As the end of the year approaches, we are taking a look at the many gifts heaped on Wall Street and the financial services industry during the first year of the Trump administration contrary to Candidate Trump’s promise to protect Americans’ families on Main Street from Wall Street’s dangerous, high-risk gambling.
On the Regulatory Front:
1. Consumer Financial Protection Bureau (CFPB) Acting Director Mulvaney: If you have — or ever want to have — a bank account, credit card, debit card, car loan, student loan, home loan, payday loan, credit report or any other financial product of any type, or if you were harmed in any way by the 2008 financial crisis, then you have a personal stake in the success of the Consumer Financial Protection Bureau (CFPB). Unfortunately, millions of hard working American consumers lost one of their greatest allies, CFPB Director Cordray. He set the gold standard for consumer protection, returning almost $12 billion from the bonus pools of Wall Street giants to the pockets of nearly 30 million hard working Main Street consumers who had been scammed, tricked and ripped-off. In his place, President Trump installed Acting Director Mulvaney who has called the CFPB a “joke…in a sick, sad way” and, when he was a congressman, voted to kill the agency. To read more about why every American should support a strong Consumer Financial Protection Bureau, check out our op-ed in the LA Times.
2. Treasury Department’s Deregulation Reports: Over the past year, President Trump’s Treasury Department has issued four reports outlining what they call their “principles.” While some of the most visible fights may take place in Congress over Dodd-Frank and other financial regulation legislation, these documents will be the basis for thousands of lesser known shifts in regulatory policy that will end up having a monumental impact on the future of our country’s economic and financial stability. It’s as if New Orleans decided to remove the levee system protecting the city just because a hurricane hasn’t come through since Katrina. Were that to happen, everyone would be asking “why would they do that?” The same goes for regulatory policies enacted not even 10 years ago, after the greatest economic crisis since the Great Depression.
3. Unleashing the Shadow Banking System to start another Financial Crash: As part of the 2010 Dodd-Frank Act, the Financial Stability Oversight Council (FSOC) was created to identify and monitor risks to the United States financial system from distress or failure of systemically significant “too-big-to-fail” non-banks (like AIG, Bear Stearns, Lehman Brothers, Washington Mutual, Goldman Sachs, etc.). FSOC is the only entity empowered to look at all of these large financial institutions which played the central role in the 2008 financial crisis.
But, instead of protecting Americans from these threats, FSOC has been busy de-regulating the biggest financial institutions in the country, starting with, unbelievably, AIG. You remember AIG? Crashed the financial system in 2008; required more than $180 billion bailout from the government; used some of that money to pay themselves huge bonuses! It was the epitome of a gigantic, dangerous Wall Street firm gambling with Main Street’s jobs, homes and savings while stuffing their pockets with cash.
Trump’s FSOC’s AIG and other actions mean that the shadow banking system will remain largely unregulated, which is where the 2008 crash was spawned and silently spread throughout the global financial system. And it will recreate the two-tiered regulatory system that incentivized regulatory arbitrage before the 2008 crash and resulted in the less-regulated or unregulated shadow banking system ballooning in size relative to the much more highly regulated banking system.
4. Goldman Sachs becomes Government Sachs: Candidate Trump railed against Goldman Sachs as a threat to the country; President Trump merged the White House with Goldman Sachs. In President Trump’s first year in office, he appointed six former senior Goldman Sachs employees to some of the most senior posts in his administration, including: Treasury Secretary Steve Mnuchin and Director of the National Economic Council Gary Cohn. These advisers are in key positions and will be able to dramatically shape financial regulations across the board. However, their Wall Street mindset (“what’s good for Wall Street is good for America”) isn’t what Main Street families need and was proved disastrously wrong when Wall Street crashed the global financial system in 2008.
