Webinar: President Trump’s Deregulation of Wall Street Making Catastrophe More Likely
Featuring Sherrod Brown (D-Ohio) with Introduction by Better Markets’ Dennis Kelleher
Tuesday, Sept. 15, 2020, 2:30-3:30 p.m.
TRANSCRIPT of Video
Dennis Kelleher Remarks:
Hi everyone. Thanks for joining us today. Welcome to our webinar on the deregulation of Wall Street, which is making a catastrophe on Main Street more likely. So, with that, let’s begin.
First, today is the 12th anniversary of the collapse of Lehman Brothers on September 15th of 2008, which ignited the worst financial crash since the great crash in 1929 and caused what was then the worst economy since the Great Depression of the 1930s.
It’s a long time ago—12 years—but we should remember that the panic caused by that collapse. We should remember the extraordinary government and taxpayer bailouts needed to stop it and the economic devastation caused on Main Street that lasted for years: the U6 un- and underemployment rate went to 17 percent where 27 million Americans were looking for work within 13 months of Lehman’s collapse; 16 million foreclosure filings over the following years; 40 plus percent of homes in the United States were underwater; and tens of millions of Americans lost their savings.
Millions of American families were still, are still, struggling the ongoing after-effects of that economic calamity when the pandemic struck at the beginning of this year as we detailed in a prior Report on the Cost of the Crisis. The bottom line is that what happens on Wall Street and finance more generally doesn’t stay on Wall Street. It dramatically impacts Main Street families and businesses in catastrophic ways: it can kill economic growth; throw millions of Americans out of their jobs and homes; vaporize savings; increase inequality; and hollow out the middle class, which is exactly what happened as a direct result of the 2008 crash.
Less visible, but no less important: that also happens on a smaller scale whenever Wall Street focuses on high-risk, anti-social bonus boosting trading and investments rather than supporting the real productive economy. And that’s why protecting Main Street from Wall Street’s high-risk and dangerous activities are so fundamentally important: to prevent financial crashes; to make banks focus on serving the real economy and in real people; and to protect workers, homeowners, savers, taxpayers, our financial system, our economy, and, ultimately, the American dream itself. And that’s why Better Markets is releasing today a report entitled “The Road to Recovery: Protecting Main Street from President Trump’s Dangerous Deregulation of Wall Street.”
It identifies the top priorities for each financial regulatory agency to address the most dangerous deregulations undertaken since 2017. I’ll go over a few of those in a minute but let me mention that this report is just the latest of several reports and white papers Better Markets has released recently.
In particular, we released a comprehensive report on the Dodd-Frank Act and financial reform broadly on the 10th anniversary of its signing on July 21, 2020. It’s full of information about that law and what’s happened in the ten years since. You can find that report and lots of information on the event surrounding it at this website (https://www.10yearsdoddfrank.org) We also recently released a white paper detailing why there have been no financial crashes yet during the pandemic due to these Dodd-Frank Act reforms, which I think you’ll find interesting as well.
With that as the background for the report we’re releasing today, let’s discuss the biggest deregulatory actions of the financial regulatory agencies: what they were, why they’re important and what must be done to fix that.
Let’s start with the Federal Reserve and what should be its priorities. [slide] Don’t worry, I’m not reading or reviewing all of this. I’m going to just mention one: Capital. The capital of a bank is all that stands between a failing bank and a taxpayer bailout. That’s because capital is supposed to absorb the losses from the bank’s activities, and if they don’t have enough capital, the bank fails. However, if the bank’s big enough, like all the banks on Wall Street, then the failure could collapse the financial system and the economy. That’s why they aren’t allowed to fail and that’s why they got bailed out like they did in 2008. That’s why they’re also called too-big-to-fail. One key way to end that is to make sure that they have enough capital to absorb their own losses without sticking their hands in the taxpayer pockets to get bailed out. But over the last three years, the Federal Reserve has reduced the quantity and quality of capital at the banks. That must be reversed.
