Financial Reform Newsletter: Jan 11 2019

Judging 2020 Presidential Candidates
As Sen. Elizabeth Warren becomes the first major candidate for the 2020 Democratic nomination to form an exploratory committee and barnstorm Iowa, it’s a good time to start thinking about the candidates.

Our view is, regardless of which party or who you support, it’s important to remember that talk is cheap and too often meaningless if not misleading.  For example, candidate Trump was the most anti-Wall Street candidate since FDR in the 1930s.  But President Trump embraced Wall Street, sycophantically sucked up to its CEOs, put Goldman Sachs in charge of the nation’s economic and financial policy at the White House and Treasury, delivered on its wish list of special interests, and installed deregulators at the financial protection agencies.

When evaluating candidates, therefore, it is imperative to look at what they have actually done and who (if anyone) they have stood up to, publicly, forcefully, clearly and, ideally, repeatedly.  Ask yourself, have they truly taken on powerful special interests in the country who put their interests above the public interest and your interests? 

For example, Sen. Warren has been courageous, fearless, relentless and successful in taking on the influence of the biggest financial institutions on Wall Street, one of the most powerful – if not the most powerful — politically connected and wealthiest industries in the U.S. 

This doesn’t just apply to those who oppose Wall Street biggest financial institutions, although getting economics and finance right is fundamental to most other progressive priorities.  Speaking truth to power by standing up to the big drug companies, Corporate America, the power of money in politics, the fossil fuel industry, the cigarette manufacturers and other entrenched special interests are equally important.  Taking on powerful special interests of all types that pollute and corrupt the Washington law and policy making process all count when evaluating a candidate for president.

You can read Dennis Kelleher’s much-discussed Op Ed on this subject here. 

Or as the brilliant Toles put it (make sure to read the comment in the lower right, which really says it all about those who really are “divisive”!):

Biggest Wall Street Banks Kill Fed Nomination, Demand Dangerous Deregulation
The Trump administration nominated one of the most qualified people possibly ever to the Federal Reserve Board last September, Nellie Liang, who just withdrew her nomination.  While there’s been a number of reasons offered for this surprising action, the Wall Street Journal reported that she was “a casualty of opposition from the banking industry which feared she would stymie efforts to loosen financial regulation.” 

But this nomination wasn’t killed by just any of the 5, 800 or so banks in the U.S. “banking industry.”  The handful of the biggest and most dangerous banks on Wall Street did the dirty work here.  Their lobbyists and Republican political allies in the Senate opposed Ms. Liang from the start because they “have been unhappy with what they thought was too slow a pace of bank deregulation in the Trump administration and by the Fed.  The bank lobbyists have been disappointed” that the banking bill Congress passed last year didn’t deregulate the largest Wall Street banks along with the super-regional, regional and community banks. 

The Journal also reported that the bank lobbyists “are also disappointed that under Randal Quarles, the Fed’s Vice Chairman for Supervision, there haven’t been more dramatic regulatory changes, even though Mr. Quarles has worked to simplify several post crisis rules.”  “Simplify” is a Wall Street Journal euphemism for “weaken” and “deregulate.”  In fact, Mr. Quarles has lead the charge to reduce capital, weaken stress tests and allow more proprietary trading while talking repeatedly about his intent to weaken numerous other rules under the guise of “efficiency” and similar euphemisms. 

If Wall Street’s biggest banks and their lobbyists, political allies and sundry other purchased mouthpieces are “disappointed” with the significant, broad-ranging deregulation ushered in by the most pro-Wall Street administration in memory — and they no doubt are — then it’s because they are never satisfied and always want more deregulation no matter now dangerous to the financial system, the country and, indeed, to their own institutions.

The former CEO of Morgan Stanley, John Mack, recognized this after the 2008 crash when he said:

“We [Wall Street’s biggest banks] cannot control ourselves.  You [regulators] have to step in and control the Street.  Regulators? We just love them.”

Proving that even enlightened self-interest gets trumped by trying to maximize the next quarter’s profits, Wall Street’s demands for ever more deregulation doesn’t cease even though they keep breaking records for revenue, profits and bonuses, i.e., the Dodd Frank and other financial protection rules haven’t hurt their businesses at all.  Moreover, those rules have made them significantly more stable, which is why they have weathered the most recent market volatility so well.  Rather than attacking the rules, the CEOs of Wall Street’s biggest banks should be thanking everyone who voted for the Dodd Frank law and everyone who implemented it at the financial regulatory agencies.  After taxpayers bailed them out, those actions are what saved Wall Street’s gigantic banks and put them on the path to recovery and success that was unimaginable in the fall of 2008. 

