What does Donald Trump’s presidency mean for our financial system?
I’ve been asked this question a lot since election eve.
Here’s my answer: I’m most worried about what Trump’s promise to “dismantle” financial reform will mean for the economy and the most vulnerable among us.
When the financial crisis hit in the fall of 2008, it was not an act of God or a fluke of history; it was the result of choices made in Washington and in financial institutions and markets. And the consequences were borne most sharply by those least able to afford it. Millions of Americans lost their homes, their jobs, their savings.
In the wake of the crisis, President Obama built a new Consumer Financial Protection Bureau, created a Financial Stability Oversight Council to make sure that firms like Lehman Brothers and AIG were brought within the regulatory perimeter, raised capital standards to serve as a buffer in the event of losses, strengthened investor and consumer protections, and brought derivatives trading into the daylight. Now all of that is at risk.
Republicans have vowed to weaken the Consumer Financial Protection Bureau, and now they perhaps can—firing the person who had stood up to Wall Street, cutting its funding to block enforcement actions like the one against scams at Wells Fargo, permitting forced arbitration, taking away its authority over Wall Street auto lending, enabling “abusive” practices in the financial sector without any oversight or enforcement, and taking other actions to turn it into a feckless agency even more subject to attack by the very people undermining it.
“A Trump presidency could mean the wholesale dismantling of every step taken since the financial crisis to make the financial system safer and fairer. It could mean exposing every American to greater risks from another financial crisis and to abuses from financial charlatans.”
They have threatened to block the Financial Stability Oversight Council from subjecting firms like Lehman Brothers and AIG to effective oversight, and now they perhaps can—blocking regulators from understanding the risks from shadow banking that were so devastating in the last crisis.
They’ve attacked new capital rules to make the system safer, stress tests to understand and protect against systemic risks, and the Volcker Rule and other structural reforms designed to make the system safer. They would even abolish the Office of Financial Research, designed to shine a light on financial markets long hidden from public view.
They have tried to undo the reforms that permit the FDIC to wind down big financial conglomerates in the event of a crisis, reforms that are essential to ending the problem of Too Big to Fail. Instead, they could put the nation in danger of repeating the Lehman bankruptcy that was so devastating.
They have argued against protecting retirement savers, claiming that rules requiring advisers to look out for the interest of workers rather than themselves should be scrapped. And now they can do just that, potentially costing millions of retirees billions of dollars in higher fees and losses.
They have argued against common-sense reforms of mortgage markets, focused on an ability to repay, an old-fashioned value in banking that got lost in the financial crisis.
And they’ve tried to stymie regulation of derivatives markets, attempting to weaken rules on capital, margin, trading and clearing, position limits, and more.
So, what could the Trump presidency mean?
It could mean the wholesale dismantling of every step taken since the financial crisis to make the financial system safer and fairer. It could mean exposing every American to greater risks from another financial crisis and to abuses from financial charlatans.
We are at risk of entering a time when we all pretend to forget what we all once and all too briefly knew: those with the least voice will be hurt the worst by undoing financial reform.
None of this has to happen. We can join together to fight back. And