President Trump announced that he would do what he had said during the campaign, that he would be “dismantling” the massive Dodd-Frank Act of 2010 that he considered to have a negative impact on our economy.
The Trump transition team wrote, “The Dodd-Frank economy does not work for working people. Bureaucratic red tape and Washington mandates are not the answer. … (We will) replace it with new policies to encourage economic growth and job creation.”
The Trump team has nothing but contempt for the 850 pages of regulations.
The Dodd-Frank Act is an attempt to discover the practices of bankers and businessmen that result in economic breakdowns, such as the Great Depression of the 1930s and the Great Recession of 2008. There have always been disagreements about what policies and procedures are best suited to make the market run smoothly. Businesses are alarmed as regulations are created that put dampers on their freedom. However, it is a brute fact that as the market gets more complicated and powerful, society must become involved in what is a threat to the economic health of all. When bankers began to change from savings and loan instruments to investment agents, it became necessary to require a separation of the two types of banking in the summer of 1933.
As a consequence of the economic collapse in 2008, it was necessary to draft a new set of regulations to protect the consumer. This brought about the Dodd-Frank Act. In the breakdowns we have mentioned, it must be remembered that several of the largest and richest of these corporations were saved by public financial support and that many citizens lost their jobs and homes due to the bad judgment of these financiers. They have hired a large number of lawyers to study every word to select those that are the weakest. These rich financiers are very aware that they are safe, regardless of how wrong their decisions, because they are “too big to fail.”
Several issues have been chosen for special interests by Trump and his followers to be dismantled. One that is not yet active is what is called the fiduciary rule. This part of the law requires that advisers act in the best interests of their clients and to put their clients’ interests above their own. Advisers are to be clear of any potential conflict of interest, and all fees and commissions must be clearly disclosed in dollar form to clients. This, of course, is unacceptable to Trump, who is set on “removing regulatory burdens and opening up investor options.”
Another disliked rule of Trump is the Volcker rule, which limits the types of investments allowed in U.S. banks. The specific demands of banks are very technical and not easy for a non-specialist to grasp. A boiled-down version concluded with: “Our primary concern with the implementation process is that there is limited negative impact on market liquidity and that overall compliance by the industry is efficient.” Trump announced that his intent is “designed to significantly scale back the regulatory system put in place in 2010.”
Jim Millstein, a great source of wisdom and a former officer of the Treasury Department, had this reaction to Trump’s remarks about Dodd-Frank: “They should tread carefully. Only eight years ago we had the biggest financial crisis of our time, and they clearly don’t want to be responsible for the next one.”
Another qualified critic, Lawrence Summers, a former secretary of the treasury, suggests that while Dodd-Frank might be improved by a few changes, “(i)s an indiscriminate attack spearheaded by former big bankers the right approach? Very unlikely. The systemic risks remain real and we can’t afford complacency.”
Many times when we are in debates and discussion seems to come to a draw, we decide to consider the source. Calling on that source is clearly the most rational way to go. President Trump and some of the people he has appointed have a history of being in a class with some branch of the government. Only a strong Congress can come up with the power to keep huge banks in order. A strong Dodd-Frank law can compete with those who want to risk it all as a bank “too big to fail.”
We need a strong Dodd-Frank law to protect the economy and make it safe from those who play loose with other people’s money.