The Conspicuous Contradiction (May 20)

Mike & Co. —

Yesterday, the Senate Banking Committee reported a set of five nominees out –- next they’ll face a Senate confirmation, perhaps through an expedited process. The Democratic rebellion at the SEC nomination hearing in Committee last month, during which Sens. Warren, Schumer, Markeley, and Menendez blocked these very nominations in protest against SEC inaction on a corporate political contribution disclosure rule, is now in abeyance. 

Still left are two Federal Reserve and an Export-Import Bank Board nomination.  Committee Chair Shelby has said he won’t bring the Fed nominees up for a vote until President Obama nominates a Vice Chairman for Supervision to that agency.  Regarding the Ex-Im nominee, none is unlikely to pass the Senate given McConnell’s opposition to Ex-Im funding. 
Below, a look at the current impasse through the lens of the presidential election campaign. 
Good weekends all,
Dana
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While financial regulation in the Senate and in the agencies fitful progress, the national discourse has taken a turn toward the ridiculous.  This week, presumptive GOP nominee Trump broke his silence on Dodd-Frank, essentially promising repeal.  But at the same same time, he continued to bash private equity and hedge fund managers and Wall Street in general.
While discussing financial regulation during a Reuters interview earlier this week, Trump practically talked himself into a corner, saying on Monday that he would reform so much of Dodd-Frank that it would be “pretty close to a dismantling” of the law.   So he has disparaged private equity and hedge fund managers while going out of his way to relieve them from federal regulation.
How can he balance his casting aspersions against Wall Street with support for a yuge gift to the nation’s largest banks?
 
The Conspicuous Contradiction
Trump risks losing some populist support if he continues to walk down a path toward deregulation.  Dodd-Frank was enacted in the wake of the 2007-2009 crisis, a time in which many of his supporters suffered significant losses in savings and perhaps struggled with their mortgage.  If his proposal is seen for what it really is –- giving Wall Street a kind of get out of jail free card reign over their actions –- then his economic policy message goes from being vague incoherent to downright contradictory.
Possible Reactions 
Banks are actually wary of a promise or threat of wholesale repeal of Dodd-Frank in part because of how much money has been spent complying with DFA to date.  Additionally, the financial community had no idea what, if anything, might replace DFA, creating a degree of uncertainty that makes it hesitate.  Wall Street quote reasonably views the prospect of any large-scale “reform” as liable to wind up creating a messy and confused regulatory environment leaving a number of regulatory mandates and responsibilities hanging in mid-air.
The risks that stem from his support base are even clear -– including millions of people who still keenly remember the sting of 2007 and the deep recession that followed.  Some may have lost their homes in the mortgage crisis, while most certainly lost money in their retirement savings accounts.  They may not appreciate a business mogul giving other moguls a pass on being held accountable.
Possible Resolution(s)
Trump might ultimately claim that really he only meant that the very worst parts of DFA would be repealed –- the sort of provisions that even Democrats like Warren might agree to tweak.   Here he may look foolish for a little while.  Indeed, he has a pattern of walking back his extreme statements — he could “dismantle” DFA through some critical but effectively margInal fixes.
More likely is that Trump will double down on his proposal -– another pattern of his — claiming that his repeal will be followed by a new and better way to regulate big firms and banks.  He said recently that his own financial regulation plan would be released in the next two weeks, so we may learn more soon.
Given Trump’s policy bonafides, the option above is really giving him the benefit of a doubt.  More likely, whatever plan is proposed to replace Dodd-Frank will be either partial, irrelevant, inadequate to the task, or just puerile (build a wall between Wall Street and Main Street?).
A Larger Problem
This isn’t the first time that Trump has made a contradictory policy claim – in fact it’s become a worrying aspect of his candidacy.  Take for instance his comments two weeks ago on Janet Yellen, the Federal Reserve itself, and interest rates: Trump thinks that Yellen is doing a rather good job, but still thinks she should be replaced; he likes the Federal Reserve system, but thinks it will trigger the next recession; he thinks a low interest rate policy is good for American businesses, but believes that Wall Street is on the verge of a debt bubble fueled by – you guessed it – the Federal Reserve.
Not only are his statements contradictory but they mark a striking departure from his past comments, especially those about Janet Yellen.  Last year, on Janet Yellen’s supposed political maneuvering: “This is a political thing, keeping these interest rates at this level, Janet Yellen for political reasons is keeping interest rates so low that the next guy or person who takes over as president could have a real problem.”
What Tangled Webs We Weave
Trump’s inability to maintain a consistent platform is directly the stalemate on tax policy in 2016.  While this year had not  been marked by bipartisan support and comity, the lack of a predictable policy agenda from one party’s leading nominee has created an incredible amount of uncertainty in the policy sphere with yet untold political consequences.  It bleeds through to affect the planning for  legislative proposals and policy initiatives, in Congress and the agencies.
Moving forward it seems unlikely that the status quo on this front will change –- marking both a disturbing aspect of Republican politics and a boon for Democrats’ chances.  Trump’s financial regulation plan will be out by the end of May.   Whether he is able to square the policy circle, and how, will be a central point of departure for debate in this area in the general election campaign.

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