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More Gifts for Wall Street in Trump’s Latest Treasury Department Deregulation Blueprint

Oct. 6, 2017

More Gifts for Wall Street in Trump’s Latest Treasury Department Deregulation Blueprint

Statement of Bartlett Naylor, Financial Policy Advocate, Public Citizen

Note: Today, the U.S. Department of Treasury issued the second of four reports on Wall Street deregulation. This report focuses on capital markets, including the markets for stocks, bonds and derivatives.

Once again, President Donald Trump’s Treasury Department has stamped its approval on Wall Street’s wish list for deregulation. Its new report is a jambalaya of recommendations that cooks Main Street as it feeds Wall Street. More marching order than threat, most of these recommendations can be enacted by Trump’s regulators without congressional action.

In the stock market, Treasury misdiagnoses the problem of the reduction in the number of publicly traded companies. This stems not from regulation, but from weak anti-trust enforcement. The report makes no mention of an exhaustive review of capital markets by the U.S. Securities and Exchange Commission (SEC) released in August. The Treasury report ignores the SEC’s findings, which support regulation, to highlight minor issues about junk bonds – hardly a representative market.

Further, Treasury recommends reducing shareholder rights. It urges the SEC to encourage firms to use arbitration and bar shareholders from joining in class-action lawsuits. Treasury also recommends reducing the ability of shareholders to bring proposals for a vote.

In the derivatives market, Treasury proposes a return to the Wild West in gambling with reduced safeguards. This includes less capital collateral for derivative positions, a basic safeguard. Ironically, Treasury and the U.S. Financial Stability Oversight Council recently released AIG from oversight, which collapsed because of uncollateralized derivatives in 2008, because it had reduced its derivatives contracts. Treasury also proposes letting U.S. firms escape U.S. oversight by booking transactions in and ceding oversight to foreign countries.

Trump’s Treasury report recommends easing safeguards on securitization. Pooling mortgages and other credit contracts into securities provided a playground for fraud for major firms. But Treasury recommends repealing many of the reforms established in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which act as safeguards against exactly that.

Treasury also proposes removal of a requirement that companies report CEO pay as a multiple of median-paid employees. This simple reform helps investors understand whether CEOs are overpaid and whether workers may be disaffected because of the wage gap.

It looks like the Goldman Sachs swamp monsters have the American economy on the menu.