Saturday, February 4, 2017

De-Regulatory Furor and the Rise of the Swamp Monsters


Trump is expanding the swamp by rolling back the Obama Administration's post-financial crisis reforms, which were already largely eviscerated by financial industry resistance. Yesterday I posted a link to discussion of Trump's efforts to end the Dodd-Frank Act.  

Here is a summary of the Dodd-Frank Act taken from my book, Crisis Communication, Liberal Democracy, and Ecological Sustainability:


The U.S. Senate’s Brief Summary of the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) promises to “Create a Sound Economic Foundation to Grow Jobs, Protect Consumers, Rein in Wall Street and Big Bonuses, End Bailouts and Too Big to Fail, Prevent Another Financial Crisis” The summary declares resolutely “We must create a sound foundation to grow the economy and create jobs.” 
The Act promises to provide consumer protections – including institution of an independent “watchdog” at the Federal Reserve – and “Ends Too Big to Fail Bailouts.” It provides an “advance warning system” to identify systemic risks and regulatory loopholes” and institutes a system of “executive compensation and corporate government” and “protects investors” while “enforcing regulations on the book.” Attorneys Morrison and Foerster summarize Dodd-Frank provisions:
The Dodd-Frank Act implements changes that, among other things, affect the oversight and supervision of financial institutions, provide for a new resolution procedure for large financial companies, create a new agency responsible for implementing and enforcing compliance with consumer financial laws, introduce more stringent regulatory capital requirements, effect significant changes in the regulation of over the counter derivatives, reform the regulation of credit rating agencies, implement changes to corporate governance and executive compensation practices, incorporate the Volcker Rule, require registration of advisers to certain private funds, and effect significant changes in the securitization market. Morrison & Foerster The Dodd-Frank Act: a cheat sheet\
Section 716 of the Dodd Frank Act included a softened version of the Volcker Rule, requiring that banks “push out” derivatives trading into separate affiliates with higher capital requirements and stipulating that funding could not derive from deposit activities.[i] Banks, estimating billions of dollars in losses from elimination of propriety trading desks, fought vigorously against its implementation.[ii]
[end]

Banks were successful in rolling back many of the restrictions perceived as onerous, as I describe in my book, but they were still confronted with an enhanced regulatory environment characterized by increased consumer protections.

One of the most notable consumer protections was the requirement that financial advisors work in the best interest of their clients, rather than prioritizing their firm's interests.

This regulation was passed by the Labor Department and was appropriately named the "fiduciary rule."

That rule is now slated for elimination as President Trump empowers the SWAMP MONSTERS:

Ron. Lieber. February 3, 2017. Fiduciary Rule Is Now in Question. What’s Next for Investors. The New York Times, https://www.nytimes.com/2017/02/03/your-money/estate-planning/fiduciary-rule-is-now-in-question-whats-next-for-investors.html?emc=edit_th_20170204&nl=todaysheadlines&nlid=32962000

On Friday, President Trump signed an executive order seeking a review of an Obama-era rule that would have forced financial professionals to act in customers’ best interest when giving them advice about their retirement accounts.

The so-called fiduciary rule, the subject of years of intense debate and industry lobbying, was set to take effect in April, but the order removes that deadline, and the rule will likely disappear. Gary Cohn, the former Goldman Sachs executive who is now the director of the National Economic Council, told The Wall Street Journal that he wanted it gone.



[i] Engler, "Reversal of Dodd-Frank."

[ii] Dawn Kopecki and Chanyanporn Chanjaroen, “J. P. Morgan Said to End Proprietary Trading to Meet Volcker Rule,” Bloomberg.com, August 31, 2010, accessed September 9, 2010, http://www.bloomberg.com/news/2010-08-31/jpmorgan-is-said-to-shut-proprietary-trading-to-comply-with-volcker-rule.html.

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