Rewarding Friends and Businesses

The conflicts of interests just keep coming. Yesterday, Trump signed yet another executive starting his administration’s bid to overhaul Dodd-Frank. Of course, an overhaul is needed.

But take just these two paragraphs as reported accurately by the Washington Post:

“We expect to be cutting a lot out of Dodd-Frank,” Trump said during a meeting with business leaders Friday morning. “Because frankly, I have so many people, friends of mine, that had nice businesses, they just can’t borrow money . . . because the banks just won’t let them borrow because of the rules and regulations in Dodd- Frank…

During the meeting with more than a dozen chief executives, Trump noted that there were several bankers in the room, including Larry Fink, chief executive of the huge investment firm BlackRock. “Larry’s got a lot of my money, and I have to tell you, he got me great returns,” Trump said to laughs in the room.

Risk? What Risk?

J.P. Morgan Chase has hardly helped itself or other major banks in convincing a skeptical public or regulatory-inclined politicians of the argument that too much regulation is being imposed on them. J.P. Morgan has shot itself in the foot with its spectacular after-hours announcement on Thursday that a trader had lost the bank more than $2 billion with bets on complex investments.

The bank’s CEO, Jamie Dimon, has been highly outspoken recently in condemning the increasingly intrusive regulations politicians have imposed on the banks in the wake of the 2007/8 financial crash. He, along with Barclays chief executive Bob Diamond, are furious over new financial rules being drawn up to curb the reckless risk-taking that spawned the crisis, claiming they are expensive and smothering the banks in red tape.

In a 38-page letter recently to shareholders, Dimon lambasted the regulations for slowing lending at ‘the wrong time’ and saying they were ‘not intelligent design’. (See my April 10 Daily Mail article)

He argued that new regulations are causing staggering compliance costs. On top of that, he and other bankers have warned that a looming fall-off in bank profits is likely when regulators implement a ban on proprietary trading by the banks under new regulations.

Some analysts have estimated compliance costs for the U.S. banking sector could cost about $4bn a year.

And some academics have agreed with the bankers, arguing that the Dodd-Frank Act – named after its two main authors, Congressman Barney Frank and Senator Chris Dodd – has moved too far from its original objective to prevent another financial crash. At 848 pages, Dodd-Frank affects almost every aspect of America’s financial services industry – from fair access to credit for consumers to the trading of complex derivatives and reporting executive pay.

For example, John Cochrane, a professor of finance at the University of Chicago, maintains that the legislation has become too heavy-handed. “Everything under the sun gets regulated, with no attempt to measure benefits or costs,” he has maintained.

But the revelation of the $2billion loss is going to make it much harder for the bankers to beat back the regulators.

Noting that Dimon had claimed that compliance costs were going to cost J.P. Morgan upward of $400 million, Frank said in a statement “J.P. Morgan Chase, entirely without any help from the government, has lost, in this one set of transactions, five times the amount they claim financial regulation is costing them.”

He added: “The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today.”

What is astonishing is that the bank – arguably one of the best run in the U.S. – did not pick up the risky bets until way too late. But also it is disturbing that regulators didn’t notice either.

No doubt U.S. lawmakers are going to probe what failed at the bank and why as well as to question regulators about what went wrong on their side. Any hopes the banks may have harbored of reducing the regulatory burden and of convincing the public that they can be trusted would seem now to misplaced.

Banking Regulations: Too Costly Or Needed To Curb Reckless Behavior?

Bankers are claiming on both sides of the Atlantic that post-financial crisis regulations are far too complex and costly. Are they right? Or are the new regulations needed to stop a repeat of the 2008 crash? I consider those questions in the Daily Mail.

Independents More Worried By Inequality than Over-Regulation

The Washington Post has a new poll out today that shows how evenly split America is between the parties and between Obama and Romney – no big surprise there. Obama’s job ratings are 48 percent approval and 48 percent disapproval.

But the most interesting thing in the poll is this: “One key theme of the campaign is breaking in Obama’s favor. By 55 percent to 38 percent, more Americans consider inequality the bigger economic issue than over-regulation of free enterprise. A majority of independents say inequality is the bigger issue.”

The GOP has invested a lot of rhetoric in claiming that free enterprise and America’s future economic growth is imperiled by “socialist” over-regulation from Washington – it is, of course, the Johnny-one-note theme of Fox News and has been a cudgel Republican lawmakers have been wielding to bash everything from Dodd-Frank on Wall Street reform to the Consumer Financial Protection Bureau.

But the poll would suggest that voters are not buying it. This could be significant for Obama. Judging by the poll –- and other recent surveys – Independents are not in the Obama camp – of course they are not in the GOP camp either. For instance, today’s poll throws up this: “A record-high 20 percent of independents say they trust neither side when it comes to the interests of the middle class.”

It is the issue of inequality versus regulation that gives Obama some clear distance from the GOP when it comes to Independents.. So we will hear much more, I suspect, in the coming weeks on the Buffet Rule and Romney’s tax rate of 15 percent.

One other boost for the President from today’s opinion poll comes with signs that Democrat enthusiasm for him is growing. That’s crucial for his re-election prospects. Obama won last time because of his supporters’ enthusiasm and his ability to use that to increase the Democrat base – to sign up more young people and ethnic minorities.

“Most Democrats, 53 percent, say the country is heading in the right direction, a 21-point increase since September. Two in three say they see a rejuvenated economy, up 19 points from November.”