United States: Democrats And Republicans Stake Out Positions On Financial Regulation

The Democratic platform position on financial regulation begins with an endorsement of Dodd-Frank. The Democrats state that they will "vigorously implement, enforce and build on the landmark Dodd-Frank financial reform law" while "stop[ping] dead in its tracks every Republican effort to weaken it." When addressing the financial industry, a term used interchangeably with "Wall Street," the Democrats aver that it is marked by "greed and recklessness" and that it is "gambling trillions" for the benefit of a "handful of billionaires." To combat this, the Democrats would "support stronger criminal laws and civil penalties for Wall Street criminals who prey on the public trust" and would support "extending the statute of limitations" to prosecute such people.

The Democrats propose to:

• support the Department of Labor's new fiduciary rules;
• "oppose any efforts to change the CFPB's structure from a single director to a partisan, gridlocked Commission" and "oppose any efforts to remove the [CFPB's] independent funding and subject it to the appropriations process";
• "nominate and appoint regulators and officials who are not beholden to the industries they regulate";
• "crack down on the revolving door [sic] between the private sector . . . and the federal government," and "ban golden parachutes" [payable to those leaving private industry to work in government];
• "limit conflicts of interests by requiring bank and corporate regulators to recuse themselves from official work on particular matters that would directly benefit their former employers";
• "bar financial service regulators from lobbying their former colleagues for at least two years";
• adopt an "updated and modernized version of Glass-Steagall"
• impose a "financial transactions tax on Wall Street to curb excessive speculation and high-frequency trading," although the platform does "acknowledge that there is room within our party for a diversity of views on a broader financial transactions tax"; and
• "defend the Federal Reserve's independence," but also "reform the Federal Reserve so that it is more representative of America as a whole, and . . . fight to make sure that executives at financial institutions are not allowed to serve on the boards of regional Federal Reserve banks or select its members."

The Democratic Party emphasized its determination:

The Democratic platform envisions not only a continuing expansion of financial regulation, but also seems to promote the idea that government should play a very major role as a direct provider of financial services.

As a provider of financial services, the federal government would:

• expand the powers of the Postal Service so that it may offer "basic financial services such as paycheck cashing"; and later, the platform again emphasizes that the Democrats "believe that we need to [provide additional banking services] by empowering the United States Postal Service to facilitate the delivery of basic banking services";
• create an "independent, national infrastructure bank that will support critical infrastructure improvements" and "provide loans and other financial assistance for . . . multi-modal infrastructure projects";
• continue to support the interest tax exemption on municipal bonds . . . to encourage infrastructure investment by state and local governments;
• defend the "Export-Import Bank";
• "provide direct federal funding for a range of local programs that will put young people to work";
• "provide targeted funding and support for entrepreneurship and small business growth in underserved communities";
• "double loan guarantees that support the bio-based economy's dynamic growth"; and
• expand "federal funding for New Markets Tax Credit, community development financial institutions, and the State Small Business Credit Initiative."

Republican Platform

The Republican platform position is highly critical of Dodd-Frank for "establish[ing] unprecedented government control over the nation's financial markets," forcing "central planning of the financial sector" and creating "unaccountable bureaucracies" that have "killed jobs." In general, the Republican platform describes financial regulations as "just another tax" and states that Americans should "consider a regulatory budget that would cap the costs federal agencies could impose on the economy in any given year." In particular, Republicans would:

• abolish the Consumer Financial Protection Bureau or subject it to congressional appropriation;
• "advance legislation that brings transparency and accountability to the Federal Reserve, the Federal Open Market Committee, and the Federal Reserve's dealing with foreign banks";
• (regarding "too-big-to fail") "ensure that the problems of any financial institution can be resolved through the Bankruptcy Code"; and
• endorse prudent regulation of the banking system to ensure that FDIC-regulated banks are properly capitalized and taxpayers are protected against bailouts.

