Under The Radar: Deregulation and Setting Up the Next Big Bank Debacle

If a person were thinking that the current administration, and those politicians in Nevada who espouse Trumpism, are dangerous in terms of health care insurance affordability, women’s’ health issues, and environmental sustainability — let me offer one more thing to worry about:  Financial deregulation.

Let’s start with the nomination of Brett Kavanaugh for a position on the US Supreme Court, this would be the self-same Kavanaugh who once ruled that the Consumer Financial Protection Bureau was “structurally unconstitutional.” [Politifact]  Please recall for a moment that one of the reasons for the CFPB’s creation was the propensity in some  retail banking circles to generate consumer indebtedness (which could in turn be used as the basis for derivatives) in ways that were definitely not beneficial to both the borrower and the lender.   We know one man’s debt is another man’s asset, but when the debt level becomes impossible and default becomes probable the derivatives become unstable.  This, as the saying goes, “ain’t rocket science.”  But wait! How do we know when things are likely to become unstable?  There’s supposed to be an agency for that, the Office of Financial Research.  However, the Trump nominee to head this agency would really rather eliminate it.

But the fact that this nomination is flying under the radar is not surprising. The OFR is arguably the most important piece of the Dodd-Frank Wall Street Reform and Consumer Protection Act that is never discussed. Despite its lack of public attention, the OFR’s crucial financial stability role demands a leader willing to aggressively execute its lofty mission. Unfortunately, President Trump’s nominee to lead the OFR is more likely to defang and defund the agency than to strengthen it. [AmBanker]

The American Banker explains further:

In the lead-up to the 2007-2008 crisis, financial regulatory agencies did not have a good grasp of how risks that were building across and outside of their specific jurisdictions could threaten financial stability. Regulators were not sharing sufficient data with one another and there were significant pockets of the financial sector where data was not available to any regulator. The Dodd-Frank Act sought to address this issue, in part, by creating the Office of Financial Research.

So, the budget was cut by 25% and the staffing levels by 38%.  This really isn’t conducive to sharing sufficient data and making data available to regulators.   If this is beginning to sound like telling the CDC it can’t investigate and collect data on gun violence in this country because then we might have more relevant statistics in order to understand the problems, that’s because it is.  So, let’s not collect data because then we’d find out things some folks would be happier if we didn’t know.

Then there are the more blatant attempts to roll back the Dodd Frank provisions, for example, see Investment News from last March.  On compliance teams from last May.  And, the JOBS Act 3.0 is just about a death knell for consumer protections, as of August 7 2018.

But wait yet again! There’s more.  There’s that matter of $1.4 trillion — that would be trillion with a T — in student debts in this country a larger portion of which Wells Fargo would really like to access. [Bloomberg] And, yes, this would be the same Wells Fargo which agreed on August 2, 2018 to pay out $2.09 billion in fines for a decade old mortgage loan scheme. [HuffPo]  This, while Secretary of Education, our Yacht Collecting Betsy DeVos, is proposing a rule which would cut student loan debt relief by some $13 billion. [LATimes]  [NYTimes]  So, if a person were scammed by, say, Corinthian, [WSJ] or The Fly By Night School of Urban Hang Gliding, or … Trump University [NBC] … good luck with that?

Did we take our eyes off the major players from the 2007-08 debacle?  Kindly review the “Malaysian Problem” re-emerging at Goldman Sachs.  Or, are we paying attention to what’s happening with a Goldman Sachs whistleblower case of possible wrongful termination which bubbles to the surface every so often? Stick a pin in the name Lars Windhorst for future reference? Why is Goldman Sachs moving jobs out of New York and into Utah? [BusinessInsider]  Cut costs? Yes, but why move back office compliance jobs to “remote” areas?

Then there’s the CFPB’s inexplicable turn to weakening the rules made with regard to loans made to members of the American Armed Forces. [NYT]  This reporting from NPR is pretty chilling:

“NPR has obtained documents that show the White House is proposing changes that critics say would leave service members vulnerable to getting ripped off when they buy cars. Separately, the administration is taking broader steps to roll back enforcement of the Military Lending Act.

The MLA is supposed to protect service members from predatory loans and financial products. But the White House appears willing to change the rules in a way that critics say would take away some of those protections.

“If the White House does this, it will be manipulating the Military Lending Act regulations at the behest of auto dealers and banks to try and make it easier to sell overpriced rip-off products to military service members,” says Christopher Peterson, a law professor at the University of Utah, who reviewed the documents.”

Bank deregulation didn’t work.  It didn’t work in the 1920s; it didn’t work in the 2000s; and, it’s not going to work now.  Notice, please, how when Republicans like Senator Dean Heller refer to Dodd Frank and other financial reform legislation they get vague and highly general. They speak of “onerous” regulator burdens, which are “job killing,” and don’t promote “free enterprise.”   These politicians need to be nailed down with specific questions, such as:

(1) Should the Federal Government collect data about banking trends and risk management and share this with relevant regulators?

(2) Should the Federal Government promote safe lending practices including the regulation of payday loans and similar loans made to members of the US Armed Forces?

(3) Should the Federal Government be taking a more critical look at the levels of student indebtedness, and at the accountability of the institutions offering student loans?

It’s hard to focus on some of the important news involving financial regulation, consumer protection, and other topics whilst we’re being fire-hosed with a daily inundation of surreptitious tapes, the latest cabinet level scandal du jour, and the musing of the misogynist in chief.  However, these are topics on which we should hold candidates accountable in November.

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