A recent New York Times Sunday Review featured an article by my friend, William D. Cohan, author of The House of Cards and the forthcoming Why Wall Street Matters. The article, Welcome Back Wall Street, points out President Trump’s vilifying Wall Street throughout his campaign and his present about face- which is now welcoming Wall Street’s “financial guidance” with open arms.
William (Bill) pointed out that at a recent Strategy and Policy Forum meeting, the group’s chairman and billionaire co-founder of the Blackstone Group, Stephen Schwarzman, was seated to the right of Mr. Trump with Jamie Dimon, the chairman and chief executive of JPMorgan Chase, directly across from him.
Mr. Trump, whose intentions are to “modify” (read gut) Dodd-Frank, was quoted as saying, “There’s nobody better to tell me about Dodd-Frank than Jamie,” … which according to Bill may “presumably mean that there was nobody better to help dismantle Dodd-Frank than Jamie.” Around that same meeting table, he said, were ”Gary Cohn, formerly the president of Goldman Sachs, now the director of the National Economic Council and waiting in the wings were more Goldman alumni, including Stephen Bannon, Mr. Trump’s chief strategist, and Steven Mnuchin, his pick for Treasury secretary.”
The December 10th issue of The Economist said, “The emerging Trump strategy towards business has some promising elements, but others that are deeply troubling.” I agree. In his campaign, Mr. Trump slammed Wall Street and Goldman Sachs; however, his actions seem to belie his previous position. From the early days of his campaign, one of Donald Trump’s rallying cries was to “beware of Wall Street… I’m not going to let Wall Street get away with murder; Wall Street has caused tremendous problems for us.”
So it’s very curious that in his Inaugural Address, having nominated the wealthiest cabinet in American history, he proclaimed, “For too long, a small group in our nation’s capital has reaped the rewards of government while the people have borne the cost. Washington flourished — but the people did not share in its wealth.” Yet it looks like he has done just the opposite- under his leadership, a cadre of former Goldman Sachs executives, are likely to control our economy and financial system in the years to come.
According to Lisa Donner of Americans for Financial Reform, “Wall Street titan Goldman Sachs seems to be taking over financial regulation in the United States, trying to make it easier for them and other big banks like Wells Fargo to steal from their customers and destabilize the economy.”
I suggest we keep a close watch. And I agree with Bill that Wall Street’s return should have a price; which he says, “is the repairing of its tarnished reputation and the need to restore public confidence in the markets,” which is very much needed. Bill goes on to talk about the need for “a wholesale reform of how bankers, traders and executives are compensated on Wall Street. A new system that rewards prudent risk-taking and holds people personally and financially accountable for their actions is a prerequisite to restoring our faith in Wall Street.”
Amen. If the same Wall Street giants who helped bring on one of the worst financial crises in the history of our country are invited back into power then we’d best have some checks and balances to assure this doesn’t happen again. And how long and how loudly have I preached for the necessity of holding bankers who committed the fraud accountable? It was greed that exacerbated the crisis; it was greed that brought on the 2010 Dodd-Frank Act that re-regulated Wall Street which governed what banks and traders could do to make money as well as the risks involved.
And it’s greed that could take us down once again. Ironic that the Wall Streeters were rewarded by the previous administration with no accountabilities for past transgression other than the $200 billion in fines that their shareholders and the public took on. As Bill reminds us, there was no real justice. Of the Wall Streeters involved, the TBTF executives and traders, not even one has been held accountable and responsible, to date.
True, as Bill reminds us, “Dodd-Frank and other financial regulations adopted around the same time have made it much harder for Wall Street to do what it does best: provide much-needed capital to businesses that want it.” True, the regulation burden is more than cumbersome; it has hurt the economy and the smaller banks that bear the heavy cost of compliance disproportionately.
Bill suggests, “junk Wall Street’s compensation system, which continues to reward bankers for making big bets with other people’s money and does nothing to hold them accountable when the bets go bad. We need to replace this system with one that rewards people when they succeed but penalizes them when they fail.” He believes we should require executives at the helm of each big bank “the top 500 or so people to put their own assets on the line in the event of a bankruptcy filing, bailout or default.”
In other words, they need ”skin in the game” and to take their fair share of the consequences if the gamble goes awry. As my colleagues in our Bank Whistleblowers United platform point out, the President himself has the ability to impose substantial additional capital requirements on large banks without legislation from Congress. And in a WSJ op-ed this week, Neel Kashkari, President of the Federal Reserve Bank of Minneapolis and, ironically, a Goldman Sachs alum, also argues the large banks should have their own skin in the game in the form of additional equity.
Fighting words, yet if that is the price Wall Street needs to pay for rehabilitation, so be it. As Bill says, “Wall Street has for too long been rewarding its star performers for generating as much revenue as possible,” and without caring how it was done and at whose expense and the taxpayer had to bear the brunt.
Regardless of how talented President Trump’s new Wall Street advisors might be, regardless of the sound advice they might give our new President, and they certainly have the experience and knowledge to in fact offer good guidance if they so choose; to allow a continuance of their previous gambling using other people’s money is criminal. Wall Street needs reform, not rewards.
Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
