Miscellaneous Thoughts Posted to Linked In Between April and June 2018

• TRUMP THE GREAT.  The president continues to stick to his guns on immigration and trade.  He insists he will not support migrant camps in the U.S.  He is only enforcing existing law regarding custody for children separated from their parents because of their required jailing for the misdemeanor of crossing the border illegally.  Democrats and many Republicans want him to ignore the law and allow the migrants permanent entry which means effective amnesty and eventual voting rights.  Of course, doing so would encourage additional mass migration which Trump will not abide.  Many of the children detained were abandoned by horrible parents who never even toilet trained them.  What’s more, without current protection some children would be joined by kidnappers, pedophiles and traffickers claiming to be their parents.  As Trump says, Congress could quickly amend the law to mitigate the separation problem but Democrats refuse because they want to exploit the optics of crying children for political gain in the midterm elections.  Meanwhile the children are enjoying a physical quality of life better than many Americans.

On the trade front, Trump just declared an additional $200 billion of tariffs on imports from China, in addition to the $50 billion currently in place.  China likely will cry “uncle” first, resulting in major tariff relief (ideally tariff elimination). In the meantime, many small businesses in particular have to bear higher prices for imports and for product of competing domestic producers.  Some may have to close shop.  This is most unfortunate but recall Fed Chairman Paul Volcker’s monetary tightening in the early 1980s that did the same amid a sharp recession.  That action ushered in economic growth and stability still enjoyed today.  Economic relief from fair trade would foster a similar stimulus.  It is worth the short-term pain.  The same applies to other trading partners.

Only President Trump has the courage and conviction to pursue these and other important policies.  What leadership! 6/19/18

• See my paper entitled, “Rethinking Free Trade” published in Social Science Research Network (SSRN), a division of Elsevier Publishing at http://ssrn.com/abstract=3184446 6/18/18
  

• See my June 10, 2018 article published in The American Thinker entitled, "A Protracted Trade War? Not Necessarily" at https://www.americanthinker.com/articles/2018/06/_a_protracted_trade_war_not_necessarily.html

  
  

  President Trump must persist in his trade stance, notwithstanding economic and political pressures in the short-term. In the longer run trade partners will likely relent because their suppressed export revenue from new U.S tariffs and concomitant inflated input costs from their retaliatory tariffs will hurt them much more than the U.S. Up to $200 billion in annual deficits, the equivalent of 1% of U.S. GDP, has been ceded to other nations. This incidentally finances socialist policies throughout the world. It must stop.  6/10/18
• I FEEL A SONG COMING ON.  Time once again to shift from conservative politics to conservative culture.  Accordingly, The Comprehensive Conservative features some more of his piano recordings.  My first selection is that great Cole Porter classic from the 1930s, “I’ve Got You Under My Skin” which I recorded in 2010. https://youtu.be/rhqEPH8FmQY
  The next song is a Michel Legrand composition from the 1982 movie, “Best Friends” I recorded in 2016 entitled, “How Do You Keep The Music Playing?” https://www.youtube.com/watch?v=LVoVjirOE1k
  For the first time I add a third song, just because I feel like it.  Enjoy that old jazz standard from the 1940s, “On Green Dolphin Street” by Bronislaw Kaper.  I recorded this on tape in 1991 and later digitized it for CD and the internet, hence the raspy sound. https://www.youtube.com/watch?v=ZpxVQXy4_NM 
  For a wide selection of more recordings see my YouTube channel at https://www.youtube.com/channel/UCrgNxZBhgoNNZ6nmb7SAKxA
  6/5/18
  
• VULGARITY AND THE LEFT.  Liberals have legitimized profanity in public discourse, even among women who once were shielded from it in polite society.  Cursing in open forums is now an emblem of freedom, but with certain restrictions in the name of political correctness.  The firestorm over comedian Samantha Bee’s utterance of the “C” word in reference to President Trump’s daughter, Ivanka, is instructive.  On the one hand, the liberal canon promotes open vulgarity, but on the other hand that code proscribes this particular epithet on the ground that it encourages misogynist indulgence in contravention to gender politics.  (Yet, a reference to the male counterpart is apparently acceptable.)  

• DONALD J. TRUMP:  MESSIAH.  As I watched him at the recent Tennessee rally I became more convinced that the guy is a gift from God to save this nation. He has truly made a believer out of me.  During the primaries I was skeptical of his abilities to be president.  So I supported Ted Cruz as a conservative maverick with a conventional political profile to break the mold of establishment politics.  As it turned out, Trump (whom I supported in the general) is producing great results as a genuine disrupter. His hallmark is his unparalleled courage coupled with incredible stamina for his age. His remarkable fearlessness makes him the best leader since Ronald Reagan, and in some ways better. All this despite a quirky personality that betrays some instability (but not enough to disqualify him).  As to his idiosyncrasies, as long as he implements conservative policies, I don’t care if he bangs Stormy Daniels in the Rose Garden in full view of the press corps.

His decision to impose tariffs on steel and aluminum imports from Mexico, Canada and Europe for their failing to correct grossly unfair agreements of the past took courage in the face of intense political pressure worldwide.  After some brinkmanship, I believe that Trump’s determination will eventually result in concessions for the U.S. because our trade partners desperately need us. Similar courage displayed with respect to the Paris Climate Accord, the Iran deal, the VA problems, defeating ISIS, border deportations, including MS-13 animals, standing up to North Korea, the Jerusalem embassy, the NFL anthem, and his “free to try” experimental drug policy define him as a truly transformative president.  And of course, his immediate and ongoing effort to nullify the horrendous Obama legacy through a major tax cut, conservative court appointments and deregulation, to include the gradual dismantling of Obamacare, calls for a national standing ovation.  

Now with all deserving kudos in place, my advice to Trump is BUILD THE F***IN WALL. 5/31/18

• STARBUCK’S HOWARD SCHULTZ:  A GUILT-RIDDEN LIBERAL FOOL.  His premium-priced lattes don’t attract too many downscale customers.  So, he feels compelled to open his restrooms in the interest of a diverse environment.  Of course, as the inevitable vagrants take over there will be no sales (not even pay toilet revenue) and still a monolithic store population.  How does Howie explain this to the shareholders?  They can’t all be “socially responsible” investors.  What is the protocol for a shareholders' action suit against a deranged CEO? Political correctness run amuck. 5/30/18

  • MY RESPONSE TO COMMENT.  This is chick-speak.  You ask for more accommodation to girls in the classroom through greater consideration by their male counterparts.  That just plays to the nefarious political agenda behind the scenes.  As it is, boys have been marginalized by a feminist-dominated education system that neuters them. Their natural tendencies for kinetic behavior and aggression are suppressed in the schools today.  Watch out.  Your son’s support for his female classmates you mention may be the first sign of his indoctrinated feminization. Education fools even try to eradicate any semblance of gender difference.  They refuse to acknowledge the historically obvious that males are more naturally oriented by interest and ability for science and technology pursuits.  The first general sign of the emasculation policy appeared when coaches were first forbidden to allow the score of games to be disclosed. Boys have been furtively relegated in academics such that college attendance is heavily skewed toward women now.  All this has terrible implications for our future society.  At this rate, forget about men mentoring women in the workplace.  The guys will all be subordinates. Just what the left wants as the country careens toward third-world status.  5/28/18

  • THE ME-TOO MOVEMENT IS OUTRAGEOUS. I used to say the lawyers were largely behind it to make a buck, which they were.  But now allegations of sexual misconduct don’t even reach the stage of litigation, or even of legitimate due process of any kind.  Almost daily mere accusations force resignations and firings that destroy careers, finances and family.  It would be interesting to know how many of those displaced men are strategically replaced by women as a means of forcing them up the ladder to diminish male dominance.  While a few reports of behavior may be reprehensible, most are innocuous, or they should be considered such.  A passing touch or comment, a raised voice, or much more, especially many years prior, do not warrant attention, much less action in the age-old battle of the sexes. Ironically, such charges make women look weak, at the same time they seek equality with men. To the aggrieved, grow up. The Me-Too Movement is simply exploitation by the feminist left with a big impetus from man-hating lesbians.  And, of course, the media seize the opportunity to push the identity politics envelope yet further in the left’s ultimate quest to divide and conquer America on the way to a globalist socialist regime (which would ultimately doom women as well). 

  To the accused, man up.  Men must stand up against this attack – a tall order in today’s castrated America.  I relish the thought of the possible backlash scenarios. Here are some to ponder.  Increasingly, men will focus on small businesses that lie under the legal radar.  Even in large corporations, male executives will hire and promote as few women as possible without triggering discrimination and harassment prohibitions.  Even before “Me-Too” men were reluctant to hire women because they are prone to filing capricious lawsuits that invariably wind up settled in their favor to avoid further ramifications.  Many cases involve as little as $20,000, not the multi-millions that get the media attention.  These women are a nuisance.  They engender male resentment and skepticism about all women in the workplace, not sympathy for their advancement.  Because of the egg shells atmosphere in the workplace, women will have difficulty finding relationships, or even the chance to get laid, as men concentrate on other female populations.  In time, even women will revolt against the movement as too many eminently qualified innocents go down amid the fire.  After all, they know that, ultimately, it always has been, always will be, and always should be a man’s world.  5/28/18

   

  • TANYE AND “BENIGN SLAVERY”.  The debate about race is rarely honest.  Political sensitivities cause the focus to center only on black grievances and attendant accommodations as the solution to their difficulties.  This “the glass is half full” view suppresses inconvenient realities about black behavior and history.  Indeed, the pursuit of truth also requires a consideration of the role of personal responsibility and the deleterious reliance on excuses in “the glass is half empty approach”.  In particular, that contemplation should include an understanding of the complete reality of slavery, which is commonly ascribed to ongoing problems in the black community.

