rule.
The Trump administration’s newest financial regulator is Keith Noreika, hired last month after years as a lawyer advising big banks on mergers. His third day on the job, before he even recognized the acronym for his job title (Comptroller of the Currency), he told The Wall Street Journal he could “reinterpret” the Volcker Rule to allow proprietary trading.
That’s when banks use their own money (instead of consumer deposits) to make profits for themselves, although Noreika claims “no one knows what prop trading is.” He also says he could make that change without asking the other four federal agencies in charge of enforcing the Volcker Rule.
The kind of risk-taking the rule prevents, of course, was a large part of what caused the recession. “Reinterpreting” it would make financial gambles especially appealing when interest rates are low — like they are right now. Depending on the timing, and how banks react, it could make a recession in 2018 more likely.
It’s OK when I work for Goldman Sachs
From the beginning of his campaign, Trump acted like he was a champion for the little guy. In the Republican primary, he bashed rival Ted Cruz repeatedly because his wife works for Goldman Sachs…
Was there another loan that Ted Cruz FORGOT to file. Goldman Sachs owns him, he will do anything they demand. Not much of a reformer!
— Donald J. Trump (@realDonaldTrump) January 16, 2016
Lyin' Ted Cruz just used a picture of Melania from a G.Q. shoot in his ad. Be careful, Lyin' Ted, or I will spill the beans on your wife!
— Donald J. Trump (@realDonaldTrump) March 23, 2016
He accused Bernie Sanders of being a sellout to Goldman Sachs in a one-two punch…
Bernie Sanders endorsing Crooked Hillary Clinton is like Occupy Wall Street endorsing Goldman Sachs.
— Donald J. Trump (@realDonaldTrump) July 12, 2016
Then, in both debates and ads, he repeatedly tied Clinton to Goldman Sachs. Check out his final campaign ad before the election, painting Clinton and Goldman Sachs CEO Lloyd Blankfein as champions of “the establishment that has trillions of dollars at stake” and “global special interests”…
That’s candidate Trump. President Trump turned around and hired…
- Treasury Secretary Steve Mnuchin, a former Goldman Sachs partner who ran his own hedge fund
- National Economic Council Director Gary Cohn, former Goldman president
- Securities and Exchange Commission Chairman Jay Clayton, the Wall Street lawyer who helped Goldman Sachs get a financial bailout
- Deputy National Security Adviser Dina Powell, who was a managing director and partner at Goldman Sachs
- Chief White House Strategist Steve Bannon, who used to work at Goldman Sachs but admittedly would probably prefer to see it burn now
Trump also nominated Goldman Sachs managing director Jim Donovan for deputy Treasury secretary, but he declined.
Trump’s stinking hypocrisy aside, Gary Cohn is an interesting pick — because he’s a lifelong Democrat and Obama supporter interested in bringing back Glass-Steagall. Why? One Fox News opinion writer mused it would probably hurt Goldman Sachs less than its competitors. But doing the right thing for the wrong reasons is probably the best I can hope for in a Trump administration.
A new Glass-Steagall?
While effectively talking about gutting the Volcker Rule, acting comptroller Noreika also mentioned the administration was at “the very beginning stages” of a new version of Glass-Steagall. That’s the post-Depression law that separated commercial lending banks from investment banks, and which gave us the Federal Deposit Insurance Corporation — the only thing that keeps you from losing all the money you have in a bank if it goes under.
It’s not clear what a Trump-Glass-Steagall would look like. Noreika told the WSJ “there is a safety and soundness” in having the two types of banking affiliated. The law was mentioned in the official Republican Party platform last year, but only in passing: “We support reinstating the Glass-Steagall Act of 1933 which prohibits commercial banks from engaging in high-risk investment.”
Trump himself said at the start of the month he is “looking at” breaking up the big banks. “There’s some people that want to go back to the old system, right? So we’re going to look at that,” Trump told Bloomberg. Of course, that’s also right after he reversed course on NAFTA and his often-repeated campaign promise to name China a currency manipulator.
If we go by Trump’s actions so far — and not his contradictory words — the odds of new banking reforms don’t look great. And Congress doesn’t seem capable of shepherding anything substantial into law.
We’ll have to wait and see. But it’s worth remembering the costs of the financial crisis: 8.8 million jobs. $19 trillion, mostly saved for retirement. And nearly 10 million homes. The Financial CHOICE Act would make us more vulnerable to another crisis, so it’s really no choice at all.
And it’s not like big banks need a break — thanks to Dodd-Frank, they’re raking in record profits and shielded from their own reckless impulses.
Article last modified on August 8, 2017. Published by Debt.com, LLC .