Now to the Securities and Exchange Commission. The SEC exists to protect investors, but it has left them behind over the last three years as it protects industry profits first. You can see that in the refusal to enact the uniform fiduciary duty rule so that brokers are required to always put their clients’ interest first regarding their clients’ own money. Think about that! We need a rule so they’ll put their clients’ interest first about their clients’ money. Too often, these brokers are no more than salesmen pitching products that enrich themselves at the expense of their clients. That should clearly and always be against the law, which is why a fiduciary duty is required
Let’s jump to the Commodities Futures Trading Commission. Most people aren’t aware of and don’t understand derivatives or commodities but there are hundreds of trillions of dollars of transactions every year that impact literally every single American—and not just because derivatives were at the core of igniting and spreading the 2008 crash and not just because they are as Warren Buffett said, “weapons of mass financial destruction,” but also because they impact the prices of cereal, bread, gas and most essentials for daily life as well as the rates on most loans and financial products and even the rate you pay for foreign exchange if you travel overseas; if you buy any product from overseas.
All of those are impacted dramatically by derivatives and commodity regulation, and that’s why what the CFTC does impacts everyone and why it’s mandated to properly regulate commodities and derivatives markets. But they haven’t been doing that. In fact, one of the worst things they’re doing is to outsource the protection of Americans to foreign regulators who have a miserable, unbroken record of failing to protect their own citizens, and they have a conflict of interest that incentivizes them not to protect U.S. citizens. This is called cross-border regulation, which the CFTC has proposed not to regulate hardly at all. And that’s one of the big things that needs to be changed soon.
Let’s jump to the CFPB for a minute. The Consumer Financial Protection Bureau gets a lot of attention. Frankly from the beginning of the Trump administration, it has been committed to transforming the Consumer Financial Protection Bureau into the Predator Protection Bureau, and unfortunately, they have really done an excellent job.
Just a quick example: they eliminated the underwriting requirement for payday lenders. A loan is typically understood to be something that is supposed to be repaid and real lenders spend time making sure that a borrower can repay the loan. That’s called underwriting. Payday lenders were required to do that, but they didn’t want to because studies show that at the time, they gave the loan, two-thirds of the people getting a payday loan couldn’t repay that loan. But that’s their business model. They didn’t want to be repaid; they want to give loans to people who cannot repay them so that they can roll over the loans endlessly and charge fees and otherwise make money off the poorest most vulnerable people in the country. I call it a debtor’s prison without bars; others call it a debt trap. Whatever it’s called, it’s just wrong, and it’s past time for the CFTC to change that rule.
Now let’s go to the FDIC. And I’m running out of time so I’m only going to mention that the FDIC has also been on the side of predators not consumers. It is right now in the process of authorizing what are called rent-a-bank schemes that will allow, yes, payday lenders and debt collectors to evade important state consumer protection laws and prey on borrowers.
Now jumping to the office of the Comptroller of the Currency. You know, sadly, the OCC is doing the same thing by trying to gut what it’s calling the True Lender Rule, which will enable predatory lending all over the place. And of course, you’re going to love this, the OCC is also the agency that proposed changing—actually finalized the rule—to change the Community Reinvestment Act that was so bad it couldn’t even get its fellow Trump regulators to go along with it. And that’s actually good news.
Finally, but importantly, we have an appendix at the end of the report that is a chronological list of many of the deregulatory rulemakings undertaken by the financial regulatory agencies during the Trump administration with links to Better Markets’ related comment letters. It’s a pretty good resource for those of you who are interested in the entire universe of rule makings or want to see what’s going on more in depth.
That very quickly is what’s in the report we’re releasing today, and we hope you read it and find it useful.
So with that, let me introduce Senator Sherrod Brown for his remarks. Sherrod Brown lives in Cleveland, Ohio. He began his career as an Ohio state representative and was the secretary of state for almost 10 years before being elected to the House of Representatives in 1993. In 2006, he was elected to the United States Senate, and he’s now the ranking member of the Committee on Banking, Housing and Urban Affairs. But the most important things to know about Senator Brown are not on his resume: it’s that he never forgets where he came from; why he’s here in Washington and who he’s fighting for. I had the privilege of working for almost eight years as a senior staffer in the Senate, not for Senator Brown, but I can tell you based on years of first-hand observation and experience that everything he does—every day—is focused on hard-working, everyday Americans: how to make their lives better; how to ensure they have more opportunity and how to make sure their government is on their side and not on the side of the insiders, the campaign contributors and the lobbyists.