Rather than being grateful or enlightened, Wall Street’s CEOs, lobbyists and purchased allies are emboldened, demanding more deregulation and killing a nominee that would have been a fantastic public servant who would undoubtedly have served the public interest with distinction. 

Axios/MSM Bizarrely Omit Wall Street from Stories on Capitalism and Economics
Mike Allen in Axios had a timely and important lead piece on “Capitalism’s Comeuppance” in his AM Newsletter on December 30, 2018.  He pointed out “One of the most important trends likely to drive the 2020 presidential race: A growing disillusion with capitalism as practiced, and a coming struggle over how to recast this pillar of the Western order.”  He correctly notes that “what we all realize by now: Flaws in the system – including forgetting about so much of society – are largely to blame for widespread disaffection with established institutions, leaders and answers.”

But, bizarrely, rather than pay any attention at all to recent history, Mike (and by citation Axios’ Felix Salmon) then list “four decades” of this and “four decades” of that. 

There is no dispute that there have been four decades of flat wages, productivity gains, growing inequality, etc.  However, all of that was made exponentially worse by the unmentioned financial crash just ten years ago and the economic devastation it caused and is still causing.  Those events are burned into the current memories of tens of millions of Americans, including the 27 million who were un- and underemployed (the U6 rate) in October 2009 and for years thereafter as they struggled to recover.  Because many of those 27 million were heads of households, the U6 rate alone impacted more than 50 million Americans – in 2009-2010.

Most of them have still not recovered as starkly illustrated by two recent Fed studies: one shows that 90% of Americans are worse off economically today than they were in 2007 by an astonishing 17-35%; the other shows that almost 50% of all Americans could not come up with $400 for an emergency.  Add to that more than $4 trillion in non-real estate personal debt, including $1.5 trillion in student loan debt mostly owned by people who went into debt to improve their lives (which were not improved often due to worthless certificates or “diplomas” from predators), and it’s clear almost all Americans are living from paycheck to paycheck, which don’t even make ends meet (hence the ballooning personal debt).

On top of that, those Americans are working harder and harder for less and less while they see the wealthiest getting bailed out, tax cuts, sweetheart deals from Washington, and much more.  The disparity is stark and visible for all to see.

Those are just a few of the many middle class-crushing statistics and facts that have caused pervasive economic anxiety and despair across the country.  Those conditions are eroding the pillars of democracy, civility and, yes, capitalism.  So while it’s important to mention the long term trends, it is at least equally important to include the much more recent, catastrophic visible and visceral economic circumstances that threaten our politics, social cohesion and economic system.

Yet, that’s almost never reported or even mentioned when discussing capitalism and its current lack of support, as evidenced by Mike Allen’s Axios piece and Felix’s writings as well.  Why is it that “reporting” about poor economic conditions and economic anxiety talk about what happened four decades ago, but not the more stark and likely more impactful events over the last few years?  We wanted to get Mike’s thoughts on this so we emailed him, but unfortunately, once again he didn’t respond.

Phony IPO Drought Now A Flood
Remember all those stories about how there were no IPOs in the US and the SEC had to deregulate even more, supposedly to attract IPOs?  This was, of course, just the latest baseless pretext for deregulation among the deregulation zealots who will use anything to hide their agenda behind.  As has been well documented, there are lots of reasons for IPOs going up and down and why there are so-called “unicorns” in the private markets having nothing to do with the regulation of public companies.

Proving that yet again are the latest reports that 2019 looks like it’ll be a banner year for IPOs, as the Wall Street Journal recently put it:  “IPO-Hungry Investors Look to Have their Moment in 2019:  Uber, Pinterest, Slack and others gear up for debuts, setting stage for what could be a record year.”  Sure the year end market volatility might change some of that, but that too has nothing to do with listing requirements, investor protections, the legal system or regulations.

Moreover, there are big benefits to investors, public companies and our capital markets from those listing requirements, regulation and, yes, the U.S. legal system.  That too is proved over and over again, including in this recent article: “An Ugly Victory for Hong Kong in the IPO Derby:  Several of the biggest listings in the city this year have subsequently performed poorly.”  

Thus, the phony IPO drought is about to become a flood, but that won’t stop the deregulation zealots from spewing their false narratives and bogus claims.  The facts, however, will continue to prove the hype to be baseless.