At the beginning of his second week in office, President Donald Trump signed an executive order requiring government agencies to identify two regulatory rules that would be dropped for each new regulation they issue.
This executive order, at its pyrrhic best, establishes no working principles upon which regulations are adopted or rejected. At its judicial worst, this executive order is just plain stupid and makes no economic sense.
While his executive order will undoubtedly be challenged in a court of law— Gregory Wawro, an expert on American legislation from Columbia University maintains it’s not a legitimate use of presidential authority—arguments about Trump’s regulatory house-cleaning are a distraction from the government’s persistent failure to seriously to curb corporate criminality and fraud.
This issue, for example, has nearly been lost in the current debate over the future of the Dodd-Frank legislation passed during the Obama presidency, which was aimed at curbing the power of big banks.
Last week, Trump stepped up his repeated criticism of financial regulations for their alleged negative impact on economic growth. Speaking to a group of small business owners, he declared, “We’re going to be doing a big number on Dodd-Frank.”
But concerns that weakening or scrapping Dodd-Frank or, as it’s officially known, the 2010 Wall Street Reform and Consumer Protection Act, will encourage a repeat of the kind of corporate chicanery that contributed to the 2008 financial crisis are misplaced.
When it comes to addressing corporate wrongdoing, Dodd-Frank was an ineffective instrument to begin with.
Keep in mind that the Act is a 2,300-page set of regulations consisting of 390 new rulemaking requirements. By July 2016, 274 (70.3%) rules had been finalized, 36 (9.2%) proposed, and 80 (20.5%) not acted on.
How many of these rules were effectively implemented is anyone’s guess.
True to his word, the new president signed an executive action to further scale back Dodd-Frank, directing the Treasury secretary and financial regulators to come up with a plan to revise the rules set in motion in 2010.
Undoubtedly, that action represents a step backward. His order, among other things, would undo the Department of Labor’s expanded fiduciary rule. or definition of what constitutes an “investment” put in place in April 2016.
According to White House adviser Gary Cohn, the plan is also likely to alter the post-crisis Financial Stability Oversight Council, or the mechanisms in place for winding down giant faltering companies and for overseeing big financial firms that are not traditional banks.
Yet, although the President and his advisors promise to dismantle the Financial and Consumer Protection Act of 2010, the Trump Administration appears to have ruled out the possibility of an all-out repeal of the law.
Trump has stated that he will work with the Republican-controlled Congress to roll back only those reforms that they view as going too far to hinder banks from making both strategic investments and loans.
For example, Republicans have always attacked a central component of the Dodd-Frank law—the Consumer Financial Protection Bureau (CFPB).
The CFPB greatly expanded regulators’ ability to police such common consumer products as mortgages, credit cards, and student loans. In fact, the Bureau has had the power to enact new rules to protect individuals against bad practices in credit cards, home mortgages, account overdrafts, and payday loans.
Most experts tend to agree that the CFPB has been fairly effective, not unlike the successful U.S. Consumer Product Safety Commission established by the Nixon Administration in 1972. Similarly, most experts agree that a relaxation of Dodd-Frank rules would raise the likelihood of another financial crisis fed by high-risk securities.
Nevertheless, on February 1, the Republicans and Trump, using the 1996 Congressional Review Act (CRA), made it crystal clear that, with respect to climate change and environmental regulations, the interests of oil and coal and capital would always at least in the short term trump the interests of the health-consuming public.
On the same day, the Republican-controlled Congress began using the CRA to repeal any rules finished by Obama after mid-June 2016. The number of such major regulations exceeds 50. The first five to be gutted include: the stream protection rule for coal mining; the methane waste rule; the resource extraction rule; the “blacklisting” rule for contractors; and the social security gun rule for persons diagnosed with a mental illness.
Yet despite these early and other regulatory rollbacks, especially in the areas of environmental protection, I believe Dodd-Frank will not be significantly altered.
I take this position for three basic reasons:
- First, Trump and company will require some cooperation (and votes) from congressional Democratic members who for the most part believe that the Obama-era financial reforms did not go far enough to reign in the crimes of Wall Street.
