Are you confused about Donald Trump? Worried? Surprised by the markets’ reaction to his electoral win? Wondering how the president-elect will affect the value of your investments?
You are right to be worried about his presidency and you’re not alone. Most economists have issued pessimistic forecasts predicting that Trump will lead the United States, and the world, into a recession – but the stock markets have been a big surprise and have embraced the president-elect in a big way.
How big? Since the results of the vote became known, share prices in the United States have risen by more than 2%, chalking up record highs along the way, exceeding levels that until this week had been deemed high enough to justify acorrection.
One sector that has seen particularly strong share price increases has been the banking industry: The U.S. financial share index rose by no less than 8% in the three trading days following the election, attaining levels not seen since before the 2008 global financial crisis.
Why did the shares of the banks and financial services comanies surge and why did their executives, who supported Hillary Clinton virtually unanimously and contributed millions to her campaign, break out the champagne? And how is all this happening when no one knows what Trump’s economic policies really are, or who will implement them?
Any diligent reader looking for possible answers to these questions might do well to consult a new website – www.greatagain.gov – which will apparently wield considerable influence over the stock market in the coming weeks. It’s the Trump transition website, which the president-elect is using until taking office in January to share information with the American public. He is less enamored with members of the media, however, and compared to prieviouspresidents-elect, has done relatively little to brief them at this point.
The website prompted a considerable number of questions as soon as it went online, but also asks a question itself, namely, “How do you want to make America great?” – inviting members of the public to “share your ideas.” In response, Stephen Colbert, who hosts “The Late Night Show” on CBS suggested appointing someone who had already done the job before. But beyond that, the website features some preliminary information about economic policy.
Under the heading “financial services reform,” for example, Trump’s transition team explains that financial institutions are essential to the economy, and takes aim at the Dodd-Frank Act, which was approved by Congress after the 2008 global financial crisis. This legislation, the site says, has not accomplished its goals; it has created unemployment, hurt salaries, emptied pension funds and led to low growth.
“Bureaucratic red tape and Washington mandates are not the answer. The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation,” the site’s authors vow.
Under the heading “regulatory reform,” they offer estimates of the cost of regulation in the United States. Their material, which is not original, and includes citations of sources, includes statements such as: “Independent estimates [set] total regulatory costs as exceeding $2 trillion annually and small businesses, the driver of job creation, disproportionately face higher annual regulatory costs of $10,585 per employee per year — 36 percent above the regulatory cost facing large firm[s].”
This is music to the ears of any financial services executive. Regulation since the financial crisis has in fact morphed into a huge expense for banks, who employ tens of thousands whose only job is to examine transactions and fill out forms. Any reduction in the number of these provisions would save the banks billions of dollars and boost their profits accordingly.
Even more importantly, many of the provisions have prevented banks from engaging in activity that may involve conflicts of interest with their clients. Repealing these limitations would open up entire fields of activity to the banks, in addition to the profits they would generate.
Here’s an example. Dodd-Frank has barred or at least restricted banks’ involvement in proprietary trading – trading in securities for the banks’ own benefit – while they trade on behalf of clients. The ban was put in place after banks were found profiting from their clients’ losses. Now, if Trump in fact does lift the prohibition, the banks will be able to do that again, generating huge profits.
But it’s not just the transition website that has these banking executives so excited. There are similar positive hints from their point of view in Trump’s White House appointments. For example, Steven Mnuchin, the finance chairman of the Trump campaign and reportedly in the running for a senior economic position in the new administration, perhaps even treasury secretary, is a banker who previously worked at Goldman Sachs.
And a few days after the election, the NBC television network was already reporting that Trump was considering filling the post of treasury secretary with none other than Jamie Dimon, the can-do CEO of JPMorgan Chase. A standout in the banking industry, he was included in Time magazine’s list of most influential people in 2006, 2007, 2009 and 2011. Dimon has taken the lead in fighting regulation, although ultimately it is unlikely he will get the job at the treasury.
If he really wanted to, could Trump quickly change tens of thousands of banking-related directives, including laws that took years and thousands of committee hearings to pass? Unlike Barack Obama, the new president will have the benefit of a Republican-controlled Congress and will also wield influence over the makeup of the Supreme Court, although the Democratic opposition has already vowed to fight him.
That includes Senator Elizabeth Warren, who political observers see as positioning herself as a possible Democratic Party leader and presidential candidate in 2020. Speaking of Trump, she said, “We’ve got some places there where we can overlap,” but added that if he intends to “unleash Wall Street to ruin the economy again – no.”
Wall Street’s pals
The sad truth is that the bankers’ glee probably shouldn’t surprise anyone. Over the course of the campaign, Trump and Clinton did talk over and over about the middle class being harmed by the banks, but it should never have been expected that either one of them would act against the banks once ensconced in the White House.
Clinton received funding from the banks and other major corporations and was part of their club. She had also benefited personally from millions from them in speaking fees while they supported her White House bid. In retrospect, Clinton may have lost the election precisely because of her links to the banks and the credit that she received from them. We suggest this because after the vote, Trump supporters claimed that the numerous disclosures over Clinton’s ties to the banking establishment had “poisoned the well” for them.
When it comes to Trump, he too built his businesses on bank loans and bankers, and their lawyers have been his advisers throughout his life. After all, Trump will always be concerned with his personal business interests, which he will now have to entrust to his children. For the most part, they consist of leveraged real estate projects mortgaged to the banks. It’s hard to imagine such a person making life difficult for the bankers.
Even the idea of appointing JPMorgan Chase’s Dimon as treasury secretary shows the extent to which both candidates were close to Wall Street. Dimon is actually a Democrat who at one point was thought to be a candidate for treasury secretary under none other than Barack Obama.
So it turns out that it doesn’t really matter who won the presidential election. As soon as that strange bird Bernie Sanders was out of the race, all of the remaining candidates were the bankers’ friends.
The candidates had worked with them, and would continue to do so after leaving the White House. The candidates received credit from the banks and at the end of the day, in return, they worked to benefit each other.
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