5. Office of Comptroller of the Currency “revising” key financial regulations: Laying the groundwork to again allow the biggest banks to make dangerous bets backed by depositors’ and taxpayers’ money, the Office of Comptroller of the Currency (OCC) announced it will be seeking public comments on revising the Volcker Rule. The Volcker Rule was created in the wake of the 2008 financial crisis as a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and it restricts banks’ ability to place risky bets with taxpayer and federally backed money. Essentially, it keeps Wall Street giants from gambling with taxpayer backed money. However, under the claim that this rule is hurting community banks, Wall Street and its allies are pushing for the rule to be gutted or at the least weakened substantially so that it’s a rule in name only. The OCC is really giving Wall Street exactly what it wants – a longer leash to gamble for big bonuses, which puts taxpayers at risk. When things go wrong, as they inevitably do, it will be the millions of Main Street consumers who will once again foot the bill for Wall Street’s mess. Read Better Markets comment letter submitted to the OCC in defense of the Volcker Rule here.
On the Legislative Front:
1. Mindless Deregulation: Much has been made of the bipartisan compromise in the Senate Banking Committee on banking regulations. Many of the issues deal with rolling back specific regulations put in place by Dodd-Frank in the aftermath of the 2008 financial crisis and are based on the premise that these common-sense financial protection rules have stifled bank and economic growth However, the evidence overwhelmingly shows that banks are more profitable than ever and lending is increasing. With that data, recently put out in an FDIC report, Senator Brian Schatz (D-HI) asked the following question during a recent hearing: “what problem are we solving with deregulation?” The real answer is none other than Wall Street wants to increase its bonuses by juicing its profits due to deregulation. Read more about how the deregulatory effort in the Senate.
2. Choice Act: In early June, the Republican led House of Representatives passed the CHOICE Act, allowing banks to opt-out of significant financial protection rules if those banks maintained a certain level of capital. And the banks that remained in the regulatory system would be blessed with watered down versions of once-tough protections, including:
- Crippling the Financial Stability Oversight Council: In exchange for maintaining a 10 percent quarterly leverage ratio, which is only modestly higher than the range many of these banks maintain today, even the biggest of the Wall Street banks could choose not to be subject to many of Dodd-Frank’s most important provisions.
- Watering Down Living Wills and Stress-Free Stress Tests: The CHOICE Act would slash in half the number of stress tests for most banks, and require regulators to publicly disclose exactly how the tests would be evaluated, effectively giving the banks a road map to passing the test.
- Allowing Banks to Opt-Out of Sensible Financial Protection Rules: These measures would paralyze and politicize the decision-making process, turn future FSOC votes into an empty exercise, and lead to unnecessary delays, weaker decisions, and a greater risk of future AIGs.
Read more on the House’s effort to deregulate the financial industry with the CHOICE Act here.
3. Congressional Review Act – CFPB Arbitration Rule Overturned: With a one vote margin, the U.S. Senate, thanks to Vice President Pence, voted to repeal the Consumer Financial Protection Bureau’s (CFPB) rule that banned forced arbitration. Without this rule in place, millions of Main Street consumers will be forced to give up their legal rights to participate in class action lawsuits when they are subject to scams, fraud or other illegal behavior. Banning consumers from participating in class actions is a divide and conquer strategy that forces each individual consumer to take on corporations alone no matter how egregious or widespread the misconduct. Read more about how the Forced Arbitration rule helped consumers here.
On the Legal Front:
1. DOL Fiduciary Duty Rule Delay: On November 27th, 2017, President Trump’s Department of Labor announced an 18-month delay of key enforcement provisions in the “best interest” fiduciary duty rule. Championed by every consumer and senior protection group in the country, the fiduciary rule would require all financial advisers to put the best interests of their clients ahead of their own financial interests when they provide advice for retirement accounts. The new rule will save tens of millions of Americans tens of billions of dollars annually that brokers, insurance companies, and other financial firms have been receiving from investment recommendations that pay handsome fees and commissions but yield poor returns for clients. However, President Trump’s DOL quickly reversed course and instituted a delay, which is now being fought by Better Markets and other consumer advocate groups in the courts. To read more about why the DOL rule is critical click here.