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 apres-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 advisers 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 under-capitalized 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?