Stop Trump from causing another recession

President Donald Trump, left, with former President Barack Obama, right.

Donald Trump’s rise from Celebrity Apprentice host to President of the United States has been polarizing to say the least. His victory infuriated liberals, ignited the “alt-right” and left many Americans terrified of a shift toward fascism. Just two weeks after his inauguration, an unprecedented number of anti-Trump demonstrations have taken place.

The Women’s March on Washington (Jan. 21 2017)

4.2 million marchers across 600 US cities participated in The Women’s March, possibly the largest demonstration in US history, Vox News reports. On February 20th, President’s Day weekend, there is a “Not My President’s Day Rally” planned outside Trump Tower in New York City, with 34,000 Facebook attendees “interested” and another 6,800 marked as “going.” The majority of these demonstrations highlight human rights and similar calls for harmonization of a divided nation. One theme absent from the anti-Trump protests: the 7.5 million unemployed Americans and the $19.9 trillion in total outstanding public debt, which increased under the Obama Administration by between $983 billion and $9 trillion.

While many of Trump’s supporters bought into his promise to help dig middle-class Americans out of the rubble that still lingers from the 2008 financial crisis, he has already gone back on his word. During his campaign, Trump sold an intoxicating combination of influence and integrity, but now moves to deregulate the investment banking system — reintroducing the no-rules lending market that sent the US economy into recession. Trump claimed to be independent from Wall Street when, in fact, he openly accepted special interest campaign funds while blasting Hilary Clinton for receiving the exact same payments. And anti-Trump demonstrators seem to be ignoring his Wall Street alliance entirely, when it could be the most dangerous aspect of the new president.

The Dodd-Frank Wall Street Reform and Consumer Protection Act

On Friday, February 3rd, Trump signed an executive order to consider rolling back the Dodd-Frank Act put in place to regulate Wall Street derivative trading, the main culprit for the 2008 financial crisis. What is the Dodd-Frank Act? Here’s a brief rundown:

President Obama signs the Dodd-Frank Act (2010).

When — 2010.

Why — After a lack of regulation surrounding American investment banking led to a global economic collapse, the Obama Administration put the Dodd-Frank Act in place to prevent future oversight of banking malpractice.

What — The Dodd-Frank Act, after a half-decade of tuning and revisions, is about 2,300 pages long, and includes:

  • The Volcker Rule: Proposed by former Federal Reserve chairman Paul Volcker, the Volcker Rule bans banks from making investments that present a direct conflict of interest to their customers. Such malpractice played a major role in the crisis.
  • Creation of the Office of Credit Ratings (OCR): After credit rating agencies (i.e. S&P, Moody’s, Fitch) intentionally overrated subprime assets in the events leading up to the crisis, the OCR works to ensure credit rating agencies give out accurate information.
  • Creation of the Consumer Protection Financial Bureau (CFPB): The CFPB works to educate customers about the unethical mortgage lending that sparked the crisis.
  • Creation of the Financial Stability Oversight Council (FSOC): The FSOC determines which financial institutions are so big that, if they collapsed, they’d bring down the entire national economy with them. Those institutions get the “systematically important financial institution” (SIFI) tag, and SIFI banks face much heavier regulations and restrictions than smaller corporations.

Who — The Dodd-Frank Act was signed under a Democratic administration (Obama). Since its conception, it has seen immense opposition from wealthy, Wall-Street connected Republicans that have fought to keep components like the Volcker Rule inactive. Now that both Congress and the Oval Office are under Republican control, the Dodd-Frank Act is in serious danger of extinction, only a few years after most of its constituents came into effect.

(For more information on the Dodd-Frank Act, the Morrison & Foerster law firm put together a lengthier summation here.)

If you have demonstrated against Trump or have any interest in doing so, keeping the Dodd-Frank Act alive should top all other priorities. It could lead to another economic catastrophe like the financial crisis of 2008, which spawned the mistrust that ultimately unlocked the Oval Office for Donald Trump.

“Trump understands and supports the American dream; no matter what you have now, if you work hard you can better yourself and positively shape your wealth and future. Clinton made it known that she would continue Obama’s agenda of redistribution. What dream is there in working to see your future gains chopped up by taxation and welfare? Under Clinton I would have just held out my hand and stopped dreaming. Under Trump the American Dream is revived!”
— Heather, 43, Kansas, small business owner (“Why did people vote for Donald Trump?”, The Guardian)

Trump has presented a rash of other issues to contend with. His belligerent advice for the Senate to “go nuclear” if Democratic officials try to block Judge Gorsuch’s Supreme Court nomination shows a fundamental character flaw that could prevent him from ever conducting productive international negotiations. His “Muslim Ban” discriminates against refugees and openly bars Muslim Americans from coming home (families with legitimate documents proving their citizenry). The infamous “Grab Women by the Pussy” conversation he had with Billy Bush, although made in private, remains incredibly disturbing. The president should be held accountable for all of these issues, as well as any future mistakes. But to focus on the misogyny, racism and pugnacity is akin to barking up the wrong tree, or at least forgetting the most heinous one. That tree still stands tall on Wall Street, New York, even after its fruit poisoned middle-class America. That tree must be uprooted above all else.

