The NY Times, NOT an enemy of the people, sets us straight on Trump in the Sunday Business section.
From Gretchen Morgenson:
Yes, Mr. President, Banks Are Lending
You see, when Trump blames Dodd-Frank regulations he is over-simplifying. The real issues are more complex. Do tell:
There is no doubt that Congress’ regulatory response to the financial crisis of 2008, which was largely fueled by reckless mortgage lending, tightened the rules for banks. Chief among them was a requirement that these institutions set aside greater amounts of capital to cover potential losses. That was justified, but it is crimping lending.
And there are other reasons these institutions are relatively restrained in their lending, Mr. Bove said.
“You cannot make the case that bank loans have not grown as a result of Dodd-Frank,” he said. “The only case you can make is that Dodd-Frank has been a depressant on bank loans because of the increase in capital ratios and the need to put more money into liquidity.”
Other drags on loan growth, Mr. Bove said, include rising interest rates, which reduce the value of the securities these banks hold. Increasing interest rates contributed to diminished common equity positions at a group of banks Mr. Bove follows.
I love "rising interest rates" as an explanation for why Trump is wrong-ish. The first Fed hike in years came in December 2016; the ten year Treasury spiked after Trump's election (like the stock market), presumably anticipating tax cuts, infrastructure spending and growth, growth growth.
And reducing the number of regulations? Believe it or not, that is also complicated. Robert Shiller of Yale explains:
Why Trump’s 2-for-1 Rule on Regulations Is No Quick Fix
President Trump intends to pare back a vast array of government regulations in fields like environmental protection, food and drug safety, and consumer finance. On Jan. 30 he ordered that for every new regulation it imposes, the government must get rid of two old ones.
It is an interesting idea but a misguided one. Even if government regulations are sometimes a burden, they are clearly critical to the functioning of a modern economy and society.
Yet while Mr. Trump’s approach is wrongheaded, there is logic to it. The concept has backing in some behavioral economics and business circles, and is certainly popular among many of his followers, who are quite hostile to what they see as massive over-regulation. The emotional part of the issue is important, reflecting a long-term societal schism between highly business-oriented people and those of other persuasions.
And eventually, following an explanation of the varying incentives of regulators and regulatees:
Mr. Trump’s two-for one executive order might be considered an application of behavioral economics to deal with an intractable dilemma. Tying the culling of old regulations to the imposition of new ones can be seen as a strategy for forcing regulators to overcome their inability to see problems created by past regulations that remain in force. The order might motivate them to divert time and energy away from their presumed enthusiasm for creating new regulations, using it to clean up the errors their predecessors left behind.
But translating this attentional device into good regulatory policy will be difficult if not impossible, because the issues intrinsic to regulation are so subtle.
So we might very well be over-regulated, but it's complicated!
On the other hand, a journey of a thousand miles is begun with a single step, and Trump is attempting to get people's attention while instilling a new mindset. Could it work? Well, wave an ax and suddenly the scalpel looks a lot more appealing.
As to whether Trump has the attention span and staffing ability to deliver useful de-regulation (useful to whom? - ed. Go bother Mickey) while avoiding regulatory re-capture by the intended targets of regulation, time will tell. And good luck to all of us.