People keep saying that Donald Trump is a populist. I do not think that word means what they think it means.
OK,
it’s true that our so-called president — hey, if he can say that about a
judge who ruled against him, surely we can say that about him — is
channeling the racism and bigotry of some ordinary Americans, and in so
doing sticking it to squeamish elites that take the Constitution both
seriously and literally. But so far his economic policies are all about
empowering ethically challenged businesses to cheat and exploit the
little guy.
In
particular, he and his allies in Congress are making it a priority to
unravel financial reform — and specifically the parts of financial
reform that protect consumers against predators.
Last week Mr. Trump released a memorandum
calling on the Department of Labor to reconsider its new “fiduciary
rule,” which requires financial advisers to act in their clients’ best
interests — as opposed to, say, steering them into investments on which
the advisers get big commissions. He also issued an executive order
designed to weaken the Dodd-Frank financial reform, enacted in 2010 in
the aftermath of the financial crisis.
Both
moves are very much in line with the priorities of congressional
Republicans and, of course, the financial industry. For both groups
really, really hate financial regulation, especially when it helps protect families against sharp practice.
Why,
after all, was the fiduciary rule created? The main issue here is
retirement savings — the 401(k)’s and other plans that are Americans’
main source of retirement income over and above Social Security.
To invest these funds, people have turned to financial professionals —
but most probably weren’t aware that these professionals were under no
legal obligation to give advice that maximized clients’ returns rather
than their own incomes.
This is a big deal. A 2015 Obama administration study concluded that “conflicted investment advice”
has been reducing the return on retirement savings by around one
percentage point, costing ordinary Americans around $17 billion each
year. Where has that $17 billion been going? Largely into the pockets of
various financial-industry players. And now we have a White House
trying to ensure that this game goes on.
On
Dodd-Frank: Republicans would like to repeal the whole law, but
probably don’t have the votes. What they can do is try to cripple
enforcement, especially by undermining the Consumer Financial Protection
Bureau, whose goal is to protect ordinary families from financial scams.
Unlike
other parts of Dodd-Frank, which are supposed to reduce the risk of a
future financial crisis — and won’t be fully tested until the next major
shock hits — the bureau is designed to deal with problems that afflict
consumers in good times and bad. And by all accounts it has been a huge
success, increasing transparency, reducing fees, and exposing fraud.
Remember the Wells Fargo
scandal, in which the bank was found to have signed millions of
customers up for accounts, credit cards, and services without their
consent or knowledge? This scandal only came to light thanks to the
bureau.
So why are consumer protections in the Trump firing line?
Gary
Cohn, the Goldman Sachs banker appointed to head Mr. Trump’s National
Economic Council — populism! — says that the fiduciary rule is like “putting only healthy food on the menu”
and denying people the right to eat unhealthy food if they want it. Of
course, it doesn’t do anything like that. If you want a better analogy,
it’s like preventing restaurants from claiming that their 1400-calorie
portions are health food.
Mr.
Trump offers a different explanation for his hostility to financial
reform: It’s hurting credit availability. “I have so many people,
friends of mine that had nice businesses, they can’t borrow money.” It
would be interesting to learn what these “nice businesses” are. What we
do know is that U.S. banks have generally shunned Mr. Trump’s own businesses — from which, by the way, he hasn’t separated himself at all — perhaps because of his history of defaults.
Other would-be borrowers, however, don’t seem to be having problems. Only 4 percent
of the small firms surveyed by the National Federation of Independent
Business report themselves unsatisfied with loan availability, a
historic low. Overall bank lending in the United States has been quite robust since Dodd-Frank was enacted.
So
what’s motivating the attack on financial regulation? Well, there’s a
lot of money at stake — money that the financial industry has been
extracting from unwitting, unprotected consumers. Financial reform was
starting to roll back these abuses, but we clearly now have a political
leadership determined to roll back the rollback. Make financial
predation great again!
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