What do you really care about? Education, health care, jobs, environmental protection, infrastructure, retirement security?Whatever you care about most, you also have to care about financial regulation and reform because the 2008 financial crash is going to cost the US more than $20 trillion (that’s more than $170,000 for every woman, man and child alive in the US today) – that directly caused every one of America’s priorities to be underfunded as trillions of dollars were diverted to bailout the too-big-to-fail financial giants on Wall Street and respond to the economic catastrophe they caused. That’s why no matter what you care about, making sure that another financial crash cannot happen must be a priority.
Take student loans for example. Americans have $3.5 trillion of non-mortgage personal debt today, more than $1 trillion of which is student loans. Much of that is an unacknowledged but direct result of the financial crash of 2008. Every student graduating since 2007 has entered the worst job market since the Great Depression of the 1930s. Not only were they competing against other graduates, but they were also competing against tens of millions of Americans thrown out of work and the millions more who would have retired and wanted to retire but no longer could afford to.
That hyper-competitive, depressed job markets was the employment environment they graduated into and it got worse every year as millions more graduating students entered the workforce year after year, competing for fewer and fewer jobs and facing lower and lower wages. As a direct result, their ability to repay their student loans got worse every year and continues to this day. Moreover, it’s not going to get better because research shows that it takes decades – if ever – to regain the income lost due to unemployment and stagnant wages.
That’s just one example of the many ongoing costs of the 2008 financial crash and the economic collapse it caused. That’s why Better Markets’ President and CEO, Dennis Kelleher, testified at a hearing of the Democratic National Convention Platform Drafting Committee last week, urging that financial reform be a priority of the next President. He detailed Better Markets’ fight for the economic security, opportunity and prosperity of the American people and for a safer, sounded, balanced and stable financial system that gets back in the business of supporting the real economy, jobs and growth, rather than being a threat to those priorities.
America cannot afford Wall Street de-regulation proposals masquerading as “pro-growth” “reforms” – that’s only going to cause another financial crash, economic calamity and more taxpayer funded bailouts: The Republican chairman of the House Finical Services Committee, Jeb Hensarling, unveiled his long-awaited Republican plan to replace the Dodd Frank financial reform law. The so-called “Financial Choice Act” is little more than a massive de-regulation of Wall Street and the biggest financial firms in the US. It is a recipe for another financial crash that will likely destroy jobs, growth and prosperity.
The plan would make another financial crash much more likely, guarantees future taxpayer bailouts of Wall Street and will kill jobs and growth. How? By repealing the Volcker Rule, it will again allow Wall Street’s biggest firms to gamble with taxpayer insured deposits and make trillion dollar bets. It sets equity capital requirements on banks at just 10% in exchange for eliminating the most important protections of Dodd Frank. That means that, after losses of just 10 cents on the dollar, taxpayers will have to bailout Wall Street again. In 2008, the capital shortfall was at least double 10%, and the only reason that the losses weren’t greater was because taxpayers bailed out Wall Street’s biggest banks to end the panic.
The plan would also recreate the dangerous, high risk unregulated shadow banking system by gutting the Financial Stability Oversight Council and eliminating its authority to identify nonbank threats to the financial stability of the United States, which would guarantee more disasters like the unforeseen collapse and bailout of AIG. And, while de-regulating finance, it handcuffs the regulators with so many new rules that they’ll never be able to police Wall Street.
Lastly, the plan purports to impose bigger penalties on financial criminals in the future. That’s a cruel fraud on the American people. It will never happen, and we know that because not one single financial executive from a big, powerful, well connected Wall Street firm has been punished for the 2008 crash. If they weren’t punished last time, they won’t be punished next time and no one should believe they will be just because some politician says so.
Chairman Hensarling’s proposal regrettably missed an historic opportunity. The Chairman was right when he said that “bank capital is the most basic element in making a financial system healthy, resilient and reliable for economic growth” and that “a strongly capitalized banking sector can help avoid the recurrence of a financial crisis of the magnitude we saw in 2008.” He should have rejected the Wall Street wish list and focused on meaningful levels of real equity capital, but 10% is far too little and the trade-offs that gut so many other essential protections are totally unwarranted. To seriously protect Main Street and to genuinely put investors “in front of hardworking taxpayers,” he should have proposed that Wall Street’s biggest financial firms fund themselves with at least 25% of real equity capital. That would have begun a serious bipartisan discussion about how Wall Street’s biggest, most dangerous financial firms should be regulated.
The SEC is at a technology crossroads and should approve IEX’s private sector solution to the serious market problem of predatory HFT and destabilizing speed: The Securities and Exchange Commission (SEC) is on the verge of making a pivotal decision that could mark the beginning of a new era in which private sector solutions help close serious regulatory gaps in our equity trading markets. Or, it could signal more of the same chronic SEC inertia, paralysis and inaction that has allowed those markets to deteriorate so badly in the first place.
Our markets today are fragmented, opaque, and dominated by high frequency trading (HFT) firms that use speed, preferential data access and advanced technologies to gain unfair advantages and reap enormous profits. Not all of it, but too much of this is predatory and systemically destabilizing. Traditional retail and institutional investors pay the price for this broken system.
Investors Exchange, LLC (IEX) is trying to solve these problems by offering a trading venue that is simpler and fairer to all market participants. It has applied to the SEC to become a new securities exchange in the national market system, like the New York Stock Exchange or NASDAQ. The application has received enthusiastic support from many market participants, including institutional investors, market experts, reform advocates, academics and even too-big-to-fail dealer banks like Goldman Sachs and JP Morgan Chase. But a small, well-funded group of very powerful incumbent HFT firms and several established exchanges strongly oppose it, seeking to protect business lines and profits.
The IEX platform promises to be good for investors and good for the markets. It will create a trading environment that discourages and disrupts predatory HFT practices and better serves the needs of investors interested in the long term fundamentals of equity trading – which is key to capital formation. The SEC is required to act on IEX’s application by June 18, 2016, and it should approve the application without any further delay or postponements. Read more about IEX and its application here and here.
Better Markets in the News:
Land of the fee: Wall Street’s $8bn bounty: Financial Times by Laura Noonan 6/9/2016
Clinton claims victory, Trump tones it down Politico Morning Money by Ben White 6/8/16
Influential GOP Congressman Wants To Replace Key Bank Regulations NPR by Jim Zarroli 6/7/16
House Republican unveils plan to overhaul Dodd-Frank financial reform law Los Angeles Times by Jim Puzzanghera 6/7/16
Hensarling’s Reg Relief Plan Hinges on Trump Support, Victory American Banker by Ian McKendry 6/7/16
Republican alternative to Dodd-Frank on tap Pensions and Investments by Hazel Bradford 6/7/16
Hensarling’s Reg Relief Plan Hinges on Trump Support, Victory: American Banker by Ian McKendry 6-7-2016
The Alchemist Who Turned Toxic Assets Into Gold at Citigroup: Bloomberg Markets by Dakin Campbell and Donal Griffin 6/7/16
Inside broker and insurance groups’ move to block the DOL fiduciary rule: Investment News by Mark Schoeff Jr. 6/6/2016
GOP establishment reluctantly coming around to Trump? Fox News Channel (America’s News) with Elizabeth Prann 6/4/16