Senator Brown is a one-man counterweight to all that. His relentless focus and energy are based on his beliefs that everyone should have the most opportunity to make the most of their lives as they see fit and that hard work should pay off for everyone no matter who you are, where you live or what kind of work you do. Senator Brown may physically leave Cleveland and Ohio from time to time but the Main Street families, towns and cities of Ohio never leave the front of his mind—no matter where he is, who he’s meeting with or all the pomp and circumstance that too often distract too many others in this town. None of that has any impact on Sherrod Brown, his beliefs, values and work ethic. Ohio and the country are very fortunate to have Sherrod Brown in the United States Senate, and we’re fortunate to have him with us today to offer remarks and answer some questions. And with that, I turn it over to Senator Brown.
Sen. Brown Remarks:
Thank you for such kind words and thank you for the career you’ve had always advocating when we worked together when you were working in the Senate. You were always someone we could look to that always fought for the right things and was just always solid and always gave good advice. And thank you for what you do with Better Markets. I think this report shows the importance of Better Markets in this town to keep the Senate Banking Housing Urban Affairs Committee honest, to keep the Senate honest generally, and it’s so important that more of us understand, that more of us read and that more of us spend time with Dennis and Better Markets. So thank you for the importance of your work.
As you detail so well in this report, if Joe Biden wins in November and Democrats take back the Senate, we have a lot of work to do to undo the damage that President Trump and his regulators—deregulator is a better word—have done to our financial system. From rolling back the CFPB’s anti-arbitration rule and its payday lending rule to allowing banks to do more risky trading activities, with insufficient capital as you pointed out, like they did before the 2008 crisis, to gutting the stress tests and letting Wall Street pay out dividends while our economy is on the brink. Just look at the unemployment numbers. We have a lot of work to do to help families recover from the next financial crisis and the coronavirus crisis.
Better Markets’ report really shows that we, of course, have to fix those things but I want to encourage us to think beyond just restoring Wall Street reform to where we were 10 years ago.
We passed Dodd-Frank to prevent another crisis—but preventing a financial crisis should really just be the bare minimum. We should aim higher than just trying to prevent economic catastrophe. We want the economy to actually work for workers and their families.
But do we really think that the last 10 years is the best we can do? Even before the current crisis:
- Corporate profits were up, stock prices had soared, executive compensation exploded, productivity of workers went up, dramatically, but the wages were just largely flat. Corporations don’t pay workers we now call essential a living wage; they don’t give them paid sick days or paid family leave; they don’t provide them help for their retirement.
- More than a quarter of renters, this is before the pandemic, pay more than half their income in rent and utilities. One bad thing happens in their life: a broken-down car, sick child or they miss a few days of work because of a minor injury, and their lives are turned upside down.
- And the ratio of CEO pay to worker pay. When Dennis and I were kids, it was 25, 30, 35 to 1. Now it’s 10 times that ratio.
We can do better. This is not an inevitable result of capitalism—it’s by Wall Street’s explicit design. When companies raise wages, Wall Street punishes them. When companies lay off workers, Wall Street too often rewards them. And what do corporations do with their profits? They’re not reinvesting in their workers: they do stock buybacks, they lobby Congress for more tax cuts, (and) they plow it into campaign spending to defeat anyone who happens to disagree with them.
We have to end the Wall Street business model that only measures the economy in quarterly earnings reports and treats workers as expendable. And it’s not a coincidence that so often it’s black workers and brown workers getting exploited the most by these corporations.
A woman grocery store worker in southwest Ohio said to me one day, “you know, they call me essential, but we know we’re expendable because they don’t pay as much, and they don’t protect us on the job.” And those essential workers are typically more often women than men, disproportionately people of color and rarely paid an adequate wage.
