Many of the rules governing the financial services sector of the economy have been rewritten since the financial crisis of 2008. Most notably, Dodd-Frank, passed in 2010, dramatically overhauled America’s financial sector, yet economic growth has been sclerotic, capital remains sidelined, and the banking sector is more concentrated than before the crisis.
While the Republican Platform wisely calls on Congress to enact meaningful reform to the Consumer Financial Protection Bureau (CFPB) or abolish it, the Democratic Platform rejects efforts to subject the Bureau to congressional appropriations. Likewise, it rejects any attempt to turn the CFPB’s leadership structure into a bipartisan commission like the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Trade Commission, and the Federal Communications Commission, among other examples. This is a mistake. The CFPB is an independent agency that currently operates without the oversight and accountability that it would be subject to under the congressional appropriations process. It has proven to be a rogue and unaccountable agency that is seriously clamping down on credit availability, especially among the poor.
High-Frequency Trading Tax
As a long time policy fixation for liberals, it is little wonder that the Platform supports a financial transaction tax allegedly to “curb excessive speculation and high-frequency trading, which has threatened financial markets.” The stated goal of such a tax is not raise revenue for the government, but to increase stability in the financial sector.
There are two major problems with a high-frequency tax. First, using the tax code to shape behavior has led to the code’s current problems – market-distorting loopholes and other politically-favored preferences that make little economic sense. Beyond that, such a tax will raise costs for ordinary investors saving for retirement, college education or home purchases. NTU is strongly opposed to high-frequency trading taxes.
Return of Glass-Steagall
Glass-Steagall, a Depression-era law that legally separated investment and commercial banking, was repealed in 1999 with the passage of Financial Services Modernization Act. After the Republican Platform surprisingly called for reinstating Glass-Steagall, it comes as little surprise that the Democratic Platform likewise embraces a “modernized” version of the law. This is a mistake.
Repealing Glass-Steagall did not cause the financial crisis of 2008. The banks and financial institutions at the heart of the crisis – Lehman Brothers, Bear Sterns, Fannie Mae, Freddie Mac and American Insurance Group – were not depository institutions. In fact, repealing the law helped soften the blow from the crisis as financial institutions were more diversified than they would have otherwise been. Reinstating Glass-Steagall is not a panacea for curbing risk in the financial system.