     

  Last week rapper Tanye West created a furor suggesting that, because slavery in America lasted as long as 400 years, some slaves tolerated slavery by choice.  After all, if slaves opposed their plight en masse the resistance would have reached a critical mass that would have ended slavery much earlier.  Predictably, Tanye’s words created vitriol on the left.  True to form, some black thugs called for violence against him in a display of animus that is symptomatic of problematic black behavior writ large.  On the right, Laura Ingraham suggested Tanye meant to say something less toxic that did not diminish slavery as the sacred cow it is.  No, Tanye said what he meant.  What’s more, he’s right, the extent to which has to be determined.

   

  I have long harbored Tanye’s thought about what might be considered certain benign slavery but have not dared to address it in my extensive writings on race.  But since Tanye opened the door, I will enter the fray.  Of course, this is not to ignore lynchings, whippings and other atrocities inflicted on slaves in undeniable bondage.  We also know that slaves were abducted and many tried to escape as their owners chased them in pursuit.  Involuntary servitude was a reality.  But could it be that for some, perhaps most, slavery was benign?  Consider, they got three square meals a day and a roof over their heads that might not otherwise have been available to them in a highly discriminatory society.  This phenomenon is seen among some long-term convicts who do not want their freedom when their sentence expires.  They only know prison life and they are comfortable with the succor it offers.  This acquiescence may have prolonged slavery as Kanye suggests.  To what extent was slavery benign, akin to the relationship of a Jack Benny to his domestic, Rochester?  The question is verboten because it undermines slavery as an excuse for the ongoing black plight that deflects from real solutions in the debate about race.  As always, politics trumps truth.

   

  I continue to denounce Kanye West as a purveyor of cultural rot that corrupts our youth and degrades our civilization.  But if his expressed allegiance to Trump garners substantial black support for the president, as evidenced in the immediate doubling of Trump’s approval rating in the black community, I’ll give him a temporary pass.  And I’ll give him eternal credit for broaching slavery by choice, a notion heretofore never even whispered.  5/7/18

   

  
  

• FIGHT DAVID HOGG AND HIS MANIPULATORS.  Here is at least a partial list of advertisers who have withdrawn ad placement from Laura Ingraham’s program in support for the latest pawn of the Left, David Hogg:  Ace Hardware, Expedia, Trip Advisor, Johnson & Johnson, Bayer, Office Depot, Honda, Nestle, Wayfair, Nutrish, Ruby Tuesday, Miracle Ear, Liberty Mutual Insurance, Atlantis, Paradise Island, Joseph A. Bank, Jenny Craig, and Stitch Fix.  Be sure to challenge this outrage by supporting a massive counter boycott against these companies and urge everyone you know to do likewise.  Do not buy their products and register your complaints with managements informing them of your boycott.  Show the Left and their toadies who’s really boss. 4/8/18

        The #MeToo movement encourages claimants to exploit the vast grey area between claims that hold up under the law when tested in trial, and those subject         to a much lower ambiguous threshold in a settlement case.  In so doing, #MeToo sensationalizes cases through the media to become a propaganda force of             the feminist left.  It is safe to say women in the workforce are more litigious than men, as they are often quicker to sue over perceived discrimination.                  Many such unheralded frivolous workplace cases commonly settle for as little as $20,000 without public knowledge.  However, the media often promote             female claims against high profile figures, giving the accuser more leverage in settlement negotiations.  Fearing political fallout, employers terminate                 accused men for mere allegations without due process, other than perhaps a perfunctory internal investigation to cover themselves.  Many company                     defendants settle to the detriment of the accused employee just to cut their losses and avoid reputational damage, and accusers know it.  Justice is often lost         in the process.  9/11/18

• ANTIVIRUS SOFTWARE ALSO CENSORS CONSERVATIVE CONTENT.  With all the attention on conservative censorship by social media, no one has mentioned antivirus software as a culprit.  After I renewed my antivirus protection recently using a different product called WEBROOT, I began to see the following alert message over the Google entry for my website, The Comprehensive Conservative:  “Suspicions Site.  Caution:  It is likely this website contains malware or other security risks.” This never happened before with other software. Nor does the alert appear when I access my website from another location.  “Conservative” is a prime keyword for these scoundrels. It’s like chum to a shark. Spread the word because I think this aspect of conservative censorship is under the radar.  9/6/18
  

• BOOKSTORES SUPPRESS CONSERVATIVE WORKS.  Not only do social media platforms block conservative content.  Bookstores do too.  Last night I perused a store in Penn Station, New York City hoping to peak at some current conservative releases.  Appallingly, Jeanine Pirro’s “Liers, Leakers and Liberals” was nowhere to be seen.  Only after asking, did I see Greg Jarrett’s “The Russia Hoax” lying flat on a table in the back underneath several other books.  Both were recently #1 on the New York Times Bestsellers list and they currently occupy the #4 and #2 positions respectively.  Ann Coulter’s “The Resistance Is Hopeless”, which initially makes the list next Sunday, was absent as well, as was Danesh’s D’Souza’s “Death Of A Nation” which has been on the list for 13 weeks. Why were these titles not in stock and, in Jarrett’s case, not displayed at the entrance to the store along with other popular books?  Is management afraid of rousing conservative sentiment before the midterm elections?

  
  

  Of course, this is not new.  I had the same experience in 1992 looking for Rush Limbaugh’s first book, “The Way Things Ought To Be”.  And that work was the fastest selling in publishing history at the time.  In the past, I found that hits by Pat Buchanan and Michael Savage also were buried in the back on the ground level shelf.  On one occasion, I took a Bill O’Reilly bestseller from obscurity and placed it upright on the front display table right over an Al Franken book.  I did the same with a Savage book to displace some liberal’s tome I don’t recall. 

  
  

  The stranglehold the left has over media is beyond outrageous.  In this case, conservative readers have to question the store managers, let them know the political shenanigans they’re playing are obvious, and demand that top selling right wing authors be represented prominently, as often required by contract with publishers.  But beware.  In my experience this can lead to fisticuffs.  9/5/18

• ENOUGH ALREADY WITH THE McCAIN TRIBUTES.  With all the media accolades for Senator John C. McCain in the wake of his death he’ll get whatever praise he might be due.  So it is incumbent on me to put the encomiums in perspective by highlighting his faults in the interest of truth.  He was a darling of the liberals for his many traitorous acts against his Republican Party.  He was the maverick, but always to the left.  He urged compromise while the Democrat Party drifts toward socialism.   

         Perhaps Fox management ordered Henry to put on the act.  I’ve said in the past that Fox is DESPERATE to shake off the supposed sexist image it acquired         in the wake of the network’s many sexual harassment settlements.  The complete feminization of the Fox lineup that ensued is exhibit #1.  Ed Henry                     should stop grandstanding to the PC police or move back to CNN or on to MSNBC.  This is why for some time I have called for an alternative major                     conservative network that refuses to play these PC games.  I nominate Alex Jones as its signature host and suggest a prominent role there for Katrina                     Pierson.  8/15/18

• KIMBERLY GUILFOYLE LEAVES FOX.  Sadly, beautiful Kimberly Guilfoyle left Fox News to join pro-Trump “America First PAC” as vice chairperson, no doubt to help the president’s reelection in 2020 .  At Fox she was an excellent spokesperson for the conservative cause.  But she also contributed aesthetics with her great gams and one of the better racks in cable news, especially during the summer cleavage season.  (Take that #MeToo!)  She’ll be sorely missed.

  Some speculate she wants to capitalize on her friendship with President Trump and new courtship with ten years younger Don Jr. to start a new career in politics.  But I don’t think that’s her only aspiration.  I bet she’s angling for half of her beux’s eventual inheritance through a marriage and divorce.  She’s a very savvy chick.  Message to Don Jr.:  Watch your wallet.  7/28/18
  

        The diversity agenda has long infected education where American exceptionalism is now heresy.  Accordingly, the left has suppressed the teaching of                 Western civilization, eliminated American history and civics in many schools, and generally dumbed down curricula and performance standards.  A most             disturbing revelation was disclosed on the Laura Ingraham program last night by Dean Cheng of The Heritage Foundation.  Astonishingly, in response to             Ingraham’s comment that American students are not choosing STEM curricula, Mr. Cheng indicated it was by design.  He said that college professors are             telling their white students that mathematics is “… about grievance, whiteness … and oppression” and they thus discourage this course of study for them.              Hear his comment starting at 46:13 https://www.youtube.com/watch?v=27AiHx8jzjY  As a consequence, Asians dominate this discipline and other                 STEM concentrations in the colleges, rendering whites marginalized as to satisfying the increasing demands for highly technical and technological skills.              This deliberate surrendering of STEM education to Asians to the near exclusion of whites is aimed at establishing minorities at higher social levels and                 lowering the economic status of the current majority to ensure the demise of traditional America.    

        The ultimate way of transforming the demographics of America is through interracial breeding, and the left is in high gear promoting it.  Consider the many         racially mixed couples appearing in ads today ostensibly as mates, not dates.  Of course, this is no accident.  The left now overtly encourages interracial                 propagation by making it appear commonplace.  Interracial unions that evolve organically in the spontaneous course of human interaction and natural                 selection are one thing.  But proactive mass promotion of same by grossly exaggerating the practice for the purpose of de-whiting the population is quite             another.

