All Articles Finance While You Were Working - April 5

While You Were Working – April 5

Barney speaks Frankly, how to fix banking culture and the DoL fiduciary rule lights up

4 min read


Barney Frank

Frankly speaking Mr. President... - Photo credit: Saul Loeb/Getty Images

Frank does a Q&A on Dodd-Frank

Former Congressman Barney Frank chatted with the New York Times and pulled no punches in assessing why he thinks President Trump has placed a target on the Dodd-Frank Act.

“He has to denigrate everything the Democrats did. I think he has to say he inherited a mess. Well, he has to find a mess.”

Frank also named the one aspect of Dodd-Frank that he deems most important to be kept in place:

“The biggest single thing is the regulation of derivatives, which had been unregulated. I can’t believe they would want to go back to that. That is where things pile up — where the leverage is. That was A.I.G. It was a major change that we made, bringing more transparency.”

Frank added that the one place where he sees Trump and his allies reshaping the law is in the area of the Consumer Financial Protection Bureau. Frank sees the funding structure of the CFPB being changed so it is subject to appropriation.

Speaking of bank reforms…

Charles Goodhart, emeritus professor at the London School of Economics, says banking reforms shouldn’t really target banks at all; the reforms should target the people running the banks. One of the most common refrains about the financial crisis is that no one went to jail for it. That fact is one of the main reasons the reputation of Wall Street hasn’t recovered in the decade since the crisis.

Goodhart details the many ways even semantic choices lead regulators and others to focus on fixing banks, rather than fixing bankers and incentives under which they operate. Goodhart suggests a graduating scale whereby bank employees are more accountable for misdeeds as they ascend up the chain of command (what a concept!).

“If a bank CEO knew that his own family’s fortunes would remain at risk throughout his subsequent lifetime for any failure of an employee’s behaviour during his period in office, it would do more to improve banking ‘culture’ than any set of sermons and required oaths of good behaviour.”

There is much to be said for some of the proposals Goodhart puts forth. The most compelling reason is that not much else seems to work. Certainly some of the misdeeds of bankers in the build up to the crisis are worthy of disdain and punishment. But the true scandals are the misdeeds that took place – and continue to take place – in the aftermath of the crisis. In an environment where bankers were scorned and made to feel like outcasts, many of them went right ahead and conducted themselves in the most unbecoming and illegal of ways. Perhaps that’s because few of them felt they, personally, had much to lose.  

The DoL fiduciary rule gets its name in lights

In the 10 years I have been covering Wall Street, I can say without question that the lobbying against the Labor Department’s fiduciary rule has been the most ferocious and well-financed I have seen. The term “lobbying” gets its origin from people cornering policymakers in the halls of Parliament and Congress (and even DC’s Willard Hotel), to influence policy outcomes. That’s why I think it is hilarious that proponents of the fiduciary rule are taking to the outside of buildings to broadcast their message.

“In the spirit of the National Debt Clock that shows rising U.S. debt, a Retirement Ripoff Counter will be projected on to the Dept. of Labor and U.S. Chamber of Commerce buildings Wednesday night, according to proponents of the fiduciary rule. The counter seeks to illustrate that Americans are losing $532 a second or $17 billion a year without a mandatory fiduciary rule for retirement advice.”

It’s not guerilla lobbying. It’s not flash-mob lobbying. And it’s not pop-up lobbying. But it is pretty darn funny.

WYWW Appetizers

  • The Federal Reserve thinks a $4.5 trillion balance sheet might be a tad too big.
  • Leon Cooperman waxed poetic about the difference between a pre-disclosure agreement and a post-disclosure agreement
  • Steve H.B. Bannon was removed from the National Security Council