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Second, the key regulators and supervisors have all been replaced or are going to be replaced — including at the Federal Reserve Board of Governors, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Commodity Futures Trading Corporation and the Securities and Exchange Commission. We should not rush to judgment, but every indication is that the Trump nominees — mostly lawyers with a long list of financial sector clients — will favor a radical rollback of financial regulation.
Third, the Treasury Department recently produced a report that suggests deregulation is on its way. The report is extensive and not everything in it is a bad idea. But the heart of the report paves the way for the reduction of effective capital requirements (in English: allowing banks to borrow more, relative to the value of shareholder equity, which makes them more prone to fail), the repeal of the Volcker Rule (which limits risky trading by banks) and the weakening of consumer protection.
To be fair, it remains to be seen how much the Trump team can get away with. This is not the run-up to the financial crisis of 2007-08 — when all official Washington was beguiled by the mumbo-jumbo of Wall Street titans.
There is far more healthy cynicism these days, among both Republicans and Democrats, particularly in the Senate. But Republicans on the House Financial Services Committee have now worked long and hard to advance an agenda of radical deregulation and tend to brush aside any reasonable objections to what has become an extreme ideology-driven agenda. It looks like Trump and his appointees could be following their lead.
Trump’s top priority now appears to be passing his tax bill, unveiled today. Assuming GOP leaders work with the president on this push, it will also make it easier for Trump and House Republicans to align on financial deregulation.
Full-scale deregulation might also be harder for Trump to do because this is not the early 2000s. The six big banks that dominate the U.S. financial system can no longer get everything they want on the day they want it. Measures like the 2010 Dodd-Frank legislation did make the financial system safer, to some extent.
In addition, central bank and other financial officials have changed their thinking, becoming more concerned about systemic risk and the ways in which large banks can ruin otherwise healthy economies — including in the United States and Europe.
But none of this is set in stone. The regulations that banks regard as onerous are unlikely to be removed in a single fell swoop. Instead, we will probably see them peeled back, one by one, in relatively quiet fashion. Most likely this will not be repealed through legislation but rather unraveled through a team of (de)regulators, working in loose coordination with each other.
In the 1990s and early 2000s, Wall Street thinking essentially captured Washington policy makers. Top people became convinced that what was good for the people who ran big banks — less regulation — was good for the country.
Despite everything that has happened since the 2008 financial collapse, as the dust settles around the Trump administration, we see exactly the same thing emerging again: Wall Street executives calling the shots, and arguing that what they want will actually increase growth and benefit the most people.
Whether anyone actually believes that today is hard to say. Trump’s Washington is not about ideas or about convincing people — it is about power and being able to get away with things.
The big banks are back in charge of financial regulation and much more. The future is looking bleak for you and me. For the people running Goldman Sachs, however, it has rarely looked better.
Simon Johnson is a professor at MIT’s Sloan School of Management and former chief economist at the International Monetary Fund.