        The American people have set the stage for the ongoing browning of America by caving to the corrosive political correctness that has spawned it.  In the             end this cowardice will make the U.S. a genetically debased third-world country, before ultimately subsuming into a borderless, one-world amalgam of                 mostly impoverished inhabitants with a few elites at the top.  Karl Marx is alive and well.  7/26/18

            Congress passed the Wall Street Reform and Consumer Protection Act in 2010 to permanently redress the problems that caused and ensued from the 2008 financial crisis.  Dubbed the Dodd-Frank Act for its  co-sponsors, Senator Christopher Dodd (D-CT) and Representative Barney Frank (D-MA), this legislation has since overly restricted the financial system to limit credit, reduce market liquidity, impose burdensome compliance costs, and hamper economic growth and job creation.  Even Messrs. Dodd and Frank acknowledged when the law passed that adjustments would be required in time as experience dictated.  Now is the time to correct the excesses and unintended consequences.  The House of Representatives, the Treasury, and the SEC already have presented recommended amendments.

I.  Dodd-Frank rests on a false premise 

        In addition, lapses in federal regulatory oversight significantly contributed to the disastrous outcome.  To a lesser extent, banks also exploited the lax credit environment on their own by foisting risk onto unwitting investors at a profit.  To some degree they did this through misrepresented private-label mortgage securitizations, as well as through the sale of risky individual mortgages to Fannie and Freddie for their securitizations which carry a taxpayer-backed guarantee.  Nevertheless, government was the prime culprit in the mortgage meltdown that triggered the financial crisis.  But regulatory apologists promote the notion that Dodd-Frank is necessary as protection from the escapades of the wily financial sector.

        Furthermore, the left overstates the direness of the federal bailout to justify retaining Dodd-Frank.  In fact, that exaggeration might be viewed as a populist ploy to inure a largely anti-bailout public to the government and its agenda-related government intervention.  Indeed, taxpayers and government operations ultimately were left relatively unscathed by the government rescue.  All the large banks repaid government funds in fairly short order, and some were forced to accept unneeded aid so not to stigmatize those that required it.  According to Pro Publica, as of August 28, 2017, the $625 billion of total government disbursements, including $80 billion to auto companies, has been recovered, plus an $89 billion profit.  This includes $390 billion recouped from $437 billion of TARP payments to 972 recipients.  In addition, the profit comprises a $23 billion 12.5% return on the totally repaid $180 billion bailout of American International Group. 

        What’s more, the government pocketed over $100 billion from bank settlements and fines as financial institutions avoided the expense and reputational risk of going to court.  They also settled to prevent government retaliation in the form of regulatory reprisals and executive firings for posing a challenge.  Furthermore, the U.S. Treasury continues to pocket all profits from Fannie and Freddie long after its bailout has been repaid.  In short, the government made out like a bandit.  Fortunately, equity investors who held on to their pre-crisis holdings have recovered handsomely as the S&P 500 has well more than tripled from its crisis trough on March 9, 2009. 

        Yes, the government posted four trillion-dollar budget deficits in a row following the crisis, but that was because the bailout and stimulus appropriations of the first year were left in the baseline in subsequent years for general spending. This is a good example of the left’s adage, “Never let a good crisis go to waste.”

        The real losers from the crisis were investors holding severely impaired private bank residential mortgage-backed securities they bought under the false pretense of the rating agencies and some issuing banks.  Those investors did not share in the DOJ and SEC bank settlements meant to compensate for losses incurred from MBS issuer misrepresentations.  Rather, those monies primarily indemnified state and local government pension funds, as well as Fannie and Freddie, and helped some underwater mortgagees.  In addition, large amounts were directed to fraudulent community activist organizations, including successor groups of the congressionally defunded ACORN.  Private MBS investors were even abandoned by their securitization trustees who failed to vigorously prosecute issuing banks that hired them.  Rather, they held their fire in order to protect their prospects for future business with those banks. Where is the regulation there?  Because of that experience, private-label mortgage securitization is still dormant nine years after the crisis with no sign of significant revitalization.  

        Post-crisis financial regulation has fostered massive consolidation in the banking industry.  Ironically, this has resulted in even greater concentration among the largest banks, the very institutions that Dodd-Frank advocates feared to be too big to fail, and therefore dependent on government bailout in the event of collapse.  According to The Wall Street Journal, the five largest banks now hold more than 40% of U.S. banking assets. 

        Dodd-Frank is overkill.  Financial regulatory reform should focus on enforcing reasonable loan credit criteria and prudent risk management over lending, trading, investment, and financial services while ensuring an appropriate capital buffer.  Those measures will ensure the stability of the financial system without the adverse economic consequences of Dodd-Frank.

        Today, legislators in Washington are re-evaluating Dodd-Frank with an eye toward correcting its excesses in community, commercial and investment banks.  In general, the law exaggerates potential systemic risk and goes beyond the immediate cause of the crisis concerning subprime mortgages.  In effect, it expanded government control to the detriment of bank profitability, capital availability, financial innovation and economic growth.  In particular, Dodd-Frank mandated exceedingly stricter capital requirements, limited proprietary trading, and imposed restrictions on financial product that hurt revenues and increased the risk of bank legal liability.  The law also requires that derivatives be traded on exchanges rather than on the traditional over-the counter basis, the cost of which reduces the profitability of the instruments and their competitiveness with foreign counterparts. 

        However, there is some silver lining.  In response to post-crisis regulation, banks have bolstered their capital enough to prevent another crisis.  In doing so, the big banks have slashed expenses, fostered by a collaborative program called “Project Scalpel” that cut the cost of processing stock and bond transactions by sharing processing and technology.  But, while some Dodd-Frank regulation is beneficial, most of it warrants amendment or elimination.  

        A. Restricted lending 

Yet, some subprime lending has returned among lightly regulated mortgage brokers, as well as auto lenders who try to compensate for consumer and commercial lending made less lucrative by Dodd-Frank regulation. (Subprime auto lending has abated of late.)  In response to limited lending by risk-averse banks, extensive online banking and other less regulated non-bank lenders fill the void, including hedge funds and private-equity firms.  In particular, these entities serve small businesses and less credit-worthy individuals in place of traditional banks. 

            For example, nonbank Quicken Loans is now the nation’s second largest retail residential mortgage lender and the FHA’s largest participant in its mortgage insurance program, as the banks have largely shunned all but the most credit-worthy home borrowers.  Reportedly, the company originates and refinances riskier mortgages online and through aggressive cold calling by employees completely lacking in related experience, according to The Wall Street Journal.  Sound familiar?  Taxpayers are at risk to the preponderance of lower quality mortgages insured by the FHA that are originated by thinly capitalized nonbank lenders less capable of repurchasing soured loans. 

One might say the Wild West atmosphere of these shadow banks raises the specter of the pre-crisis subprime loan calamity.  In fact, in a pending case, the DOJ has charged Quicken Loans with filing false credit information to the FHA about its borrowers.  In addition, in a class-action suit, a court ruled against the company for its involvement in inflating home appraisals, for which it has to pay $11 million in fines and damages.  Perhaps some Dodd-Frank regulation should be shifted to the nonbanks. (Of course, they do not pose a systemic threat.)  Nonetheless, the shadow banking system serves a market need ignored by traditional banks partly because of too much regulation.  It would be better if traditional banks assumed the risk of that business rather than the taxpayer-backed FHA.

        B. Curtailed proprietary trading

“Sellers will offer securities, but there will be no buyers.  Prices will drop sharply, causing large losses for investors, pension funds, and, financial institutions.”

Confusion about the rule, which has prompted an interest in its repeal, has centered on distinguishing proprietary trading for a bank’s own account from market-making for a client’s portfolio.  Proprietary trading involves a firm trading or holding its own securities with the intent of optimizing upside risk in a profit upon sale.   Market-making generally involves an immediate purchase or sale on behalf of a client with a set mark-up on the price of the securities for the bank.  While proprietary trading involves more aggressive risk-taking involving complex derivatives and hedges, the degree of risk it poses to a firm and the financial system is exaggerated, given an adequate capital cushion and competent risk management.  Hence, regulators are reconsidering the Volcker Rule. 

It is important to note that the decimation of proprietary MBS portfolios that spawned the financial crisis derives from lowered underwriting standards applied to the underlying mortgages at origination, not from the trading of those securities in the secondary market.  The oft-mentioned excessive leverage supporting that trading was predicated on security valuations consistent with the top grades of major rating agencies, and on the expectation of ever-rising home prices that would further secure the mortgages.  MBS prices and the leveraged trading would have been considerably less if the true value of the securities based on surreptitiously diluted lending criteria were known.

In response to the Volcker Rule, and chastened by its portfolio losses during the crisis, GE Capital liquidated $201 billion of financial assets to concentrate only on financing its industrial businesses.  In addition, Goldman Sachs, a legendary bond trading powerhouse, largely withdrew from proprietary trading because of the restrictions of the Volcker Rule.  It also did so because of low market volatility in recent years resulting from sustained low inflation and interest rates, and slow economic growth.  In the place of trading, the firm plans to shift its focus to lending. 

But currently Goldman Sachs is considering a return to trading in the hope of a possible relaxation of the Volcker Rule.  But the firm plans to build its relatively small corporate client base for the trading of fixed-income securities, currencies and commodities to rely less on traditional hedge fund, bank and money manager clients.

            C. Shortage of safe assets needed for collateral

            As mentioned, higher regulatory capital requirements create greater demand for safe financial assets, particularly government bonds, which get more favorable treatment in bank capital computations.  A resulting shortage of such assets makes satisfying collateral requirements more expensive for repurchase agreements and centrally cleared swaps, for example.  In particular, this added demand raises the relative cost of capital for those who lack sufficient access to those securities.  The scarcity of these assets also contributes to a higher rate of security delivery failure when collateral is returned as repurchase agreements mature.  In addition, the bidding up of these safe securities can depress interest rates to abnormal lows, even negative levels, possibly complicating Fed monetary policy.