The Republican Platform criticized the Dodd-Frank Act:

Commentary / StevenLofchie

When considering financial regulation (and regulation generally) and their expressed attitudes towards the financial system, the two platforms are positioned almost diametrically in opposition. It is necessary, therefore, to say something about the parties' views of the role that government should play both in providing employment and in the role of private enterprise. The Republican platform is based on the standard position that private enterprise is to be strongly encouraged and is generally preferable to governmental enterprise. By contrast, the Democratic platform is largely about governmental spending and enterprise; including, for example, government spending on infrastructure: drinking water and waste systems, climate change initiatives, education, industrial energy efficiency, broadband networks, health care, child care, care for the aged, housing, supporting groundbreaking research and so on. The Democratic platform supports such spending not only at the federal level, but also at the state and municipal level. While the summary above does not fully include these spending initiatives, it would not be possible to assess the Democratic position on financial regulation and the direct conduct of financial activities by the government without that context.

The focus of this discussion is on financial regulation. The Republican platform, provides little in the way of ambitious new plans. It is, at its core, completely skeptical of regulation, describing all of it as a "tax." This is obviously not true: good regulations are necessary for growth because they keep market participants honest. Advocating for the abolition of the Internal Revenue Service, as the platform does at one point, seems to be a wholly unserious proposition. That being said, it is all a matter of perspective. If one believes that our current system of financial regulation is more in need of pruning than of fertilization, then such unseriousness is a bit of welcome relief from the unseriousness of our current debates.

The Democratic platform, by contrast, is breathtaking in its ambition. It is not possible to ignore the extent to which the Democratic platform envisions a substantial replacement of the private financial system by government-owned financial enterprises. A notable example: the platform advocates the idea that the Postal Service should provide "basic" banking services. While the only such service that is expressly mentioned is check cashing, the platform strongly suggests that such services would also include deposits and lending. In addition, the platform would establish an "independent, national infrastructure bank" to, among other things, "provide loans and other financial assistance for . . . multi-modal infrastructure projects." (What in the world does that mean?) Then there are also the half dozen or more other loan and investment services for which the platform makes provision. The platform seems to intend that the Postal Service would enter into direct competition with community banks. It would seem to be the strong, albeit implicit, belief of the drafters of the Democratic platform that the government would be successful in not only community banking but in a whole range of investment banking-type activities.

The Democratic platform spends a fair amount of time demonizing all those who work in financial services as part of a hostile and criminal operation. Perhaps those who are in government should be a bit more modest given that the number of senior government officials who have been convicted of financial crimes is fairly substantial. That said, the supposedly corrupt "revolving door" between financial regulators and the financial industry seems to be overstated if not completely fictional. Where is the evidence that anyone at the SEC has been negatively influenced by their previous job? Whether or not the authors of the draft platform have any genuine goal in that regard, the effect of the assumption will be the same: preventing knowledgeable individuals from working for financial regulators. If being ignorant of how markets work should be considered to be such an asset, then perhaps financial regulators should be selected randomly from the phone book (though a lottery drawn from a list of academics might yield even more candidates with this particular asset).

Much of the detail of the Democratic platform is either unserious or intellectually incoherent. What does it mean to protect the independence of the Federal Reserve Board, but to make it more representative? If the Board is to be more "representative"; i.e., reflecting the popular will, what is the purpose of its independence? Likewise, is it absolutely necessary that "every Republican effort to weaken" Dodd-Frank must be stopped – i.e., that it is wrong to reassess the 2,000-page statute after six years of operation in order to gauge its failures and successes? Does anyone really believe that Dodd-Frank is such a perfect work of art that any attempt to revisit its contents is a form of desecration? The politicization of every issue makes it impossible to have a rational discussion about financial regulation.

Interestingly, there are some areas of agreement between the Democrats and the Republicans in their political platforms. Both express skepticism of international trade (both single out China) and both are opposed to "too big to fail" (which seems to be the regulatory equivalent of supporting the baking of apple pie).

It is perhaps unfair to critique political platforms given the general understanding that they are for the most part meaningless monologues that will be ignored by the soon-to-be elected officials. Nonetheless, even if they are not directly actionable documents, they do influence the parameters of the debate that is to come, and thus it seems appropriate to treat the documents as significant.

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