We have a real opportunity to change all that. And I really feel that next January, we’re going to do great things. Great progress often comes out of really dark times.
Government has no problem intervening in the economy to save corporations and the mostly white men who run them. We need to have the same willingness to step in to actually make the system work for everyone.
We have a number of ideas, and I know we’ll talk about some of them today in the question-and-answer session, and there are a lot more we aren’t thinking about yet that we need to do.
- First, start with postal banking through fed accounts. The banking system is already a public good for the banks—look at the guarantees and the services that the federal government stands behind to make the system work.
- The Banking For All Act would make the banking system a public good for everyone. People shouldn’t have to rely on shady payday lenders or pay high fees to the biggest banks to access their own money and participate in our economy.
- Breaking up the biggest banks and stopping consolidation in the banking industry. During Dodd-Frank, I had an amendment with Senator Ted Kaufman of Delaware to break up the largest banks. We got 35-some votes; the president opposed it as did the sponsor of the Dodd-Frank bill. Big banks clearly have too much power; they use their huge economic power to cut salaries and jobs for workers, and they use their political power to lobby Congress for special favors, like tax cuts and deregulation that only serve themselves, surely not the real economy
- Even during the pandemic, while frontline workers have been fighting for basic protections to keep them safe on the job, Wall Street has fought to gut safety and soundness rules that prevent economic crises. Think of the number of frontline workers—from meat cutters to bus drivers to people who work in the hospital—who have died from this virus.
- I also have a plan for a worker dividend. If corporations want to do stock buybacks, they’d have to make sure that their workers get a significant share of the profits.
- Wall Street isn’t going to give up their power without a fight. We need strong unions, and we need worker protections so regular people can hold giant corporations accountable. One way to do that is protecting the right to organize. The PRO Act to level the playing field between workers and corporations.
I had a public conversation with Vice President Biden a couple of months ago. One of the first things he said he would do is to push the PRO Act through Congress. The goal has to be to reorient our economy from Wall Street wealth to the Dignity of Work. This pandemic shows all of us how essential workers are. I wrote an op-ed this summer in the Wall Street Journal—it was an open letter to America’s corporate leaders.
I told them, “If you truly believe that workers are essential to your companies, then treat them that way.” These CEOs—mostly white, mostly men—make decisions in their boardrooms that directly affect the millions of diverse Americans—yet they only consider the interests of shareholders.
This weekend marked the 50th anniversary of Milton Friedman’s essay that argued that corporations should exist just to make profits for themselves at the expense of everyone and everything else. Remember the title of the essay tells it all: “The Social Responsibility of Business is to Increase Its Profits.”
Business leaders, economists and workers across the country are all fighting back against that outdated thinking and recognizing that big corporations are also accountable to their government, their workers and the environment.
It’s up to us to create a better system centered on the dignity of all workers—whether you punch a clock or swipe a badge, work for salary or work for tips, raise children or take care of aging parents—it’s our responsibility to do that.
I’ll stop there and be glad, Dennis, to take questions. Thanks.
Mr. Kelleher. Thank you, Sen. Brown. That’s a terrific overview; unfortunately, too much of a sad state of the way workers are on the short end of the stick of corporate America and Wall Street. And it’s interesting the kind of relationship between Wall Street, corporate America and the way people are doing and for example the reference to incentivizing stock buybacks and incentivizing CEO pay and incentivizing literally making profits off of laying off workers. So big issues there, and they’re going to be a big part of the campaign, and they’re being discussed among the candidates now. I have to tell you an overwhelming number of questions from our audience and we have no hope of getting through even a small sliver of them, but the good news is there’s a highly engaged, interested audience here.
Given that today is the anniversary of the Lehman Brothers crash into bankruptcy 12 years ago, do you think a Lehman-like event could happen again today or has the financial industry and regulation changed enough to avoid that or generally what are your thoughts?
