Last week President Donald Trump signed an executive order identifying six “Core Principles” on U.S. financial system regulation:
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Empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;
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Prevent taxpayer-funded bailouts;
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Foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;
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Enable American companies to be competitive with foreign firms in domestic and foreign markets;
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Advance American interests in international financial regulatory negotiations and meetings;
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Restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.
The executive order begins the process of rolling back the 2010 Dodd-Frank financial reform legislation that was supposed to protect us from another recession like the country experienced between 2007 and 2009. And Dodd-Frank will likely be every bit as good on its promise as Obamacare was in ensuring that if you liked your doctor or your health plan you could keep them.
The problem with Dodd-Frank is that Democrats concluded—as they virtually always do—that the recession was the result of too little government rather than too much. So they went into regulation overdrive with respect to the financial sector. Trump’s executive order gets the principles right, which is why it gets three cheers.
First Cheer: The Trump principles begin with a different assumption: that individuals can and should make informed, independent financial decisions. And that individuals and companies seeking to maximize their own interests based upon their own values will have the collateral impact of spurring economic efficiency and growth—both of which have been in short supply since 2010.
The corollary notion, which emerges in the second principle, is that individuals and financial institutions that make bad decisions should be allowed to fail, which discourages overly risky decisions.
Second Cheer: The EO seeks to roll back stifling regulations—and Dodd-Frank is filled with them—by empowering the secretary of the Treasury to begin a review process.
Third Cheer: Trump’s desire to help American companies become more competitive, part of his fourth principle, can best be attained by passing meaningful tax reform, which he says is at the top of his agenda.
Bonus Cheer: The last principle apparently targets the Consumer Financial Protection Bureau, the most unaccountable organization in Washington. The irony is that the Left, which boasts of its love for democracy while accusing others of fascism, created an agency that neither the people’s elected representatives nor the president can control.
Reports claim House Financial Services Committee Chairman Jeb Hensarling (R-TX) could release any day his Financial Choice Act, intended to address some of Dodd-Frank’s worst problems. More may need to be done, but if Hensarling’s bill embraces Trump’s Six Principles, it will be headed in the right direction.