Don’t fear Donald Trump talk of reform, for now
By Charles Duhigg
I get it: You are freaked out. You don’t like this president. Practically every day, he sets off some new crisis and, according to your Facebook feed, does something that might destroy the nation. You’re wondering if you should start buying canned foods and ammunition.
Or perhaps you’re thrilled that the Trump administration is making good on its promise to “drain the swamp” by changing regulations. It’s wonderful to see businesslike thinking in Washington. In moments of reflection, however, you’re a bit concerned that some important details might get overlooked amid the flurry of action from the White House.
Among those concerns may be President Donald Trump’s pledge to do “a big number” on the financial regulations put in place after the 2008 financial crisis, reforms known as the Dodd-Frank Act.
It’s a turbulent time. So, as a public service, I’m going to regularly evaluate some of Trump’s activities, and help you decide which ones are cause for alarm — and which, to be honest, are fairly rational attempts at governing, the same kinds of shifts we might expect if Hillary Clinton or a different Republican had been elected president.
First up: Trump’s executive order, signed last Friday, to roll back Dodd-Frank.
Though Trump’s recent executive order on immigration has received far more attention, the financial reforms proposed by the president would affect millions more Americans than any travel ban. Even small changes in our nation’s financial laws are likely to touch everything from how much we pay in credit card fees to whether we can get a mortgage. They will also influence the odds of another financial meltdown.
The Dodd-Frank law can essentially be broken into two parts. There is the act’s core legislation, which placed new constraints on banks’ financial activities and required them to hold onto more money as a cushion against crisis. This core legislation also created an independent regulator, the Consumer Financial Protection Bureau, which has become a proud thorn in the side of many financial firms.
The secondary aspects of Dodd-Frank, however, have almost nothing to do with stabilizing the economy or protecting consumers. They include provisions like forcing companies to disclose their use of conflict minerals, or to report payments that oil and mining companies make to foreign governments. There’s a provision that regulates how much it costs to swipe a credit card.
Some recent Republican attempts to roll back Dodd-Frank focused largely on these secondary provisions. In January, Congress eliminated that oil and mining requirement. This week, the acting head of the Securities and Exchange Commission signaled his intent to weaken a rule forcing companies to publicly compare the salaries of chief executives and employees.
“Some of these changes are depressing, because they undermine transparency and increase corruption, but they’re not going to blow up our financial system,” said Michael Barr, a former assistant secretary of the Treasury and one of the key architects of Dodd-Frank. “They leave the core of Dodd-Frank intact.”
And preserving that core is important, because Dodd-Frank’s purpose isn’t to make the financial system more virtuous, it’s to make it more stable. Two years after the world’s economic system imploded in 2008, the Obama administration and a Democratic Congress erected these new rules to prevent another crisis from happening. Some aspects of the resulting Dodd-Frank Wall Street Reform and Consumer Protection Act were widely applauded; others were controversial from the start.
In the intervening seven years, as the legislation has been tested by the real world, a consensus has emerged that some shifts are needed. “We wrote this in the wake of a major crisis, and I think the legislation reflected that,” said Barney Frank, a former representative from Massachusetts who was a co-sponsor of the law. “And we’ve learned a lot since then, and some parts of the law should change to reflect that.”
When Trump signed an executive order last week to identify “government policies that inhibit federal regulation of the United States financial system,” it was widely seen as the first step in overhauling Dodd-Frank.
One paranoid view of Trump’s intentions is that he aims to neuter or kill Dodd-Frank outright — a concern the president has fueled by saying that “Dodd-Frank is a disaster” and pledging to “dismantle” it.
However, such major revisions would require Congress’ assistance, and it’s unlikely that Democrats or moderate Republicans would go along. Even portions of Wall Street think killing Dodd-Frank is a terrible idea. “It’s essentially a law with good intentions,” said H. Rodgin Cohen, the dean of Wall Street lawyers. “It just needs adjustments and regulators who understand the need to balance safety alongside economic growth.”
So many hope that Trump and, more important, congressional Republicans simply want to alter Dodd-Frank. And this is the hard part of forecasting how panicked you ought to be, because we don’t know specifically what the president and Congress will propose.
Frank and numerous other policymakers concede that Dodd-Frank should be reformed to include more exemptions for smaller banks, and that Congress should raise the threshold at which a bank is deemed a potential risk to the economy. Lawmakers from both parties say the law creates too much unnecessary paperwork.
So if you hear lawmakers proposing such fixes, you probably don’t need to despair that another financial crisis is around the corner.
But if the president is genuinely intent on killing Dodd-Frank, then more angst is warranted. If, for instance, lawmakers try to erase Dodd-Frank’s core provisions, or eliminate or weaken the Consumer Financial Protection Bureau, it’s appropriate to worry. A leaked memo Thursday from Rep. Jeb Hensarling, R-Texas, the chairman of the House Financial Services Committee, who has declared that he “will not rest until Dodd-Frank is ripped out by its roots and tossed on the trash bin of history,” laid out plans to weaken the bureau’s leadership, a move that should grab your attention.
Other reasons to worry would be if Dodd-Frank reforms pass Congress without any Democratic votes — signaling that sober congressional minds, which often agree on banking rules, have been elbowed aside by radicals. If so, I suggest exploring which red wines go well with canned beans.
And, if any bills written by Hensarling ever become law, then it’s perfectly acceptable to follow Peter Thiel’s lead and begin exploring New Zealand citizenship.
Right now, however, you need not panic. It took more than a decade to brew up the toxic mess that became the financial crisis. It took two more years to pass Dodd-Frank. It will require more than an executive order and a leaked memo to undo those protections. As long as concerned citizens keep their eyes open, we’ll all have plenty of time to prepare to freak out.
