Feb012017

Dodd-Frank overhaul is a battle Trump would lose

Trump wants to cut government regulations, but Dodd-Frank is too well defended, and gutting it will look like a green light for Wall Street thieves to pillage Main Street USA.

Why should we keep Dodd-Frank? Does it really inhibit economic growth, or does it merely inhibit Wall Street’s ability to steal from Main Street?

The fact is that Dodd-Frank works well, so financial elites hate it. Despite rumors to the contrary, Dodd-Frank vastly improves the mortgage lending market. Dodd-Frank does nothing to prevent sound lending, but it does crack down on the kind of stupid lending that was very profitable for Wall Street during the housing mania.

The success of Dodd-Frank is also the source of the political pushback from lenders chaffing against the restrictions on business the law imposes. Like any other special interest, lenders will fight even the most common sense restrictions on their behavior if it reduces their revenue.

Dodd-Frank prevents lenders from inflating another bubble. For the last decade, Dodd-Frank ensured the unstable loan products of the mania failed to return and cause another housing debacle. Do we really want to repeat the mistakes of the early 00s? Have we forgotten already?

Trump Pledges ‘Big Number’ on Dodd-Frank in Anti-Rule Push

by Benjamin Bain and Jesse Hamilton, January 30, 2017

President Donald Trump stepped up his criticism of financial regulations, pledging to go after the 2010 Dodd-Frank banking overhaul because he said the law has made it difficult for businesses to get loans.

Not that it matters to Trump, but no data supports this assertion.

“We’re going to be doing a big number on Dodd-Frank,” Trump said Monday at an event with small business leaders at the White House. He called the legislation “a disaster” and said, “it’s almost impossible now to start a small business and it’s virtually impossible to expand your existing business.”

Trump is signaling he wants a fight on this one. It would be a tactical error.

First, if there is one issue on which Democrats are completely united, it’s protecting Dodd-Frank. He might as well propose reforming Social Security. In the post How the fate of the housing policy hinges on an arcane Senate rule, I detailed why this matters.

The founding fathers intended the Senate to be a smaller body with more debate. Whereas debate times are limited in the House of Representatives, by long-standing Senate rules, no limits are placed on debate. In fact, it takes a vote of 60 Senators, 9 more than the 51 needed for majority, to stop debate on any issue. If 60 Senators fail to agree that debate should be closed, one Senator can talk forever, effectively killing legislation by preventing it from ever coming to vote.

This procedural “talking to death” of legislation is known as a filibuster, and this arcane Senate rule will thwart the desires of establishment Republicans to pass their agenda, including housing policy or dismantling Dodd-Frank.

While Trump and Congressional Republicans may want to enact their entire agenda, they would also like to see those laws endure — and without a filibuster, none of it would. Without a filibuster, laws would be passed and repealed every time the power structure changed in Washington, and such political instability would lead to chaos.

The second reason this would be a tactical error is because defeat by filibuster is certain, and if he loses a high-profile battle, he looks weak. This is a big poker game, and I doubt Trump or Congressional Republicans want to play through to the River card hoping for an inside straight.

A third reason he shouldn’t do this is the broader political picture with his supporters. This will be portrayed by Democrats as a way for Wall Street to rip off Main Street — which it is. It’s everything Trump ran against.

While his supporters may applaud his efforts to boost the economy through cutting red tape, companies like Wells Fargo prove we need a financial cop on the beat, and removing the Consumer Financial Protection Bureau, which is part of Dodd-Frank, fires the policemen. It’s an open invitation for Wall Street to resume crimes against ordinary Americans, the antithesis of what Main Street wants and needs.

Trump didn’t provide data linking borrowing to Dodd-Frank, and the law’s impact on business lending isn’t clear cut. Commercial and industrial lending is up significantly since the law was approved, though the amount of money lent to small businesses was little changed, according to government data.

Trump’s remarks are his most pointed on financial rules since he took office Jan. 20. His advisers vowed to dismantle Dodd-Frank during the transition period, but have provided scant details on how they plan to go about it. Trump didn’t say whether he planned to attack the law through executive action or by working with Congress on legislation.

He has very limited power with either avenue of assault. The CFPB is well insulated from either Congressional or presidential influence. The Democrats designed it that way in anticipation of this day. And as I outlined above, Senate Democrats will filibuster any legislation in Congress.

Banks and investors have been trying to decipher how the billionaire will balance his populist message to the middle class with his Wall Street ties, which include a cadre of former Goldman Sachs Group Inc. bankers he’s tapped for key roles in his administration. …

These facts will play into the Democrats narrative of Wall Street pillaging Main Street. A billionaire president with his billionaire hedge fund buddies from Wall Street working to remove laws that protect Main Street from Wall Street billionaires isn’t going to play well with working class voters.

Getting Congress to make big changes to the 2010 banking law won’t be easy. While House Republicans, led by Jeb Hensarling, chairman of the House Financial Services Committee, is working on a measure that would rip apart most of Dodd-Frank, the Senate Banking Committee hasn’t proposed its own version. Most legislation would require support from at least some Democrats in the Senate to avoid filibuster rules, unless lawmakers try to attach parts of it to a fast-track budget process.

Asked whether Trump would seek to change Dodd-Frank through legislation or executive action, the president’s spokesman, Sean Spicer, offered no clarity. He told reporters Monday in Washington that Trump would “continue to work with Congress” on changing the law.

Trump’s best course of action is to issue orders to Cordray that put Cordray in a position where he must defy the presidential order. Trump could then follow up and threaten to remove him for negligence. The issue would almost certainly end up in court, but the battle could weaken the CFPB and make it less effective until 2018 when Trump can appoint a lackey in Cordray’s place. Then the Democrats can spend their effort suing the CFPB to enforce its own rules.

By tying up the CFPB in endless court actions between a hostile administration and Congressional Democrats, Trump could make the bureau much less effective even without engaging in a direct and losing battle over Dodd-Frank. In the meantime, he can continue to bluster about Dodd-Frank while doing very little.