            D. The overbearing Consumer Finance Protection Board

The Consumer Finance Protection Board (CFPB) created under Dodd-Frank has been granted unprecedented power and independence.  It operates only under the Fed’s nominal jurisdiction virtually outside the president’s authority and with exemption from the congressional budgetary process.  Under its head, Richard Cordray, an Obama appointee who still holds the office, the agency has been a loose cannon. 

According to the June 2017 Treasury Report on financial reform recommendations, Cordray often ignored the law, in particular a requirement under the Congressional Review Act that gives Congress a 60 “session day” notice-and-comment period to evaluate federal agency rules.  In addition, he applies a “disparate impact” standard to determine discrimination in hiring and lending making banks unduly vulnerable to costly legal damages or settlements.  This standard establishes discrimination on the basis of the disproportionality of alleged victims’ race relative to their representation in the general population, regardless of any evidence of intent.  In examining a bank’s compliance with discrimination laws, the CFPB would simply divine a subject’s minority status according to one’s name and residence rather than empirically establish race.  Later, the CFPB relented a bit to require banks to retain a driver’s license photo of borrowers, job applicants and employees to more convincingly establish race in the agency’s discrimination cases. 

In the process, Cordray creates the basis for lucrative litigation opportunities for trial lawyers he hires to prosecute allegedly non-compliant banks.  According to The Wall Street Journal, Cordray eyes a run for governor of Ohio in 2018 for which he likely entertains rich political contributions in exchange for legal business with his agency.  This game is common among state attorneys general who contract out prosecution work to law firms which return the favor in campaign funds.  Government litigation against tobacco companies was a prime example of this.

            The CFPB also restricts mandatory arbitration in financial contracts thus encouraging class-action lawsuits against banks.  This prohibition also favors lawyers inasmuch as consumer plaintiffs were awarded an average $32 in 562 class action cases studied by the CFPB while the lawyers received an average of about $424 million, according to The Wall Street Journal.  The House voted to overturn this “arbitration rule” invoking the aforementioned Congressional Review Act ignored by the CFPB and Congress during the Obama administration.  A vote is pending in the Senate where support is tenuous.

            The Office of the Comptroller of the Currency has expressed concern about the threat litigation costs might pose for the financial system as a result of the CFPB’s efforts to bilk banks through trumped up discrimination charges and class-action suits.

            To be fair, the CFPB has intervened properly against some real bank abuses, including charging credit card accounts for products that were not ordered, mismanagement of mortgage records resulting in inflated fees, wrongly assigned title, and misapplied payments that led to erroneous foreclosures.  A particularly notable example of bank abuse is that of Wells Fargo which opened some 3.5 million accounts unapproved by customers between 2009 and 2016 which the bank charged for products.  This fraud is testament to the perils consumers may face.  It has to be deterred through appropriate regulation.

Nevertheless, the CFPB is a clear case of power abuse that stifles financial innovation through risk-aversion while exposing banks to onerous legal costs.  It must be reined in.

            E. Inappropriate non-bank regulation

Regulations under Dodd-Frank also affect asset-management firms and the three largest insurance companies. 

1. Money market funds

    

   The SEC now requires traditional money market funds to invest only in riskless short-term government instruments so they will maintain the historically stable $1 a share net asset value customers always have expected.  For marketing purposes, these accounts must be classified as “Government” funds.  This requirement is to prevent these uninsured money market funds from “breaking the buck”, which might precipitate a raft of withdrawals that could generate principal losses that threaten fund capital.  As a result, money managers have shifted client short-term placements in these accounts from bank C/Ds and commercial paper to safer government debt, including that of the Federal Home Loan Banks, effectively raising the cost of capital for issuing banks and corporations. 

   To continue investing in higher-yielding bank and corporate short-term debt, money market funds must mark the portfolios to market and classify these uninsured accounts as “Prime” for marketing purposes.  This account revaluation causes client net asset values to fluctuate, thus transferring risk from the money fund to its investors.  According to Dodd-Frank advocates, marking accounts to market rightfully protects the funds from possible collapse that they mistakenly think could threaten the financial system.  They argue that pricing funds at actual market value, instead of at a fixed $1, is reasonable protection for money market firms that could otherwise suffer dangerous capital-depletion in an effort to maintain the fixed share value in the face of panic withdrawals.  This happened during the financial crisis when some money market funds holding seriously impaired assets “broke the buck” sending clients fleeing.  Separately, in an ultra-low interest-rate environment “breaking the buck” is more likely where fund expenses exceed investment income.  But that is not a systemically threatening event.

2. SIFI imposed on asset-management firms and insurance companies

    

   The U.S. Treasury invoked Dodd-Frank in designating asset-management firms and the three largest insurance companies each with over $50 billion of assets as “systemically important financial institutions (SIFI)” to be subject to, along with the larger banks, more onerous regulation and extra scrutiny.  Inappropriately, this assessment is based on unrelated bank capital and risk standards.  In fact, these nonbank institutions by their nature do not pose risk to the financial system as a whole because, unlike banks, they are not significantly interconnected with one another through counterparty transactions, and thus lack the risk of contagion.  Any systemic risk would emanate from the very interconnected and regulated banks that issue short-term financial assets in which asset-management firms are invested.  In other words, the risk originates with the banks, not the nonbanks.

   Likewise, insurance companies do not by their nature pose a systemic threat to the financial system and therefore should not be subject to the SIFI designation. In fact, MetLife successfully sued Obama’s Treasury over its SIFI status in a court hearing in which the judge levied a sharp rebuke against an utterly unprepared and overreaching defendant.  The firm had its SIFI classification rescinded.

            F. Bank stress tests, living wills and bonus claw-backs

Under Dodd-Frank the Fed requires an annual stress test, called the Comprehensive Capital and Analysis Review (CCAR).  This assessment determines whether banks have enough extra capital to be permitted to return it to shareholders through dividends and stock repurchases without jeopardizing solvency under extremely adverse conditions.  The Fed has been notoriously secretive and opaque about its pass criteria making the examination difficult and expensive for banks to prepare.  The Fed also mandates “living wills” that establish dissolution plans in the event of bank failure.  These time-consuming requirements significantly increase compliance costs and unnecessarily constrain operations at the expense of profitability.  In addition, Dodd-Frank calls for bonus claw-backs to temper excessive risk-taking in the face of a long cultural convention on Wall Street.

            Separate from Dodd-Frank, the Department of Labor created the Fiduciary Rule which, in a power grab, usurped the traditional jurisdiction of the SEC by invoking a provision of the 1974 Employee Retirement Income Security Act (ERISA).  The rule calls for financial sales representatives serving retirement accounts to act as fiduciaries and fee-paid advisers responsible for the best interest of clients.  Financial advisers replace traditional commission-paid brokers who essentially take trade orders and execute them, only taking into account general client suitability criteria.  Thus, the rule supposedly affords greater protection by ensuring consideration of the investor’s interest in the advisory process. 

But under the new rule, advisers are subject to legal liability, notably from lucrative non-waivable class-action lawsuits that enrich the plaintiffs’ bar.  Advisers incorporate this risk in higher fees, or they might withdraw from the business to avoid potential litigation.  In addition, they could stop serving smaller retirement accounts because of inadequate compensation and added disclosure compliance costs.  If enacted, this rule could result in a smaller pool of advisers, and unaffordable fees for some, causing many small investors to fend for themselves. 

President Trump’s Labor Department is currently re-evaluating the economic impact of the fiduciary rule and may exempt certain transactions, such as IRA rollovers and insurance products.  Proposed implementation has been deferred until July 2019.

Another manifestation of government overreach in the financial sector outside the scope of Dodd-Frank is the evolution of mortgage-finance giants, Fannie Mae and Freddie Mac.  They have been in conservatorship since the financial crisis during which they received a $189 billion government bailout.  In that time, these institutions have displaced private mortgage securitization with more of their own agency mortgage-backed securities through their accelerated purchase and packaging of newly originated mortgages issued by banks and other lenders.  As a result, the combined firms guarantee or own about $5 trillion of their mortgage-backed securities, encompassing 48% of all mortgages.  In addition, they carry some $5 trillion of corporate debt that finances the ongoing purchase of mortgages from originators.  As such, Fannie and Freddie constitute an unhealthy securitization duopoly with virtually no capital base.   

Most significantly, Fannie and Freddie mortgage exposure poses potential liability for taxpayers.  That is because the government bears the credit risk, guaranteeing timely principal and interest payments to investors holding the agencies’ mortgage-backed securities.  In addition, the government implicitly backs their corporate debt in the event of insolvency.  What’s more, political forces have continued to make the two behemoths relax underwriting standards for mortgages they purchase from originating banks and nonbanks. 

            Besides added regulation, banks have been hamstrung by monetary and fiscal policies.  Specifically, the Fed’s open market operations and past quantitative easing through bond purchases have produced chronic near-zero short-term interest rates, as well as near historically low long-term rates, that squeeze net interest margins and therefore curtail lending.  These low rates force investor capital into more risky assets in the quest for higher returns, rather than to traditional bank deposits that would fund lending and reward savers.  A normalization of interest rates by the Federal Reserve Bank and other major central banks will reverse this anomaly to provide income for both lenders and savers that will stimulate economic growth. While rate normalization is currently in prospect, the slow pace of rate hikes thus far will likely prevent relief for some time. 

