By Michael Hirsh
In a tumultuous 10 days in which U.S. President Donald Trump refused to concede to President-elect Joe Biden, paralyzed the presidential transition, purged the Pentagon, and washed his hands of the pandemic, very little about the future of American policy has become clear.
But one trend line may be clarifying itself: Biden’s willingness to strengthen the regulation of Wall Street in a perilous international financial environment. He has convened a financial reform transition team led by Gary Gensler, an aggressive regulator who made a remarkable progression in public life from Wall Street employee and loyal acolyte of former Treasury Secretary Robert Rubin (who deregulated Wall Street in the 1990s) to one of the financial sector’s most threatening nemeses.
As head of the Commodity Futures Trading Commission (CFTC) in the 2010s, Gensler implemented major new rules on derivatives trading around the world and strengthened the Dodd-Frank regulatory law that Trump has sought to weaken. He also led the charge to toughen the so-called Volcker Rule seeking to bar banks from risky proprietary trading, especially when it became clear that banks could evade it by shifting trading to their overseas operations.
“He was deemed to be among the most progressive of the regulators,” Michael Greenberger, a former CFTC official now at the University of Maryland, said of Gensler. “This task force is a pretty good signal.”
Gensler is joined by other prominent progressive voices, including Simon Johnson, the former chief economist for the International Monetary Fund and a Massachusetts Institute of Technology professor who co-wrote the book 13 Bankers, which called for a breakup of the big Wall Street banks, and Dennis Kelleher, the head of Better Markets, an advocacy group critical of the revolving door lobbying that let some of those responsible for disastrous deregulation return to power. Also serving on the task force is Damon Silvers, a AFL-CIO attorney who fought hard after the financial crisis to toughen up Dodd-Frank restrictions on big banks.
Some financial reformers, such as former Biden aide Jeff Connaughton, said the selection of the task force clearly reflects the influence of the chief of Biden’s 2020 transition, former Sen. Ted Kaufman, who has also been a leading voice for Wall Street reform in the past.
Such transition review task forces are intended to be fairly technocratic, to provide incoming officials with a list of issues to focus on, but not to recommend policies. That said, Gensler will almost certainly get a senior position in the new Biden administration, possibly as deputy treasury secretary under an equally progressive figure such as Federal Reserve governor Lael Brainard, a leading candidate for the top Treasury post.
If Biden adopts an aggressive stance toward Wall Street, that could help to assuage angry progressives in his own party who believe that the anti-corporate proposals of Sens. Bernie Sanders and Elizabeth Warren have been given short shrift.
Rolling back Trump’s deregulation of Wall Street will be a tough task—and the president’s not done yet. In 2018, Trump signed a bill rolling back some Dodd-Frank restrictions on bank lending, and he is trying to stock the Fed’s Board of Governors, which oversees financial regulation, with ultra-conservatives such as Judy Shelton, who is expected to be confirmed by the Senate next week.
Since taking office, task force member Kelleher has written, “the Trump administration has set about dismantling the core pillars of financial reform by: lowering banks’ capital requirements, weakening stress testing and living wills, allowing more proprietary trading, enabling more unregulated derivatives dealing, rolling back consumer and investor protections, reducing prudential regulation of systemically significant banks, [and] neutering the regulation of systemically significant nonbanks and the shadow banking system.”
“President Trump has merged the White House with Wall Street and adopted big finance’s priorities as this administration’s top priorities,” Kelleher wrote last year in the American Prospect. “The critics of financial reform have claimed that the law and rules would kill banks’ revenue and profits, which would prevent them from lending and would in turn kill economic growth and jobs. In fact, in virtually every quarter since 2009, including throughout 2018 and the first quarter of 2019, the biggest banks have recorded or eclipsed record revenues, profits.”
Kelleher wrote that the Trump administration’s decision to deregulate important nonbanks, which do not take deposits and can engage in credit-card and lending services in an unregulated way,is especially significant, “because it illustrates the Trump administration’s sheer recklessness.”
Kelleher, in an email on Thursday, said he would have no comment on his current role on the task force and its advice or influence, other than to say, “Anyone who answers such questions at this point or in the near and maybe medium term don’t know what they are talking about, no matter how confidently they speak!”
And despite the zeal of the task force, it’s not clear that even their desire to avoid the regulatory mistakes that fueled the 2008-2009 financial crisis will be enough to carry out root and branch reform, which would mainly require legislative and Fed reform. Even so, Trump has sought to soften the rules of the Consumer Financial Protection Bureau, which was created by Dodd-Frank, as well as capital requirements for banks.
Robert Johnson, the head of the progressive Institute for New Economic Thinking, calls the Biden task force a “real good group.” But he then asked: “What power will they really have … after the power of money bends the best designs in a self-interested direction?”
Gensler was chief financial officer of Hillary Clinton’s presidential campaign, but he had little influence on policy there. Even when he was first tapped to run the CFTC in 2009, his Wall Street past tainted him in the eyes of progressives. Sanders and Sen. Maria Cantwell put a hold on his nomination, and he was also criticized for his Goldman Sachs ties by then-Sen. Tom Harkin.
Even so, Gensler was more willing than some of his peers to admit that he made mistakes in letting Wall Street run amok by supporting the repeal of Glass-Steagall and the Commodity Futures Modernization Act, which effectively deregulated the global market in over-the-counter derivatives.
“Looking back now, it is clear to me that all of us—all of us that were involved at the time, and certainly myself, should have done more to protect the American public through aggressive regulation, comprehensive regulation,” Gensler said at his confirmation hearing in 2009.
Now Wall Street banks and shadowy nonbanks have to confront the idea that one of their most zealous wardens could well up in a senior spot in the Biden administration.
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