Two Very Different Ways of Handling a Financial Crisis.

First, from The Wall Street Journal, February 3, 2017



WASHINGTON—President Donald Trump on Friday plans to sign an executive action that establishes a framework for scaling back the 2010 Dodd-Frank financial overhaul law [1], part of a sweeping plan to dismantle much of the regulatory system put in place after the financial crisis.

Mr. Trump also plans another executive action aimed at rolling back a controversial regulation scheduled to take effect in April that critics have said would upend the retirement-account advisory business [2].

“Americans are going to have better choices and Americans are going to have better products because we’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year,” White House National Economic Council Director Gary Cohn said in an interview with The Wall Street Journal. “The banks are going to be able to price product more efficiently and more effectively to consumers.”

Mr. Trump will use a memorandum to ask the labor secretary to consider rescinding a rule set to go into effect in April that orders retirement advisers, overseeing about $3 trillion in assets, to act in the best interest of their clients, Mr. Cohn said in the White House interview. He said the rule limits consumer choice.

Mr. Trump also will sign an executive order that directs the Treasury secretary and financial regulators to come up with a plan to revise rules the Dodd-Frank law put in place.

Mr. Cohn said the actions are intended to pave the way for additional orders that would affect the post crisis Financial Stability Oversight Council [3],  the mechanism for winding down a giant faltering financial company, and the way the government supervises big financial firms that aren’t traditional banks, often referred to as systemically important financial institutions.

“This is a table setter for a bunch of stuff that is coming,” he said. (Whoa!)

The changes Mr. Cohn described are sure to face a fight from consumer groups and Democrats, who say postcrisis regulations are protecting average borrowers and investors from abusive practices, while making the financial system more resilient and bailouts less likely.

This path also may create political problems for Mr. Trump, whose populist campaign was successful in swaths of the Midwest where homeowners were hit hardest by the housing crash sparked by the financial crisis.

Mr. Trump blamed the political establishment and Wall Street banks for leaving behind many Americans and vowed to break up both. Those promises have already been called into question as he has filled his administration with members of Congress and Wall Street executives, including Mr. Cohn, who retired as president of Goldman Sachs Group Inc. to join the Trump administration.

Adding to the potentially difficult optics for Mr. Trump, he will sign the actions on the same day he meets with a group of business executives, including J.P. Morgan Chase & Co. Chief Executive James Dimon and BlackRock Inc. CEO Laurence Fink.

Asked about the potential political pushback because of his Wall Street past, Mr. Cohn said the administration’s goal of deregulating financial markets “has nothing to do with Goldman Sachs.” (Uh-huh!)

“It has nothing to do with J.P. Morgan,” he said. “It has nothing to do with Citigroup . It has nothing to do with Bank of America . It has to do with being a player in a global market where we should, could and will have a dominant position as long as we don’t regulate ourselves out of that.”

Mr. Cohn said existing regulations put in place by Dodd-Frank are so sweeping that it is too hard for banks to lend, and consumers’ choice of financial products is too limited.

Democrats and consumer groups have pushed for tighter controls on banks and other lenders, particularly after the subprime mortgage crisis that helped fuel the global financial crisis.

But Mr. Cohn said that many of the postcrisis rules haven’t solved the problems they were supposed to be addressing. He said, for example, that there still isn’t a solid process to safely wind down the collapse of a giant faltering financial company or to ensure that those firms have access to short-term liquidity.

“I’m not sitting here saying we want to go back to the good old days,” Mr. Cohn said. (See below)

“We have the best, most highly capitalized banks in the world, and we should use that to our competitive advantage,” he added. “But on the flip side, we also have the most highly regulated, overburdened banks in the world.”

[1] The 2010 Dodd-Frank act reined in mortgage practices and derivatives trading and curbed the ability of banks to trade with their own money in a measure known as the Volcker Rule. See photo below

04db-doddfrank-master675President Obama signed the Dodd-Frank financial reform law on July 21, 2010. Credit Doug Mills/The New York Times

[2] The so-called fiduciary rule, six years in the making and unveiled by the Labor Department last spring, holds brokers and advisers who work with tax-advantaged retirement savings to a fiduciary standard as opposed to the previous suitability standard. That means they must work in the best interest of their clients and generally avoid conflicts, which can come about with the commission-based compensation common among brokers and insurance age

[3] For big banks, Mr. Cohn suggested capital levels were high enough to withstand shocks so that other rules dictating how they operate to further enhance their safety could be eased. He questioned the value of policies enacted to handle megabank failures, particularly cumbersome “living wills” that his former employer, among others, have had to submit showing how they could go out of business without requiring a taxpayer bailout

Now Let Us Take a Look at a Very Different Presidency to See How It Handled Its Financial Crisis:


From The New York Times, February 3, 2017

Take a look at the front pages from the first 10 days of Franklin D. Roosevelt’s presidency in 1933, beginning with his speech on March 4 (the last time a swearing-in was held on that date).

“The inaugural address was a Jacksonian speech, a fighting speech, implicit with criticism of the lack of leadership and the philosophy of government which the president imputed to his predecessor, who sat there listening,” Arthur Krock, the Washington bureau chief of The Times, wrote in his account.

“‘Action’ was the promise of Mr. Roosevelt’s speech, and action was immediately forthcoming,” Mr. Krock stated.

Before his second full day in office was over, President Roosevelt had suspended all banking transactions in the United States. The goal was to stanch the hoarding of currency and gold by anxious depositors. Runs on the nation’s banks had pushed them into or near collapse.

History calls it a “bank holiday.” That makes it sound cheerful. No confetti was involved.

At 11 p.m. on Sunday, the new president ordered banking institutions — the Federal Reserve Bank, commercial banks, savings banks, national banking associations, trust companies, credit unions and building and loan associations — to stop the payment, export, withdrawal or transfer of currency and gold or silver coins or bullion. His proclamation took effect at 1 a.m. on Monday and was to be lifted after Thursday, March 9. On that day, and again by proclamation, Roosevelt extended the holiday indefinitely.

By the time the banks finally began reopening on March 13, Roosevelt had delivered the first of his intimate “fireside chats” over the radio and had been granted what The Times described as “practically dictatorial powers” by Congress after he proposed a $500 million cut in federal salaries and pensions, and in veterans’ compensation. That would be the equivalent of more than $9 billion today.

Agricultural leaders were urging Roosevelt to ask Congress “for the same dictatorial powers” to solve the farming crisis. The White House was preparing a $500 million unemployment relief program that would put people to work on government construction and reclamation projects. The president was moving to legalize the manufacture and sale of beer with up to 3.2 percent alcohol content. Taxes on this product, he said, would provide a “proper and much-needed revenue for the government.” And quench a few thirsts after 13 years of Prohibition.

In its first 10 days, the fledgling Roosevelt administration generated five banner headlines in The Times. Only on March 11 and 12 did news from the capital share top billing, after an earthquake in Long Beach, California, killed more than 100 people.

Ah, for the old days!

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