The Tree

Former Secretary of Treasury and Goldman Sachs CEO Henry Paulson, one of the key proponents of financial deregulation in the United States

A truncated summary of the events leading up to the 2008 financial crisis, and their impact on Trump’s election:

2001 — The US economy suffers a brief recession, leading the Federal Reserve to drastically lower the Federal Funds Rate. This empowers investment banks to liquify funds at a much greater volume, creating a monster revenue stream that gives birth to the subprime loan industry. Millions of average-income Americans can now afford their dream house; all they have to do is make a deal with an investment bank.

2004 — The rapid increase of home buyers acts like a Synthol injection to the housing market bicep. The value of subprime mortgages takes off, leading to the emergence of an uber-lucrative secondary market for buying, insuring and redistributing subprime assets to investors in the form of Collateralized Debt Obligations (CDOs). This financial model performs so well that the Securities Exchange Commission (SEC) lowers the required capital cushion for the five largest investment banks — Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley — entrusting them to borrow ungodly amounts of money at unsustainable rates to fund their investments. They abuse this power to the greatest possible extent without a contingency plan.

2005 — The housing market plateaus. US home ownership is past its peak and home prices are falling off a cliff. New-home construction has stalled out nationwide, and previous subprime borrowers, the families that bought a house based on good faith that their mortgage rates wouldn’t change, now face interest rates they can’t possibly afford. By the millions, those subprime borrowers start defaulting on their loans.

2007 — Foreclosure spreads like a rampaging cancer. Every month, one subprime lender files for bankruptcy. Lehman Brothers CEO Dick Fuld and COO Joe Gregory purchase billions of dollars on real estate investments they know will fail, throwing away their last shreds of borrowed capital to keep their equity afloat. It doesn’t work. Every big bank and credit rating agency drowns in their own cesspool of greed.

2008 — The Federal Funds Rate is pulled all the way back to 1%. The US economy completely dries out, and the drastically reduced liquidity tanks the stock market. The rest of the world loses faith in the US economy, freezing the interbank market and dealing a serious blow to international imports/exports. A global recession is in full effect. The US government signs the National Economic Stabilization Act, devoting $700 billion to buy out dead credit assets.

“Occupy Wall Street” circa 2011: a New York based movement protesting growing wealth inequality in the US

2009 — From July 2008 to March 2009, the US loses $7.4 trillion in stock wealth and $3.4 trillion in real estate wealth. National unemployment rates peak at 10.2 percent. The government signs the Troubled Asset Relief Program (TARP) into effect, costing the average US household approximately $2,050. In total, those households lose a third of their net worth within the year. During this period, when the vast majority of America endures significant financial losses, “wealth at the 90th and 95th percentiles [grow] higher than in 2003,” according to a 2014 study by social scientists Fabian Pfeffer, Sheldon Danziger and Robert Schoeni. The men and women that caused the collapse write an invoice for their own victims to pay. And with no other option, America obliges.

2010 — The Obama Administration passes The Dodd-Frank Wall Street Reform and Consumer Protection Act. Many of its components, like the Volcker rule, take until 2015 to come into effect.

2015 — National deficits are down, unemployment rates fall back to 5 percent and Gross Domestic Product grows significantly for the first time since 2008. Although the government has to spend an immense amount, it successfully turns the US economy in the right direction. Five years after their obscure creation, the regulatory organizations put in place by the Dodd-Frank Act are fine-tuned to the point of usefulness.

President Trump

2016 — Donald Trump runs on the premise that he represents the interests of middle-class America. He wins millions of votes by flaunting that he can’t be bought, that he isn’t a member of the Wall Street family tree. He promises to use his business acumen and his concern for the Everyman for the greater good, and a large part of the electorate buy it on face value. Trump wins the presidency.

“I was a Democrat for 39 years, but my children and grandchildren need an America that is out of debt. All that Obama did was double the debt since he took office. I will feel a whole lot safer [with Trump] than I ever would with Hillary.
I believe Trump will be a good president because he knows how to make deals, deals that will make America prosperous again.”
— Nate, 58, Pennsylvania, retired from the federal government (“Why did people vote for Donald Trump?”, The Guardian)

2017 — President Trump signs an executive order to roll back the Dodd-Frank Act and loosen regulations for financial institutions, moving quickly toward a marketplace eerily similar to 2001.


Beneath the weeds

It’s deeper than money. When big banks are able to do whatever they please without a regulating force watching over them, they not only destabilize entire economies but also grant influential power to certain lobbyists and policy makers. Those lobbyists then sow seeds for the issues that progressive minds protest (i.e. reproductive rights, racist policies, fascism). What does this mean if you’re willing to demonstrate against Trump? Essentially, giving back free reign to financial hegemonies doesn’t just threaten to tank the economy, but also empowers the government officials that support things like the immigration ban, the Mexico/US wall, et cetera. Many of those government officials have either direct or indirect obligations to financial institutions. In fact, such governing officials have historically held high positions in such financial institutions (see: Henry Paulson, Timothy Geithner, Ben Bernanke).

It is the deep-pocketed gardeners that plant social poison. Cutting at leaves is fine. It’s definite, tangible progress. Given time, unfortunately, leaves and branches will grow back. Today’s Women’s March is yesterday’s Sit-Ins of the 1950s/’60s, and who knows what tomorrow may bring. All those issues deserve attention. Cutting leaves is good work. But we must dig at the seeds this time.