In addition, excessively high corporate and individual tax rates have stifled the economy and the banking environment.  Over $2 trillion of U.S. corporate profits remain overseas to avoid almost the world’s highest rate at home.  Businesses and investors have anticipated tax relief since President Trump’s election.  But continued uncertainty from the delay in passing proposed tax reform diminishes confidence in its eventuation.  This suppresses capital investment as borrowers, lenders and investors are reluctant to commit.  Nonetheless, optimism prevails as reflected in record high stock prices in 2017.

The objective is to achieve the right balance between free market forces and appropriate operating discipline guided by regulation commensurate with risk and size.  Ideally, this ensures optimum credit availability, appropriate risk-taking, market liquidity and innovation consistent with systemic institutional safety and economic growth.  As mentioned, the first priority is to apply lending criteria that are not too restrictive or too accommodating.  Proprietary trading also requires some limits while compliance costs should be reasonable relative to risk.  A suitable, but not excessive, capital buffer is paramount to absorb losses in another crisis and to avoid a taxpayer bailout.  Debt-to-equity conversions to replenish capital in times of stress do not suffice.  Too much reliance on this “bail-in debt” can create systemic reactions when bondholders absorb huge losses.  It also makes bond issuance more expensive and difficult.   

In addition, financial consumers must be protected from abuse by banks but regulation should not unduly interfere with the economics of product offerings.  As mentioned, the Treasury and the SEC have issued reports of recommendations for various forms of financial regulatory relief.

Under Dodd-Frank, lending and trading restrictions, as well as compliance requirements, have been too austere considering that lost capital and stability from the financial crisis have been restored.  To wit:  All 34 banks subject to the Fed’s latest annual stress test passed.  In addition, excessive consumer protection measures have been imposed on financial product squeezing bank profits. 

Ideally, a sound financial system, including Fannie and Freddie, would safeguard against the politicization of credit and capital through social engineering preferences.  Also reprehensible are quid pro quo deals between financial institutions and political officeholders involving preferential treatment in exchange for campaign contributions.  For example, the long cozy relationship between Fannie and Freddie and Congress contributed to excessive accommodation to the housing sector.  In addition, banks need protection from abusive prosecutions by the CFPB and other agencies.  Of course, a degree of politics is inevitable, but protections against excess should be in place.

President Trump has expressed support for more accommodative lending needed to spur the economy.  Accordingly, the president has nominated Joseph Otting to replace Thomas Curry as Comptroller of the Currency.  Curry, as well as former SEC Chair, Mary Jo White, were wary about excessive leveraged lending to riskier corporate borrowers and to private-equity firms to finance buyouts.  Moderated capital and liquidity requirements would permit more lending.  The president also nominated Randal Quarles for vice chair of supervision at the Fed, the top bank regulatory official.  Reportedly, he is amenable to re-evaluating Dodd-Frank for regulatory relief in the post-crisis environment, including a review of overly punitive capital requirements.  And he opposes breaking up the big banks.  Nonetheless, his reforms are subject to approval by the Fed’s board and other agencies.

            The following areas are under consideration for regulatory relief:

1. Capital rule 

The Fed is currently reviewing the “leverage ratio” as a prominent capital measure to substitute for a “risk-weighted assets” metric.  The former determines required capital objectively as a percentage of gross assets.  The alternative dictates capital based on a percentage of those assets adjusted for a somewhat arbitrary and manipulative assessment of inherent risk.  Excessive leverage through repurchase agreements between financial institutions, where banks borrowed short-term and invested long-term in subprime mortgages, significantly fueled the financial crisis.  When confidence in the solvency of counterparties plummeted, a liquidity crisis ensued so that banks could not roll over their repos.  This left repo lenders with impaired collateral that was valued less than the cash loaned.  Contagion throughout the financial system was a real threat given the vast breadth of the repo network.  The leverage ratio signals excess in this scenario better than the risk-weighted asset measure of capital.

Today, repo volume has diminished, tenors are longer term, and transactions are secured by safer collateral.  Because of capital charges for leverage ratios above certain thresholds, banks have reduced leverage from up to 50 to 1 pre-crisis to about 15 to 1 today, leaving a capital buffer up to seven times greater to absorb losses, according to William D. Cohan in Barron’s, 7/24/17, p. 18.  However, there are tradeoffs to such safety that can render regulation excessive at the expense of lending, trading and profit. Banks have to strike the right balance and continually monitor it for adverse change.

The Commodity Futures Trading Commission (CFTC) is considering relaxing the “supplementary leverage ratio” which includes cash margin set aside as collateral to secure swap transactions.  Proposed relief would exclude this segregated asset from the leverage ratio calculation freeing up some capital for lending.  Similarly, the Treasury proposes exempting client cash on deposit with custody banks from the leverage ratio computation.  This would potentially result in a boon to earnings because those banks could replace costly preferred stock outstanding with debt, or invest more client cash.

            Such overly stringent capital requirements create shortages of safe collateral assets and hamper lending to the detriment of economic growth.

            2. Volcker Rule

            Having tightened the regulatory noose on banks for several years under Dodd-Frank, and considering significant improvement in the stability of the banking system since the crisis, the Fed and other oversight agencies have indicated openness to some relief.   There is general support for simplifying the Volcker Rule to enhance market liquidity, particularly in view of the Fed’s intention to start reducing its $4.2 trillion balance sheet amassed from earlier quantitative easing aimed at stimulating the economy. 

            But, while overly draconian stress tests designed to verify a bank’s capital adequacy under very adverse conditions are problematic, regulators and bank managements must ensure they are accurate.  Banco Popular passed a Spanish stress test in 2016 only to collapse less than a year later.  Investors who purchased the bank’s convertible contingency bonds for their extra yield, partially in reliance on the stress test, were wiped out.  The bank collapsed from inadequate consideration of impaired mortgages festering on the books since the run up to the financial crisis.

Banks also need relief from onerous compliance monitoring and reporting that seriously distract from company management and planning.  Redundant regulatory oversight should be eliminated or streamlined.  Some object to the role of the Financial Stability Oversight Council represented by the Treasury, Fed, SEC, OCC and CFTC among others.  It was created by Dodd-Frank to monitor the stability of the financial system as whole.  Ironically, the porous regulatory system that contributed to the financial crisis could be replaced by too much overlap that hampers bank lending profitability.  Treasury Secretary Steven Mnuchin expressed reservations about such coverage.

            Banks have complained about inordinate capital having to be set aside to cover operational risk.  This is risk inherent in internal operations as distinct from exogenous forces in the markets and the economy.  Operational risk may arise from transaction processing errors, unrepresentative pricing, calculation errors, faulty analytics, system failure, and fraud that result in asset losses or legal settlements.  It may be mitigated by new technology, added compliance personnel, additional capital set-asides, and enhanced regulatory oversight. 

            According to The Wall Street Journal, the five largest U.S. banks assign an average of 29% of risk-weighted assets and 18% of total assets to operational risk.  Reportedly, that translates to $50 billion of extra capital reserves that could be loaned or returned to shareholders.  Operational risk is largely quantified on the basis of the assets of discontinued operations, such as Bank of America’s defunct Countrywide Financial acquired during the financial crisis.  Yet, capital is still reserved against it.  Jamie Diamond, CEO of JP Morgan Chase, is particularly adamant about regulatory relief in this area.

            Interestingly, regulators have decided not to pursue restrictions in some areas many thought contributed to the financial crisis.  Once exemption concerns longer bonus deferral and claw-back proposals that have been scrapped as a result of heavy lobbying to protect this bastion of the Wall Street culture.  No bonuses paid in the approach to the 2008 financial crisis have been clawed back.  So far, it looks like this practice will not change, despite the risk motivation concern Dodd-Frank raised.

            Some believe that discipline is needed to temper excessive risk-taking by traders who some believe gave significant impetus to the crisis.  As such, critics argue that bonus compensation be predicated on traders putting some of their own capital at risk like the partnership model of securities firms before they went public in the 1970s.  In the public model, traders sometimes have perverse incentives to take big risks with shareholder capital.  But to be fair, shareholders benefit from the upside of that trading in the form of higher earnings and attendant stock appreciation.  Regarding the downside, management should ensure adequate internal controls to minimize losses from bad bets and rogue trading.  In the public model, traders are tempered by not only effective audit and management, also present in the partner model, but additionally by regulation.  Shareholders rely on all that protection when they invest.

            The SEC gave up on new rules governing the trading of credit default swaps.   In general, the regulators seem to recognize that there is no need to further redress the damage inflicted by the financial crisis.  Rather, there is more concern about correcting the regulatory excesses that ensued in the aftermath relative to the state of the economy and the financial system today. The role of the credit default swap as a contributor to the financial crisis is exaggerated.  In fact, it was a $70 billion unhedged undue concentration of this derivative held by AIG alone that posed a threat.  That mismanaged portfolio caused the firm to fail and be taken over by the government when the value of the underlying subprime mortgages it insured plummeted and thus triggered claims.  The nature of the instrument itself is not problematic. In fact, it is an effective risk management tool for CDS buyers.  Sellers such as AIG are responsible for risk control as well.  A regulatory limit on undue concentration of CDS exposure, as exists for securities, would have prevented the AIG debacle.  Indeed, some regulation is in order.