- Second, there is a cadre of former Goldman Sachs bankers whom the President has tapped for key roles in his administration, including Anthony Scaramucci (Senior White House Advisor), Dina Habib Power (Senior Counselor for Executive Initiatives), Steve Bannon (White House Chief Strategist), Steve Mnuchin (U.S. Secretary of Treasury nominee), Gary Cohn (National Economic Council Chairman-appointee), and Jay Clayton (Securities and Exchange Commission Chairman nominee).
As these former Goldman Sachs bankers know all too well, the restructuring of securities investments over the past seven years has allowed for the circumventing of Dodd-Frank. In the process, global industrialists have become global bankers and global bankers have become global industrialists.
Thanks to an abstruse and limitless legal clause of the Financial Services Modernization Act of 1999, otherwise known as the Gramm-Leach-Bliley Act, Wall Street bankers are now buying and trading in entire industries no differently than the Koch (brothers) Industries.
Meanwhile, these oil industrialists and others are now engaging in financial transactions like those once limited to Wall Street.
As a consequence of these operational exchanges, one can argue that the risks and harms to both the economic markets and the bio-ecosystems remain essentially unaltered by regulatory reforms like Dodd-Frank and the Volker Rule.
Third, and also related to the second reason, many of the Dodd-Frank reforms were hollow or had no teeth to begin with, such as in the areas of executive compensation and corporate governance.
Most importantly, Dodd-Frank provided several loopholes or escape clauses to bail out the financial industry as a whole and to reproduce the recent history of banking on the Federal Reserve System. For example, forcing insolvency and bankruptcy, breaking up the too-big-to-fail institutions, ending taxpayer bailouts, and eliminating certain types of derivative practices were all written into the law conditionally.
In other words, the re-regulating of Wall Street following the banking implosion of 2008 never did a whole lot to protect against or reduce moral hazards, high-risk betting, or the next financially driven bubble in the economy.
At the same time, I think that some of the strongest components of Dodd-Frank will not be meaningfully reformed with Goldman Sachs in charge. For example, the strict requirements for how much capital large banks must hold to protect against their potential losses as well as the proportion of holdings with high quality trades, will probably remain in place.
Other Dodd-Frank reforms likely to continue are the expanded oversight and greater transparency involving derivative instruments as well as hedge funds transactions, including information about investments and all involved business partners.
Also, tighter restrictions over mortgage lending will not be rolled back.
So from the economic perspectives of both President Trump and his Goldman Sachs cronies, what needs to be repealed?
From the perspectives of Main Street, it should be realized that re-regulating or deregulating Wall Street has not and will not have any impact on the nefarious and fraudulent behavior of the big banks.After all, in the early 21st century, Dodd-Frank is still subordinate to and silent about the super-financialization of global capital. And, most significantly, the contradictions of financial justice exemplified by waivers and exemptions from punishment for high-stakes securities frauds, remain intact.
Dodd-Frank introduced no new criminal laws to violate and none to repeal. All of the criminal laws necessary to prosecute the criminal behavior that caused the financial implosion and global recession were in place long before the 2008 crisis.
And nobody to date has proposed repealing any of those criminal laws.
The real problem, however, is that none of those criminal laws, as far as we know, have ever been used by the Department of Justice to investigate—never mind charging or prosecuting—one single person from any of those financial institutions that have paid hundreds of billions of dollars for their allegedly “noncriminal” behavior.
And that’s where the attention of reformers—even in the age of Trumpism—should really be focused.
Gregg Barak is a 2017 Fulbright Scholar to Porto Alegre, Brazil and Professor of Criminology and Criminal Justice at Eastern Michigan University. He is the author of several books on crime and justice and the recipient of the National White Collar Crime Center’s Outstanding Publication Award for his 2012 book, “Theft of a Nation: Wall Street Looting and Federal Regulatory Colluding. His latest book, Unchecked Corporate Power: Why the Crimes of Multinational Corporations are Routinized Away and What We Can Do About It,” will be published in London and New York on Feb. 21 by Taylor & Francis Group. He welcomes readers’ comments.