While the American public (and the rest of the world) watched James Comey make the highest-viewed testimony in congressional hearing history, the Republican-majority House of Representatives passed the Financial Choice Act, a bill designed to repeal and replace much of the Dodd-Frank Act of 2008.

At first glance, most of the key principles sound pretty great – allegedly supporting equal opportunity, consumer protection, accountability for both the private and public sector, and economic growth.

Source: Financial Services Committee

However, reading into just the executive summary (see above) we realize that many of the broad principles are oversimplifications of deregulation initiatives, such as general removals of oversight in risk management within the financial sector. In fact, that’s a pretty good summary of what the Act does: hacking financial regulation by removing powers and funding for many of the regulatory bodies that were formed by the Dodd-Frank Act. I wouldn’t suggest reading the original document of the CHOICE Act, as it looks like this:

Source: Congress.gov

In other words, the Republicans took the Dodd-Frank Act (Titles II in their – wait for it – Subtitle II) and removed much of the responsibility enforced upon corporations simply by striking out mentions of ‘corporations’ in the Act.

So, here are three things you need to know about the CHOICE Act.

1. Repeals Dodd-Frank Titles II and VIII

Dodd-Frank Title II gave the Federal Deposit Insurance Corporation the right to find ways to liquidate large corporations close to failing, which enforces shareholders and creditors to assume all losses. [1] Dodd-Frank Title VIII allowed the Financial Stability Oversight Council to designate FMUs (financial market utilities), systems that provide infrastructure for financial transactions, with additional rights in oversight. [2] Its replacement, the Bankruptcy Code, is the Dodd-Frank Title II, with the phrase “and corporations” taken out of the majority of the clauses, and the ability for corporations to transfer estates to “bridge companies,” the corporate version of a loan shark company.

2. “Exempt[s] banking organizations that have made a qualifying capital election from any. . . federal law, rule, or regulation that. . . provide limitations on mergers, consolidations, or acquisitions of assets or control . . . [that] relate to capital or liquidity standards or concentrations of deposits or assets.”

What this effectively means is that after a bank has a certain amount of money ($50,000,000,000), [3] they are exempt from federal limitations that relate to capital or liquidity standards – so larger banks that are usually kept away from each other to maintain a more competitive market will be free to merge and acquire one another and other, smaller, competing banks. In the long run, this could mean that we could see an effective Franken-Bank monopoly of sorts. (If you think you’re being robbed by your bank now, wait till it has no competitors…)

3. “Exempt[s] banking organizations that have made a qualifying capital election from any federal law, rule, or regulation that permits a banking agency to consider risk “to the stability of the United States banking or financial system”

Systemic risk was probably the cornerstone topic of the 2008 financial crisis – at that point, the government realized that banking had become more than a private, for-profit industry, but rather, an integral public good that served as the financial infrastructure of the modern-day economy that sought to manage and re-delegate uncertainty of risk. While I’d argue that a regulation that permits a banking agency to consider risk “to the stability of the United States banking or financial system” (as corporations are bound by law to otherwise solely serve the interests of the shareholder to maximize profits) is largely a symbolic gesture because it doesn’t really enforce the consideration, it does close potential legal precedent for decision-making executives to consider policies that, while not maximizing profits, would be beneficial in managing systemic risk.

But the key thing that I have noticed as I wander through this labyrinth of an Act is that it grossly deregulates the financial markets to even pre-Obama era standards. Where banks can find loopholes to bypass M&A regulations; where financial regulatory bodies that have been around for around 80 years find sources of revenue (such as fines) redirected to serve the Treasury’s deficit; where, while the punishments for financial crimes have increased in severity, the bodies that enforce the laws are abolished or replaced by opaque extensions of the executive branch; and where, in a rather strange political contradiction, the Speaker of the House is given a “pocket veto” on executive orders regarding new financial regulations. Based on historical events following the continual deregulation era within the financial industry in the Nixon and Clinton eras, there is clear precedent to understand that, as it stands, financial deregulation, especially in the way it has been done in this bill, is the American highway to the next economic meltdown. I mean, there is a reason why this bill was picked to be voted on during the Comey hearing.

Continue reading…

Recently, President Donald Trump announced the intent of the United States to withdraw from the Paris Accord. For some, this was a shock as there was an overwhelming consensus that climate change was, for one, real, and two, that there were time constraints in ensuring our survival as a species. However, what seems to be the small majority of people, those greedy or playing politics, is really part of a greater movement of what can broadly be classified as ‘anti-intellectualism’. Yet, this trend is hardly new, especially in the field of economics. So the question then becomes: how did we get here?

I could probably rant on and on about the historical context of the shift backwards from Keynesian to Neoclassical thought, given I am a  New Keynesian (I have such ousted potential biases), but that’s not what actually bothers me about the field of economics today. The answer to the aforementioned question really comes from a more economic question: who has a demand for economics as a study? In today’s economy, two main types of employers exist. The first one: the government. As it has for nearly over a century, the government has employed economists not only in the macroeconomic department, to make decisions on the interest rate and such, but also as advisors to policy makers to better understand the effects of various policies concerning price controls, regulations, and other proposals they may have for an agenda in parliament or for their respective platforms. More recently, however, economists have also been increasingly employed in the private industry to better understand markets and economic trends in order to improve profitability.

Very often, these economists are handpicked by political actors as policy advisors, subsidized independent government advisors and academics. Hence, it is no surprise that they act, more often than not, in their own self-interest, and that we find ourselves listening to elected and appointed officials cite fairly illegitimate “economists”. This is probably why the American government still has found ways to convince a large portion of the general public that privatized healthcare has benefited the “common American”, despite the fact that, according to PBS, the average American household spends $10,350 as of 2015, spending the most among developed nations and yet has some of the worst health care coverage and quality [1].

These legitimized, though illegitimate, economists are not necessarily the ones that have the best ideas, theories or research, but rather the ones that are willing to vouch for ideas that serve specific private interests – ones that, more often than not, benefit specific interest groups (i.e. large, wealthy corporations) or, as we have seen through Brexit and the American election, ideas that political actors find relevant to flashy campaigns. (Though that is not to say there are no legitimate economists who have reasonable theories supported by reasonable data.) These economists’ ideas, sometimes shrouded in things like “secret data” or other violations of basic scientific principles, which some economists, like John Cochrane from the Stanford Hoover Institute [2], have decried, are being subsidized. This is at the opportunity cost of ideas that, while may not find themselves to be part of the campaign or corporate interest, may be in the best interest of the public. Unfortunately, these are effectively delegitimized.

The (alternative) fact in the matter is that economics is not a science whereby its academics have leeway to make much error- real policy is constructed from their data, which affect large populations of people in often life-changing ways. Good economics, based on transparent information, processed in transparent manners, with papers open to discussion and further investigation – is a merit good.

“The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”

– John Maynard Keynes

Citations

[1] http://dpeaflcio.org/programs-publications/issue-fact-sheets/the-u-s-health-care-system-an-international-perspective/

[2] http://johnhcochrane.blogspot.ca/2015/12/secret-data.html