Instead
of draining the swamp, Trump has become Wall Street’s best buddy
Will Hutton
The
president promised a radical overhaul of banking, but is encouraging
the money men’s worst excesses
Sunday 12 February
2017 00.06 GMT
President Trump was
an accident waiting to happen. The US had entered a zone of
fragility: there were too many inequalities, grievances and
accompanying disillusion in a system felt not to work .
A chief reason for
that economic and social fragility was the behaviour of the American
financial system. It is still astounding how close to disaster high
finance brought the US and global economy in 2008. It provoked a vast
bailout, and the recovery that followed has been one of the most
anaemic sort, during which the wages of average Americans have
scarcely grown.
The hangover of debt
and legacy of banks trying to rebuild their shattered balance sheets
has held the economy back. Meanwhile, some of the weak links in the
system, like the sheer scale and opacity of the derivative markets,
plus business models riddled with conflicts of interest, have
remained unaddressed. Fortunes are still being made and very few have
paid the price for cataclysmic mistakes.
On the campaign
trail, Trump unfailingly tarred Clinton as compromised by, and
enmeshed with, Wall Street and its mega banks. Goldman Sachs had
“total control” of her; she was in thrall to a “global power
structure that is responsible for the economic decisions that have
robbed our working class, stripped our country of its wealth and put
that money into the pockets of a handful of large corporations and
political entities”.
Trump would drain
the swamp, he claimed, and reinstate a “21st-century” version of
the law separating main street banking from Wall Street –
Roosevelt’s Glass-Steagall Act – which was scrapped by President
Bill Clinton, in one of his worst decisions. Trump would throw the
money men out of the temple, he said. He would reshape finance for
the “little guy”. His audiences roared him on.
But, in office,
Trump has proved to be a great deal friendlier to the titans of Wall
Street and their interests than he suggested he would be as a
candidate, although a close reading of his speeches foretells some of
what is now happening. Far from draining the swamp, he is opening the
sluicegates; the money men are not so much being hurled out as in
full occupation of the economic citadel.
Goldman Sachs’
number two, Gary Cohn, is to be Trump’s chief economic adviser; his
Treasury secretary, Steve Mnuchin, was 20 years at Goldman Sachs
before running OneWest Bank, which made a fortune by improperly
foreclosing on mortgages in ethnic minority communities after the
financial crisis. These are not men on the side of the little guy:
Cohn has promised to attack “all aspects of Dodd-Frank”, the
partially effective regulatory framework that Obama laboriously
passed into law in 2010, in the teeth of Republican and Wall Street
opposition.
What we know from
the financial crisis is that the banking system has become a highly
interdependent network in which contagion spreads in hours – it is
only as strong as its weakest link. Yet Trump, in thrall to some of
the most demonic figures in American finance, last week demanded a
120-day review of all the US’s financial regulations to tame their
alleged excesses.
His intent is clear.
He has Dodd-Frank in his sights, a “disaster” on which he aims to
do “a big number”. There is only one end: to regulate the links
in the financial network so they have even less oversight than they
do now. And, if things go wrong, Trump will have no hesitation in
writing whatever cheques that have to be written to bail out the
banks again, just as he backed the bailouts in 2008/9. It is
careless, don’t-give-a-damn insouciance on an epic scale.
It seems that a
21st-century version of Glass-Steagall, the core building block in
the wholesale reconstruction of the US financial system in the wake
of the Depression, was code for doing the exact opposite. Dodd-Frank
certainly has weaknesses – in many respects, it does not go far
enough and many of its recommendations are yet to be enacted – but
it has made US banking immeasurably safer.
The banks now hold a
third more capital than they did 10 years ago. They are forbidden
from trading in securities on their own account. Thirty-four of them,
described as “systemically important financial institutions”, are
kept under especially close watch, as key elements in the network.
The newly established Consumer Financial Protection Bureau tries to
ensure customers are dealt with honestly.
You might think
after the extraordinary fraud at Wells Fargo last autumn – bank
employees opening millions of phantom accounts and credit cards in
customers’ names – that a president on the side of the little guy
would at the very least not want to weaken American financial
regulation. Rather, Trump is in sympathy with the bankers, horrified
at the scale of fines they are now paying – Wells Fargo paid a cool
$185m. He is also scandalised that holding so much buffer capital and
not being able to trade in securities is damaging the bankers’
personal remuneration.
Dodd-Frank has been
under fire since its inception, but then Republicans hated the New
Deal too. Roosevelt, like Obama, was a hate figure whose every work
had to be undone. Both men represented challenges to an idea of
America as offering limitless freedom, not least to billionaires. The
accompanying social distress is a price worth paying for such freedom
– or so the thinking goes.
Billionaire Trump
was right in one respect: Hillary Clinton was profoundly compromised
by her relationship with Goldman Sachs, pocketing $675,000 for a mere
three private speeches, in which she did voice sympathetic concerns
about Dodd-Frank for allegedly making banks more cautious in their
lending. She was, and is, indisputably a member of a global elite
that cannot escape responsibility for the emergence of so many
blighted lives.
But, beyond that,
Trump is a phony. His economic programme is no more than Reaganomics
on speed run by a group of opportunists and self-interested chancers.
In the short run, there will be a Trump upswing triggered by the
prospect of careless deregulation, unaffordable cuts in corporate tax
and lots of infrastructure spending.
How long it will
last, and whether it will be a trade war or a financial crisis that
will bring it to an end, is anybody’s guess. But we have now had a
glimpse of a darker Trump, the hypocrite for whom the little guy is
but a pawn to serve his own delusional ambitions. Pity the US. And
pity Brexit Britain, forced to bend the knee to such a man and such a
president.
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