I get it: You are freaked out. You don’t like this president. Practically every day, he sets off some new crisis and, according to your Facebook feed, does something that might destroy the nation. You’re wondering if you should start buying canned foods and ammunition.
Or perhaps you’re thrilled that the Trump administration is making good on its promise to “drain the swamp” by changing regulations. It’s wonderful to see businesslike thinking in Washington. In moments of reflection, however, you’re a bit concerned that some important details might get overlooked amid the flurry of action from the White House.
Among those concerns may be President Donald Trump’s pledge to do “a big number” on the financial regulations put in place after the 2008 financial crisis, reforms known as the Dodd-Frank Act.
It’s a turbulent time. So, as a public service, I’m going to regularly evaluate some of Trump’s activities, and help you decide which ones are cause for alarm — and which, to be honest, are fairly rational attempts at governing, the same kinds of shifts we might expect if Hillary Clinton or a different Republican had been elected president.
First up: Trump’s executive order, signed last Friday, to roll back Dodd-Frank.
Though Trump’s recent executive order on immigration has received far more attention, the financial reforms proposed by the president would affect millions more Americans than any travel ban. Even small changes in our nation’s financial laws are likely to touch everything from how much we pay in credit card fees to whether we can get a mortgage. They will also influence the odds of another financial meltdown.
The Dodd-Frank law can essentially be broken into two parts. There is the act’s core legislation, which placed new constraints on banks’ financial activities and required them to hold onto more money as a cushion against crisis. This core legislation also created an independent regulator, the Consumer Financial Protection Bureau, which has become a proud thorn in the side of many financial firms.
The secondary aspects of Dodd-Frank, however, have almost nothing to do with stabilizing the economy or protecting consumers. They include provisions like forcing companies to disclose their use of conflict minerals, or to report payments that oil and mining companies make to foreign governments. There’s a provision that regulates how much it costs to swipe a credit card.
Some recent Republican attempts to roll back Dodd-Frank focused largely on these secondary provisions. In January, Congress eliminated that oil and mining requirement. This week, the acting head of the Securities and Exchange Commission signaled his intent to weaken a rule forcing companies to publicly compare the salaries of chief executives and employees.
“Some of these changes are depressing, because they undermine transparency and increase corruption, but they’re not going to blow up our financial system,” said Michael Barr, a former assistant secretary of the Treasury and one of the key architects of Dodd-Frank. “They leave the core of Dodd-Frank intact.”
And preserving that core is important, because Dodd-Frank’s purpose isn’t to make the financial system more virtuous, it’s to make it more stable. Two years after the world’s economic system imploded in 2008, the Obama administration and a Democratic Congress erected these new rules to prevent another crisis from happening. Some aspects of the resulting Dodd-Frank Wall Street Reform and Consumer Protection Act were widely applauded; others were controversial from the start.
In the intervening seven years, as the legislation has been tested by the real world, a consensus has emerged that some shifts are needed. “We wrote this in the wake of a major crisis, and I think the legislation reflected that,” said Barney Frank, a former representative from Massachusetts who was a co-sponsor of the law. “And we’ve learned a lot since then, and some parts of the law should change to reflect that.”
When Trump signed an executive order last week to identify “government policies that inhibit federal regulation of the United States financial system,” it was widely seen as the first step in overhauling Dodd-Frank.
One paranoid view of Trump’s intentions is that he aims to neuter or kill Dodd-Frank outright — a concern the president has fueled by saying that “Dodd-Frank is a disaster” and pledging to “dismantle” it.
However, such major revisions would require Congress’ assistance, and it’s unlikely that Democrats or moderate Republicans would go along. Even portions of Wall Street think killing Dodd-Frank is a terrible idea. “It’s essentially a law with good intentions,” said H. Rodgin Cohen, the dean of Wall Street lawyers. “It just needs adjustments and regulators who understand the need to balance safety alongside economic growth.”
So many hope that Trump and, more important, congressional Republicans simply want to alter Dodd-Frank. And this is the hard part of forecasting how panicked you ought to be, because we don’t know specifically what the president and Congress will propose.
Frank and numerous other policymakers concede that Dodd-Frank should be reformed to include more exemptions for smaller banks, and that Congress should raise the threshold at which a bank is deemed a potential risk to the economy. Lawmakers from both parties say the law creates too much unnecessary paperwork.
So if you hear lawmakers proposing such fixes, you probably don’t need to despair that another financial crisis is around the corner.
But if the president is genuinely intent on killing Dodd-Frank, then more angst is warranted. If, for instance, lawmakers try to erase Dodd-Frank’s core provisions, or eliminate or weaken the Consumer Financial Protection Bureau, it’s appropriate to worry. A leaked memo Thursday from Rep. Jeb Hensarling, R-Texas, the chairman of the House Financial Services Committee, who has declared that he “will not rest until Dodd-Frank is ripped out by its roots and tossed on the trash bin of history,” laid out plans to weaken the bureau’s leadership, a move that should grab your attention.
Other reasons to worry would be if Dodd-Frank reforms pass Congress without any Democratic votes — signaling that sober congressional minds, which often agree on banking rules, have been elbowed aside by radicals. If so, I suggest exploring which red wines go well with canned beans.
And, if any bills written by Hensarling ever become law, then it’s perfectly acceptable to follow Peter Thiel’s lead and begin exploring New Zealand citizenship.
Right now, however, you need not panic. It took more than a decade to brew up the toxic mess that became the financial crisis. It took two more years to pass Dodd-Frank. It will require more than an executive order and a leaked memo to undo those protections. As long as concerned citizens keep their eyes open, we’ll all have plenty of time to prepare to freak out.
