Here Comes the Next Financial Crisis

by Nomi Prins, The Nation:

Trump’s deregulators are setting the economy on fire.

There’s been lots of fire and fury around Washington lately, including a brief government shutdown. In Donald Trump’s White House, you can hardly keep up with the ongoing brouhahas from North Korea to Robert Mueller’s Russian investigation, while it already feels like ages since the celebratory mood over the vast corporate tax cuts Congress passed last year. But don’t be fooled: none of that is as important as what’s missing from the picture. Like a disease, in the nation’s capital it’s often what you can’t see that will, in the end, hurt you most.

Amid a roaring stock market and a planet of upbeat CEOs, few are even thinking about the havoc that a multi-trillion-dollar financial system gone rogue could inflict upon global stability. But watch out. Even in the seemingly best of times, neglecting Wall Street is a dangerous idea. With a rag-tag Trumpian crew of ex-bankers and Goldman Sachs alumni as the only watchdogs in town, it’s time to focus, because one thing is clear: Donald Trump’s economic team is in the process of making the financial system combustible again.

Collectively, the biggest US banks already have their get-out-out-of-jail-free cards and are now sitting on record profits after, not so long ago, triggering sweeping unemployment, wrecking countless lives, and elevating global instability. (Not a single major bank CEO was given jail time for such acts.) Still, let’s not blame the dangers lurking at the heart of the financial system solely on the Trump doctrine of leaving banks alone. They should be shared by the Democrats who, under President Barack Obama, believed, and still believe, in the perfection of the Dodd-Frank Act of 2010.

While Dodd-Frank created important financial safeguards like the Consumer Financial Protection Bureau, even stronger long-term banking reforms were left on the sidelines. Crucially, that law didn’t force banks to separate the deposits of everyday Americans from Wall Street’s complex derivatives transactions. In other words, it didn’t resurrect the Glass-Steagall Act of 1933 (axed in the Clinton era).

Wall Street is now thoroughly emboldened as the financial elite follows the mantra of Kelly Clarkston’s hit song: “What doesn’t kill you makes you stronger.” Since the crisis of 2007–08, the Big Six US banks—JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley—have seen the share price of their stocks significantly outpace those of the S&P 500 index as a whole.

Jamie Dimon, chairman and CEO of JPMorgan Chase, the nation’s largest bank (that’s paid $13 billion in settlements for various fraudulent acts), recently even pooh-poohed the chances of the Democratic Party in 2020, suggesting that it was about time its leaders let banks do whatever they wanted. As he told Maria Bartiromo, host of Fox Business’s Wall Street Week, “The thing about the Democrats is they will not have a chance, in my opinion. They don’t have a strong centrist, pro-business, pro-free enterprise person.”

This is a man who was basically gifted two banks, Bear Stearns and Washington Mutual, by the US government during the financial crisis. That present came as his own company got cheap loans from the Federal Reserve, while clamoring for billions in bailout money that he swore it didn’t need.

Dimon can afford to be brazen. JPMorgan Chase is now the second-most-profitable company in the country. Why should he be worried about what might happen in another crisis, given that the Trump administration is in charge? With pro-business and pro-bailout thinking reigning supreme, what could go wrong?

PROTECT OR DESTROY?

There are, of course, supposed to be safeguards against freewheeling types like Dimon. In Washington, key regulatory bodies are tasked with keeping too-big-to-fail banks from wrecking the economy and committing financial crimes against the public. They include the Federal Reserve, the Securities and Exchange Commission, the Treasury Department, the Office of the Comptroller of the Currency (an independent bureau of the Treasury), and, most recently, under the Dodd-Frank Act of 2010, the Consumer Financial Protection Bureau (an independent agency funded by the Federal Reserve).

These entities are now run by men whose only desire is to give Wall Street more latitude. Former Goldman Sachs partner, now treasury secretary, Steven Mnuchin caught the spirit of the moment with a selfie of his wife and him holding reams of newly printed money “like a couple of James Bond villains.” (After all, he was a Hollywood producer and even appeared in the Warren Beatty flick Rules Don’t Apply.) He’s making his mark on us, however, not by producing economic security, but by cheerleading for financial deregulation.

Despite the fact that the Republican platform in election 2016 endorsedreinstating the Glass-Steagall Act, Mnuchin made it clear that he has no intention of letting that happen. In a signal to every too-big-not-to-fail financial outfit around, he also released AIG from its regulatory chains. That’s the insurance company that was at the epicenter of the last financial crisis. By freeing AIG from being monitored by the Financial Services Oversight Board that he chairs, he’s left it and others like it free to repeat the same mistakes.

Elsewhere, having successfully spun through the revolving door from banking to Washington, Joseph Otting, a former colleague of Mnuchin’s, is now running the Office of the Comptroller of the Currency (OCC). While he’s no household name, he was the CEO of OneWest (formerly, the failed California-based bank IndyMac). That’s the bank Mnuchin and his billionaire posse picked up on the cheap in 2009 before carrying out a vast set of foreclosures on the homes of ordinary Americans (including active-duty servicemen and -women) and reselling it for hundreds of millions of dollars in personal profits.

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