            In a surprising development, the Federal Reserve Bank recently proposed relaxing its guidance on the board of directors’ involvement in technical issues so it may concentrate more on strategic matters concerning economic growth.  Currently, information that flows between the Fed examiners and bank management is shared equally by the board.  At the urging of boards of directors, the Fed calls for management to inform the board only about stymied required remediation efforts.  No more would the board be immersed in such issues as the adequacy of loan loss provisions, a common distraction.  Federal Reserve Board governor and head of the Fed’s bank oversight committee, Jerome H. Powell, has led the initiative.  He said in the New York Times, 8/13/17:

            Continued regulatory concern focuses on the investment risk of leveraged exchange-traded funds (ETFs).  These funds take on outsize debt to finance larger derivatives-laden portfolios that are exposed to risky volatile price movements.  Meant as a turbocharged tool for short-term trading profits, regulators are considering restrictions as they worry about the potential impact on unwitting retail investors.  However, leverage ETFs represent only 1.5% of the $2.9 trillion U.S. ETF market, according to The Wall Street Journal.

            The Systemically Important Financial Institution (SIFI) designation for asset-management firms and insurance companies with over $50 billion of assets should be eliminated.  As mentioned, Dodd-Frank mistakenly views these institutions as potentially threatening to the financial system as a whole, but according to bank risk criteria that do not by nature apply to these industries.  Principally, these nonbank firms do not have counterparty relationships with one another like banks do that could create a “house of cards” contagion when stressed. 

            Clients invested with asset-management firms knowingly bear the risk of their portfolio losses, which, unlike bank deposits, are not insured.  Indeed, the institution has no liability to speak of.  Similarly, insurance losses do not threaten the financial system as they are by nature episodic, not pandemic.  Therefore, insurance claims not indemnified because of company insolvency do not constitute a systemic threat.  (As explained, AIG’s credit default swap exposure was different from conventional insurance.)  What’s more, collective policyholder premium payments over time, unlike financial investments and deposits, are a spent force that cannot pose a threat to the financial system. 

            By contrast, massive bank asset impairment causes capital depletion that can threaten solvency.  In turn, that can preclude payment of myriad counterparty obligations, as well as customer deposit liabilities (most of which taxpayers would bear through FDIC insurance claims.)  This bank contagion could extend to uninsured nonbank institutions invested in bank-issued C/Ds and commercial paper, but that risk would be precipitated by the collapse of the investee, not the investor.  Thus, nonbanks should not bear SIFI status because they do not originate systemic risk. 

            In the interest of protecting investors from external calamity, some might advocate that government regulate the client investments of asset-management firms like it does the investments of banks and insurance companies.  In fact, as explained, this regulation was recently adopted for money market funds, and state insurance regulators have always limited the investments of insurance companies.  But restricting investments of asset-management firms would fly in the face of the right of investors to try to maximize their returns according to their risk appetite, even in the face of a systemic threat to the financial system.  As such, regulating firms that manage the financial assets of risk-taking clients cannot be equated to government protection of bank deposits predicated on asset preservation and insurance coverage founded on avoiding financial loss.

            Of course, catastrophic losses of any kind, be they incurred by asset-management clients, unpaid insurance claimants, or bank counterparties and depositors, can have an enormous collective impact on the economy as spending and investment plummet.  Although the effect of the losses may be widespread, the cause, which is the focus of regulators, does not lie with the failure of asset-management and insurance companies.

            Progress is evident.  The Financial Stability Oversight Council (FSOC) created under Dodd-Frank is currently reconsidering insurer AIG’s SIFI status, as the firm has sold half its pre-crisis assets including many extraneous businesses.  In view of this review, and MetLife’s successful court challenge over its designation, insurer Prudential Financial is amplifying its challenge to SIFI oversight.

            Congress has been undecided about the disposition of Fannie Mae and Freddie Mac.  Conservatives call for a completely private housing sector involving the dissolution of the firms.  Others support a continued role for the entities, either in continued conservatorship or as public companies again, to provide liquidity in the mortgage market and subsidization for lower income home buyers. 

            Another issue concerns the utilization of profits.  Since 2012 Fannie and Freddie have been returning all earnings to the Treasury to reimburse it for a $189 billion bailout.  Having repaid the debt, they continue to return profits in exchange for a $250 billion backup to protect against insolvency in the event of future defaults.  But some propose that Fannie and Freddie profits be retained as a capital cushion which currently is quite thin.  Of course, the line of credit in lieu of investor capital accommodates additional government spending which seems to have little resistance in Washington. 

            Since 2013, these government sponsored enterprises (GSEs) have transferred some default risk to investors by issuing a new type of mortgage-backed security that does not carry the guarantee.  While issuance is small, the security is becoming increasingly popular among institutional investors as they offer higher yields than traditional agency MBS whose credit risk is borne by the government.  Investors prefer these securities to bank-issued MBS, the market for which has remained largely dormant since the crisis.  As mentioned, investor confidence still has not recovered from the compromised mortgage underwriting and ratings frauds that decimated bank MBS valuations during the crisis.  Diminishing government involvement in the mortgage market reduces taxpayer risk, and perhaps sets the stage for a much needed return to private securitization.

            On the other hand, Fannie and Freddie have taken on additional contingent liability in recent years by guaranteeing the borrowings of investment firms that purchase foreclosed homes for rental.  Also, the agencies are now purchasing mortgages that finance single home rentals.  These programs were instituted in response to the lowest home ownership rate in 50 years resulting from stricter mortgage standards, as well as the weak finances of individuals caused by student debt, low savings from the Great Recession, and static wages. 

            The housing sector is far too concentrated in government hands.  Fannie Mae and Freddie Mac should be taken out of conservatorship and collaborate with private banks to share credit risk.  This would reduce the potential taxpayer burden from the guarantee of agency mortgage-backed securities, while private banks would hold a greater share of mortgages issued.  Ideally, the private-label securitization market would become revitalized so more MBS investors would bear credit risk with or without a shared private/public guarantee.  However, there is no telling how long it will take to restore investor confidence in that market, as it has yet to recover in nearly ten years.   What with more pressing financial issues on the legislative agenda this year, Fannie and Freddie reorganization is not a priority.  In fact, they were not addressed in the Dodd-Frank Act either.

            The nationalization of the housing sector that displaces the role of private banks and expands taxpayer-backed subsidization of home ownership, and even rental, is unhealthy for the economy.  Reform is necessary.

            In June 2017 the House passed a bill called the Financial Choice Act under the auspices of Financial Services Chairman, Jeb Hensarling (R-Texas), which proposes specific relief from Dodd-Frank.  Accordingly, a firm may opt for maintaining current Dodd-Frank regulations, or operating under fewer restrictions in exchange for holding extra capital.  The bill requires capital equivalent to 10% of assets vs. about a current 7% average among the largest banks.  Opinions vary as to the appropriate quantification.  Former Fed Chair, Alan Greenspan, suggested even 30% in a 6/30/17 appearance with Maria Bartiromo on Wall Street Week.  But that likely would be economically stifling.  Bank balance sheets have improved considerably since the crisis.  For example, banks have increased their Common Equity Tier I ratio, the highest-quality capital, from about 7% before the crisis to about 12% today, according to William D. Cohan in Barron’s, 7/24/17, p. 17.  Therefore, there is room to relax Dodd-Frank operating strictures, especially for small banks.  The Choice Act supports commensurate relief for small banks to accommodate more lending in local communities.

In addition, the Financial Choice Act proposes revising or repealing the Volcker Rule that governs bank investment funded by tax-payer insured deposits.  It also calls for ending the authority of the Federal Deposit Insurance Corporation (FDIC) to close troubled banks and to order an “orderly liquidation”.  Rather, a bank would be required to file for traditional bankruptcy under a new provision of the bankruptcy code.  Also, the Choice Act would repeal the onerous SIFI designation.  

Furthermore, the legislation would rein in the renegade Consumer Financial Protection Board which operates with complete independence outside the Congressional Budget process under the nominal tutelage of the Fed which funds it.  In 2016 the U.S. Court of Appeals for the D.C. Circuit ruled the CFPB leadership structure unconstitutional.  The case is currently under review by the full Court of Appeals.  Under the Financial Choice Act, the CFPB would become an independent agency within the president’s jurisdiction subject to Congressional appropriations. 

            The Choice Act removes Dodd-Frank requirements that diminish the role of the securities rating agencies whose inflated grades were central to the financial crisis.  The bill eliminates required regulatory disclosures about rating methodologies, and preserves the government imprimatur over the three leading agencies, thus ensuring their continued dominance.  Free-market advocates support this hands-off stance in favor of removing barriers to entry and allowing institutional investors to decide the suitability of the ratings of any firm that chooses to proffer them. 

However, investment firms have been averse to adopting alternative in-house securities analysis in the aftermath of the crisis as too much of a distraction.  The same reluctance probably would extend to evaluating new unproven agencies.  Indeed, money managers have demonstrated continued acceptance of the big three agencies regardless of their failings leading up to the crisis in a seeming redemption of the now chastened major rating agencies.  Nevertheless, with the near demise of the private-label mortgage-backed securities market that was at the core of the financial crisis, MBS securities rating is no longer a prominent issue given the dominance of government-guaranteed agency MBS.  Continued rating of the relatively small pool of asset-backed securities, and of more transparent corporate bonds, by the major agencies is less problematic.

            Meanwhile, the president has power over the rulemaking process to ease the pain of the Dodd-Frank Act.  As such, some federal agencies, as mentioned, have decided not to pursue unfinished Dodd-Frank regulations, including those concerning compensation claw-backs and credit default swaps.  The current Dodd-Frank claw-back provision allows shareholders to recoup executive compensation if paid on the basis of fraud or misconduct, or on materially misstated financial reports.  The Choice Act would restrict a request to recover compensation, or to change any other company policy, only to shareholders owning a minimum of 1% of a company’s shares for three years, versus the current $2,000 of ownership for a year. 