Sen. Brown: There’s some of the same players in the Trump regulatory structure as there were a decade ago or before Lehman Brothers crashed. I remember where I was that day. I was a new member of the Senate Banking Housing Committee. I was in Zanesville, Ohio. I got a call at noon from Harry Reid, the Democratic majority leader in the Senate. He said at two o’clock, we want you on the phone with the committee. The dozen of us on the committee with Secretary Paulson, Bush was still president then, and with Chairman Bernanke. And I remember Paulson said, we have a three-page, $700 billion bill, and we need you to pass it this week. That was sort of the arrogance with which they approached us and the country. There was enough of a push back that it wasn’t exactly their three-page bill, and it wasn’t exactly that weak, but we know what happened.
But the answer is could this happen again? And we know the best way to prevent this. Look at what Congress did in in March of this year. It was a unanimous vote. After McConnell tried to jam a nothing bill through, we resisted then passed a pretty significant stimulus bill to save the economy during the coronavirus.
And the most important thing that bill had was $600 a week unemployment benefit. In Ohio, that was literally close to a million people that drew that six hundred dollars. By August; about 650,000 Ohioans were drawing that unemployment benefit. And what happened in the last four months, in spite of tens of millions of unemployed people, is very few people fell into poverty. And what else happened is the banks did pretty well; the economy did okay because we did that. We didn’t in March put a whole lot of money into the banks; we put money into workers’ pockets, and that’s how you keep the economy going.
So as we think about what happens the next time there’s an economic crisis, and no matter how good we are at this as a nation there will always be some economic crises, but the way to address them always is through helping regular people because they have the buying power and they create the consumer demand that everybody benefits from.
…the point is that if we do what we should be doing and look at our response to problems through the eyes of workers and consumers, these kinds of problems simply will vanish or will be much more manageable than they were a decade ago.
Mr. Keller. There’s a whole bunch of questions that touch on many of those issues and the banking committee and the role of the banking committee. Let’s just assume for a minute that you’re chairman of the committee next year. What’s the role of the banking committee in making some of those outcomes come about the way you’re talking about them?
Sen. Brown. Well, the role of the banking committee—No. 1—is to implement as much of the Better Markets’ report that you put out. I mean, it really is—to undo the damage. But at the same time, what excites me about potentially being chairman of that committee is thinking about how we rebuild this economy for people.
Mr. Keller. The pandemic has really shown that the economy doesn’t work for most Americans—the vast majority of whom still work paycheck to paycheck and have almost nothing to fall back on. And yet, the financial system is supposed to actually support the real economy and help with growth and jobs. It appears to do a good job with trading and investments but not so good a job in terms of supporting our communities. What are your thoughts on how to get finance to better support the real economy and jobs and growth?
Sen. Brown. Well, as you say in many ways, the pandemic was the Great Revealer. It revealed racial disparities and revealed more about income inequality; it revealed holes in our public health system, putting it mildly, but as the subprime meltdown taught us, it’s about much more than providing credit. During the coronavirus, stocks were up, dividends are still being paid, millions of Americans are out of work, the real economy is obviously struggling. …some have done very well because of the government response with the fed facilities and with the big guys getting the help (but) so many small businesses were left out. I think changing the focus so that we’re looking out for small companies; we’re looking out for small business and small banks in terms of what their obligations to the community are.
Mr. Kelleher. We know how important the work of the Banking Committee is but most people’s eyes kind of glaze over when they start talking about banking and regulation, and of course, the financiers in Wall Street use that created complexity as an intimidation tool. Have you thought about how to engage more people to support what you’re doing—to get them engaged in the process either on the local or the national level to be a counterweight to push for the right policies that help Main Street rather than Wall Street ,which as you know, has an army of lobbyists outside every door, every day here.
Sen. Brown. Yes, that’s something I have thought a lot about, but I don’t have the answers. Look at your report; it explains a lot of these issues in understandable terms… one of the things that we’ve got to do is, like your report does, explain better to people what this is all about and why this matters. And that banking being boring can be a good thing because it helps people’s families, and we’ve got to figure out how to do that better than we have.