If the 2016 election was a national litmus test to see just how many suckers live in this country, the next round of President Trumpâs executive orders are going to make sure those millions of suckers are taken for every last penny.
Trump is poised today to sign a pair of orders that are being sold to the public as attempts to untangle cumbersome financial regulations that make it more difficult for people to do business and invest freely. Theyâre going to give consumers the freedom to invest as they choose, and bankers the freedom to make money without being told by an overbearing government what they can and canât do. Thereâs no downside; itâs freedom.
If you buy that, Iâve got a Trump University diploma to sell you.
One of Trumpâs two executive orders today calls for a review of Dodd-Frank Law, a rule that was put in place in the thick of the recession of the aughts. It was supposed to be the law that represented the lessons weâd learned from the 2008-2009 financial crash. Lessons, one would hope, that would have lasted more than the average run of a successful sitcom.
At Dodd-Frankâs inception, this country was experiencing the most dire financial crisis since the Great Depression. Overzealous financial institutions had created and traded billions in securities made of underlying assets-âmortgages and credit-related productsâthat were valued based on wildly quixotic assessments of consumer creditworthiness. It wasnât until these credit-backed products had become major components of massive portfolios, like pensions and hedge funds, that anybody realized that they were essentially valueless. The markets took a nosedive, Bear Stearns went ass-up, Lehman was shuttered, Merrill was sold. The American taxpayer subsidized all of it. The Tea Party movement started in response to the bailout. Meanwhile, thousands of middle-income employees, secretaries and assistants and operations managers and HR professionals at companies like Countrywide, Lehman Brothers, and Merrill Lynch lost their jobs (full disclosure: during the financial crisis, I was working at a Merrill Lynch brokerage office in downtown Chicago. I, thankfully, was able to hold onto my low-level job until the storm passed. Many people at my level or lower werenât so lucky). Ripples from the collapse spread throughout the economy. College students, sans job prospects, moved back in with their parents.
It was a harrowing moment in our countryâs history, and because itâs so recent, its lessons should be fresh. Hell, they made a movie about it, called The Big Short. Brad Pitt was in it. It was nominated for several awards at the goddamn 2016 Oscars. Literally last year. There are still people working in financial services who served as architects to the crisis we just lived through. Weâve learned nothing.
A Trump administration official has told Bloomberg that todayâs Order isnât an attempt to undo Dodd-Frank. Based on other things the Trump administration has said itâs not doing (like the non-ban Muslim ban) Iâm taking that as a sign that Dodd-Frank is toast.
Trumpâs other Executive Order is more insidious, somehow, than âdoing a numberâ (his words) on Dodd-Frank. The President is planning on ordering the Labor Department to roll back the Obama administrationâs âfiduciary rule,â which was supposed to take effect this April.
The rule would have required brokers and agents who manage retirement accounts to provide advice to their clients based on what would be best for the clients, rather than whatâs suitable. This means that if a broker is considering two suitable investment vehicles for clients, but one makes him a fat commission and the other doesnât but has slightly better prospects for the consumer, thereâs nothing stopping him from pushing the client in the direction of the one that earns the commission. As long as theyâre both âsuitable.â
Trump officials have claimed the Obama-era rule theyâre squelching doesnât actually protect consumers, it limits choice. But, in the world of financial services, consumers are operating at such an informational disadvantage to their agents that this arrangement couldnât possibly be better for consumers. Any non-financial professional who isnât well-versed in the intricacies of internal fees, commissions, and product structure is bringing a knife to a gun fight. You cannot outsmart your bank. You cannot out-finance a person who thinks about finance all day. You cannot defeat LeBron James in a one-on-one basketball game. A person with the delusional self-confidence to believe the fiduciary rule screws them out of viable investment options is also probably the sort of person who thinks they can win all the carnival games, even the rigged ones.
With the number of people reaching retirement age growing by the year, these two moves by Team Trump are troubling signs of what might be to come. Thanks to the fact that many Americans who are now approaching retirement age entered adulthood when it was possible for young people to buy homes, many of them have spent decades passively amassing wealth as the value of their homes swelled. Their retirement accounts have more than recovered from the market troughs of 2008 and 2009. Theyâve got more money than theyâve ever had, which means theyâre more vulnerable to be fleeced than theyâve ever been.
Making it easier for banks to screw the public and financial advisors to screw their clients arenât the promises that filled Trump rallies with truck-driving, g-droppinâ white folk from the middle of the country. But, then again, Trumpâs words and actions have always been divergent, and his voters have always been willing to buy Trumpâs man-of-the-people snake oil over facing his con-man reality.
Every time regulators have given them a chance, bankers and financial institutions have proven theyâre not to be trusted to operate in the interest of the economy as a whole without sensible oversight. Why would this time be different?