Opponents of the proposed 1% ownership requirement of the Choice Act claim the current Dodd-Frank rule imposes an important discipline on risk-taking, as well as accountability for company actions concerning social issues, such as diversity and human rights.  But that policy makes banks vulnerable to litigious overzealous social responsibility, or so-called “impact”, investors that could crimp company innovation and profits, as well as economic growth. 

            The Financial Choice Act has broad support among Republicans but Democrats believe it invites too much risk and therefore does not adequately protect against another financial crisis.  Passage in the Senate will require some bipartisan backing.

            Senator Elizabeth Warren, a member of the Senate Committee on Banking, Housing and Urban Affairs, the creator of the CFPB, and a liberal gadfly on the financial regulatory front, claims more, not less, regulation is necessary.  In an interview with Gerald F. Seib of The Wall Street Journal (6/19/17, p. R5) she based her opinion on:  1) Massive consumer preference for more regulation expressed in polls; 2) The increased concentration of bank assets since the financial crisis; and 3) $14 trillion of total economic loss from the crisis considering home values, individual net worth, and jobs. However, she does concede regulatory relief for small banks.  Warren also calls for the complete separation of commercial and investment banking akin to what existed under the 1933 Glass-Steagall Act that was repealed in 1999.

First, while consumers have legitimate opinions about bank products and services they buy, they have no idea what constitutes appropriate regulation overall, any more than those laymen can evaluate most other issues before Congress.  That’s why the nation is a democratic constitutional republic.  Second, the asset concentration of large banks and the far-reaching impact of the crisis are effects ancillary to the seminal cause of the crisis.  That was government-induced lax mortgage underwriting, followed by bank-initiated credit concessions motivated by a lack of regulatory resistance.  Underwriting deterioration also was encouraged by the ease of transferring risk to the robust mortgage-backed securities market.  All other causative agents of the crisis, including protracted monetary accommodation, regulatory lapses, rating agency fraud, borrower deceit, as well as bank securitization misrepresentations, also were incidental to diluted credit criteria applied to home mortgage lending. 

Absent that mortgage underwriting blunder, the financial crisis would not have occurred.  As such, regulation aimed at preventing another such crisis should focus primarily on credit quality, not remote or unrelated factors.  If an improperly installed utility pole falls from a gust of wind destroying homes, cars, and possibly people in its wake, a regulator does not mandate an acre of vacant land around every pole.  Rather, it ensures more secure installation.

            Some critics blame the 2008 financial crisis on the 1999 repeal of the Glass-Steagall Act of 1933.  That revocation permitted banks to engage in proprietary securities trading and securities underwriting as complements to traditional commercial lending.  Previously, commercial banking and investment banking were walled off from each other, or operated as separate institutions so not to endanger customer bank deposits.  Dodd-Frank did not restore Glass-Steagall.  But today, some call for a return to some degree of separation to prevent a problem on one side of a bank from spreading throughout the organization and the financial system at large.  As such, they argue that an appropriately structured separation between commercial lending and investment banking ensures safety, while permitting banks to engage in activities that produce diverse sources of capital-bolstering revenue.  That model helps to ensure optimal credit availability and liquidity that foster economic growth. 

To that end, proposals range from just tightening controls between the two sectors, to reinstating complete separation commensurate with inherent risk.  For example, graduated controlled integration of multiple businesses might restrict inter-company transactions between subsidiaries in exchange for relaxing regulations over particular businesses within a bank.  Or, a requirement that each business independently funds itself might be a condition for less regulation.  Extreme advocates call for a total return to Glass-Steagall separation. 

            But an analysis of the genesis of the 2008 financial crisis flies in the face of a call for complete separation.  As mentioned, the crisis was founded primarily on lending risk where mortgage credit criteria were grossly relaxed.  Indeed, lenders face exposure to the credit and interest-rate risk of their portfolios as principal.  But investment banks engaging as agent in securities trading for clients (market making), securities underwriting, mergers and acquisition advisory, asset-management, and hedging for clients, experience little risk to their balance sheets.  To be sure, proprietary trading of mortgage-backed securities for a bank’s own account was central to the crisis, but it created havoc because the underlying mortgages were tainted in the loan origination process, not because of the act of trading itself, despite excessive leverage.  Irresponsible mortgage underwriting caused MBS valuations to tank when massive defaults later became expectant.

William M. Issac, former chairman of the FDIC, and Richard M. Kovacevich, retired CEO of Wells Fargo, make an interesting case in The Wall Street Journal, 4/26/17, p. A17.  They maintain stand-alone institutions that engaged in only lending or only trading proved vulnerable during the crisis as they lacked diversified investments to absorb capital depletion from impaired mortgages.  Examples are product-concentrated Countrywide, Indy Mac, Bear Stearns and Lehman Brothers.  The large banks, such as Bank of America and Citigroup that diversified their risk in both commercial and investment banking, survived where homogeneous institutions did not.  As such, a combined lending and investment banking operation within the bank regulatory system that produces diverse revenue streams, and is protected by a suitable capital buffer, is the safer model for avoiding another crisis. 

            Some advocates of stricter regulation support integrating U.S financial regulation with an international control structure that creates seamless and comprehensive global protection against another financial debacle.  This network is particularly focused on the “shadow banking system” which encompasses financial entities outside the regulated banking system to include securities firms, asset managers and hedge funds. 

In July 2017, G-20 nations meeting in Hamburg, including the U.S., agreed to comply with international regulations and enforcement promulgated by the Financial Stability Board established in 2009 in the wake of the financial crisis.  But Peter J. Wallison, senior fellow at the American Enterprise Institute, questions how President Trump reconciles this entanglement with his commitment to relax financial regulation in the U.S.

“It is not difficult to see that this is a power grab by the regulators who sit on the FSB.  They are trying to leverage an international agreement to create a closed, uniform, global system of financial regulation and supervision.” The Wall Street Journal, 7/14/17

Inevitable tension arises.  Currently, the CFTC is challenging EU efforts to regulate foreign clearinghouses that do business in Europe.  The U.S. and the EU agreed in 2016 to recognize their respective regulations in this area, but Dodd-Frank implicitly calls for the CFTC to defer to overseas counterparts to some extent.  The EU seems to be trying to tighten this regulation in reaction to Brexit and the CFTC is resisting without running afoul of Dodd-Frank.

            Given President Trump’s express aversion to unfair trade agreements, it is not likely he will unduly subject the U.S. financial system to global entanglements that interfere with his stated commitment to deregulation.

            Financial deregulation is only one piece of the economic puzzle, albeit an important one.  It affects credit availability, liquidity and capital flows through lending, trading and transactional services that impinge directly on the economy at large.  But even an optimal degree of regulation is just a theoretical construct absent demand in the economy fostered by appropriate fiscal, monetary and other government policies. 

In fact, government has restricted economic growth since the financial crisis.  Policy must change in conjunction with financial reform that stimulates loan demand and capital investment.  If not, less regulated online lending and brokerage might become an increasing threat to banks as the digital upstarts intrude the market for individual and small business borrowers in their stead.  Moreover, the tepid economic growth since the crisis will not likely improve, regardless of regulatory reform.

            The Trump administration currently proposes substantial tax cuts to complement its proposed, as well as already implemented, deregulation that can truly spur growth in a free market economy.  Trump also advocates major infrastructure spending that would provide at least a temporary fillip.  If Trump’s agenda is enacted, it would operate hand-in-glove with Wall Street reforms that could drive the economy to new heights.  But if fiscal stimulus does not transpire, and low inflation coupled with slow growth continue, financial deregulation could be largely moot relative to the economy.  Possible impediments to the president’s agenda loom in the form of tax, budget and debt ceiling gridlock in Congress, poorly executed monetary tightening here and abroad, and a major setback in the Chinese economy.

Effective financial reform depends on appropriate monetary policy that lubricates the real economy with sufficient credit and capital founded on a normalized interest-rate structure.  In response to signs of inflationary pressures, the Federal Reserve Bank has tentatively raised short-term interest rates twice since December 2015, after a decade of inaction on that front, and indicates another increase at the end of 2017.  In addition, the central bank finally decided to start reducing its $4.2 trillion securities portfolio, amassed from 35 months of bond purchases under its quantitative easing programs, the result of which is expected to raise longer term rates.  Earlier action to normalize monetary policy likely would have stimulated consumption through higher savings income.  It also would have triggered business investment that creates jobs and adds growth.  Better late than never, but the opportunity cost is substantial.  The European Central Bank’s talk about liquidating its $2.7 trillion portfolio also augurs well for normalized interest rates that will foster an improved economic environment that will give regulatory reform traction.

Although protracted historically low rates were meant to stimulate demand, some argue that policy retarded economic growth because it forced investors into higher yielding financial assets at the expense of business lending and investment in the real economy.  Near-zero interest rates also severely limited savings income to the detriment of higher consumer spending.  Monetary policy must respond appropriately to the growth that would ensue from Trump’s fiscal and regulatory reform, or financial deregulation might not help the economy appreciably.   That means interest rates must rise enough to reverse yield-chasing and redirect capital to business investment and consumption. 

Fed chair, Janet Yellen has demonstrated considerable sensitivity to the slightest volatility in the financial markets in response to the Fed’s actions.  That diffidence precluded courageous action in respect of raising interest rates.  Paul Volcker she is not.  She seems to think the sustained slow growth that has ensued from post-crisis Fed policy is a new normal, the price to be paid for a secure financial system today.  Her term expires February 2018.  If President Trump reappoints Ms. Yellen, her politicized, ultra safe, new-normal mindset will not bode well for financial regulatory reform, monetary policy or economic growth. 

