Wednesday, May 24, 2017

While You Weren’t Looking, Trump Basically Killed Dodd-Frank

As the nation’s capital has been consumed by the frothing chaos of President Donald Trump’s administration — botched Muslim bans, sudden personnel changes and the chief executive’s erratic behavior — a steady current of traditional right-wing orthodoxy is sweeping through the federal government. Whatever happens with Russia or the FBI, this tide is washing away former President Barack Obama’s second-greatest legislative achievement: Wall Street reform. And it’s all happening while you’re paying attention to something else.

Trump campaigned on conflicting promises about big banks. One minute, he was going to stick it to the corrupt financial insiders who had wrecked the middle class. The next, he’d vow to liberate our benevolent princes of capital from crushing regulations Obama had cruelly imposed.

Some of Trump’s populist rhetoric followed him into office. But the actual governing has been pure deregulation. Last week, a council of top regulators quietly met to discuss the future of the Volcker rule [reinstated under Dodd-Frank] ― the most important structural change Obama established for the financial system. A few days later, a freshly installed Trump official went further, threatening to defang the rule “unilaterally” by “reinterpreting” its entire purpose.

The rule is basically dead, Keefe Bruyette & Woods analyst Brian Gardner wrote in a note to clients last Monday: Examiners can start giving banks the benefit of the doubt regarding compliance with Volcker almost immediately.’ “

The Volcker rule was an update of the Banking Act of 1933, also called the Glass-Steagall law. It banned traditional banks from engaging in high-risk investments and separated commercial from investment banking. It was deemed a healthier financial system because it restricted banks from making certain kinds of speculative investments that did not benefit customers. Such speculative investments played a key role in the financial crisis of 2007–2010.

In 1999, President Bill Clinton signed the law repealing Glass-Steagall.

The Wall Street Reform and Consumer Protection Act, commonly known as Dodd–Frank, was signed into law in 2010, as a result of the financial crisis 2007-2010, by President Barack Obama. Dodd–Frank (Volcker rule) was significant because it basically reinstated some of Glass-Steagall's principles.

Pier Marco Tacca/Anadolu Agency Via Getty Images

By Zach Carter