            The banking system has replenished capital lost during the financial crisis, repaid government bailouts, tightened internal controls, and cut expenses in a return to profitability.  In fact, banks reported record profits in Q2 2017 largely because of wider net interest margin resulting from Fed rate increases that have not been passed on to depositors.  However, a slow pace of rate hikes now on the horizon likely will crimp bank profits.  While lending to large companies has resumed, loans to consumers and small businesses still lag because of uncertain economic growth prospects.  In fact, growth in business lending during the second quarter of 2017 was the lowest in six years.  If banks remain somewhat risk averse as to continue to hoard significant capital in Treasuries and excess reserves with the Fed rather than lend, economic growth will suffer despite bank deregulation. 

The general stock market represented by the S&P 500 Index has risen about 60% from its pre-crisis high of October 12, 2007.  By contrast, the NASDAQ Bank Index has appreciated only 6% from its pre-crisis high of February 16, 2007.  And most of that bank recovery occurred since President Trump’s election during which the index has risen 19% in anticipation of his tax cuts and deregulation.  That optimism has abated of late in light of expected political resistance to his agenda.  But financial deregulation, coupled with economic prosperity, would very likely restore long-suppressed bank stock prices and drive them to new highs.

Mortgage securitization, a boon to liquidity before the crisis, and which some believe essential for resuming normal economic growth, remains largely dormant because of a loss of investor confidence.  Indeed, private-label mortgage-backed securities holders were victim to rating agencies and some issuers misrepresenting credit quality.  As mentioned, these investors were left with little recourse in recovering losses when designated Trusts charged with protecting MBS investors from mortgage fraud showed greater allegiance to the issuing banks that hired them so not to jeopardize future business with them. 

Nonetheless, in the quest for extra return in an extremely low interest-rate environment some investors recently have begun to revive interest in the synthetic collateral debt obligation (CDO), a bane of the financial crisis.  This instrument is a derivative whose performance is tied to an underlying mix of mortgages, loans and corporate debt securities.  However, today’s version is shorter-dated and protected by overlaying credit default swaps on a range of companies which mitigate potential losses. Similarly structured equities also trade.  Still, many investors are wary of the complexity, liquidity and transparency of these assets in light of the financial crisis and other Wall Street debacles in recent history. 

Nevertheless, debt securitization provides valuable market liquidity by allowing lenders to clear their balance sheets to make room for more loans.  This financial tool would be instrumental in achieving and sustaining a normal economic recovery.

            In the U.S., job creation and economic growth have stabilized and home equity loans have surged in response to rising home prices.  In Q2 2017 growth was at a 3% annual rate, versus and average 2% since the crisis, while personal income and consumer spending have been sanguine.  Economic recovery is finally taking hold in Europe and elsewhere after lagging U.S. growth for some time.  As foreign central banks ease concerns about deflation and the effects of the crisis and withdraw monetary stimulus accordingly, monetary policies once divergent from the U.S. will synchronize.  This will produce coordinated global growth as all economic engines pull together.  In fact, it has already started and U.S. bank deregulation will accommodate that progress. 

But structural changes in the U.S. employment market could interfere.  The considerable mismatch in the supply and demand for jobs because of certain skills shortages, heavily skewed demand for the highly educated, as well as automation and global competition, has exacerbated economic inequality.  This could ensure widespread permanent underemployment that suppresses wages, consumption and economic growth.  Many adversely affected by this circumstance are the low educated and long-term unemployed who have dropped out of the market and who therefore are not counted in the nominal unemployment rate.

            Financial deregulation can spur a sluggish economy, but not if it is hampered by countervailing monetary or fiscal policy on which growth also depends.

            Some additional deregulation beneficial to the economy is expected through executive branch administrative rule changes.  But they face delay because many agency positions still remain unfilled awaiting President Trump’s nomination or confirmation by the Senate.  Legislation, which is required for repealing Dodd-Frank, is more problematic because of extreme partisanship in Congress.  Notwithstanding Republican control of the presidency and both chambers of Congress, financial reform will be challenging because of sharp polarization in Washington that yields few or no Democratic votes.  As a substitute for legislation, the Trump administration would have to rely on rule changes by the SEC, Treasury and other agencies as it already has.  But those adjustments could be easily reversed by a future president.  Legislation that codifies permanent relief is needed to avoid uncertainty in the economy.

            Indeed, the political backdrop is always a wildcard as it changes every two years.  Congressional resistance to President Trump’s agenda, the effects of his ill-advised trade policy, geopolitical flashpoints, and anti-Trump media fervor could weigh on the economy as to render bank deregulation almost irrelevant. What’s more, the Federal Reserve Bank is not above politics.  Chair Janet Yellen in a speech at the recent annual meeting in Jackson Hole, Wyoming expressed preference for keeping the Dodd-Frank regulatory model while barely mentioning monetary policy. 

Throughout Yellen’s tenure she has seemed snug about having simply avoided another crisis through an emphasis on bank stability, even some eight years after the Great Recession.  She evinces pride about extra-strength capital and liquidity requirements as a belt and suspenders supplement to Dodd-Frank restrictions.  And her continued historically low interest rates, started by her predecessor, have been politically beneficial for government, as well as the politically sensitive housing sector.  Was the resultant redirection of capital that inflated stocks and other risky financial assets premeditated for political reasons?  Surely the expected wealth effect has not generated the spending and investment the Fed hoped for. 

Questions abound.  Does the Fed’s longstanding opposition to calls for an audit of its policymaking apparatus conceal ulterior motives?  Is the power that accrues to the Fed from having amassed up to a $4.5 trillion balance sheet through quantitative easing too much to give up?  Are the powers that be in government averse to breaking up the large banks because they are politically harder to control otherwise?  Is the Fed’s new empowerment over the financial system bestowed by Dodd-Frank too intoxicating to relinquish?

One wonders how much the Fed has over the years surreptitiously embraced globalist economics as a member of the liberal central bank community.  Has the Fed been over-accommodating to central banks of struggling countries through discounted currency swaps, for example?  The Fed’s social justice agenda is also suspect as evidenced by a seeming preoccupation with economic assistance to the poor and affirmative action hiring in the banks.  One example of this posture is the Fed’s obeisance to Jesse Jackson’s annual Wall Street Project for the last twenty years which calls on banks to donate millions of dollars for impoverished communities (or else). 

Janet Yellen is not immune to the amplified politicization of her institution under Dodd-Frank.  In Congressional testimony she expressed considerable sensitivity, feigned or not, about serving poor neighborhoods.  Is there a limit to this largess?  After all, it was a politicized Fed that triggered the 2008 financial crisis through forced preferential lending in its zeal to enforce the 1977 Community Reinvestment Act.  In that period, under Chairman Alan Greenspan, the Fed looked the other way from lowered mortgage underwriting standards, probably so not to aggrieve the body politic relying on the program’s many low-income beneficiaries.  Was he also fearful of activist groups and their media allies that would react to more selective lending that would disproportionately affect minority communities?

            Economic prosperity and consumer wellbeing depend on a proper balance between financial regulation and the operating freedom of financial institutions.  The principal objective of Dodd-Frank has been the prevention of another financial crisis, or at least the ability to resolve it in short order without another government bailout.  But that law has its downside to the detriment of economic growth.  As such, Dodd-Frank has restricted activities that had little or nothing to do with the crisis, which was specifically caused by politically motivated imprudent mortgage lending.  Ironically, the concentration of large bank assets under Dodd-Frank is greater than before the crisis, justifying continued concern about the vulnerability to the too-big-to-fail doctrine which the law meant to redress.

But even the best regulation can be of limited value.  What if law enforcement lapses like it did leading up to the 2008 debacle?  What if the politics of wealth redistribution seriously erode lending standards again?  The 2002 Sarbanes-Oxley Act was passed in the wake of massive accounting scandals to deter corporate improprieties and to inspire investor confidence.  But it did not prevent the financial crisis, albeit obliquely related.  More directly, SOX did not prevent the subsequent fraud, risk-taking and internal control failures displayed in the debacles involving Madoff, Stanford, MF Global, Peregrine Financial, J.P. Morgan London Whale, Bear Stearns, Lehman Brothers, Fannie and Freddie, and Wells Fargo. 

And what about speculative excesses in the stock and real estate markets reflecting the savings and loan and dot com booms and busts of the 1980s and 1990s/2000?  And, of course, regulatory oversight would not protect against major economic downturns spawned by the effects of misguided monetary or fiscal policy, such as illiquidity, inflation, federal debt and confiscatory taxation.  As such, many believe another financial crisis is inevitable regardless of regulation.  Indeed, history shows financial failure is often a product of politics and human nature, be they the acts of banks, investors or government. 

            Financial reform under consideration today is predicated on the many flaws of Dodd-Frank.  No regulation is perfect as it always involves tradeoffs between safety and freedom, but it should incorporate lessons learned.  Messrs. Dodd and Frank acknowledged that adjustments would be necessary as experience dictates.  And, some Sarbanes-Oxley provisions were relaxed over time to foster growth and job creation, including a raising of market capitalization and revenue exemption thresholds.  The time has come to repeal Dodd-Frank while still requiring appropriate bank capital requirements and essential consumer protections.  The goal is to ensure a stable, accommodating and innovative financial system tempered by regulation that protects consumers and supports sustained economic growth.  It is hoped this model would prevent another financial crisis by focusing on the real dangers.  But there is never a guarantee.

William J. Dodwell is a retired corporate executive, management consultant and financial writer in the financial-services industry with particular expertise in the capital markets.  Mr. Dodwell has written in professional journals, the trade press and corporate publications. He is a Certified Public Accountant (Inactive) licensed in the State of New York.