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The Treasury Secretary and Wall Street Should Not Use the Coronavirus as a Pretext to Weaken Key Financial Rules that Prevent Taxpayer Bailouts

FOR IMMEDIATE RELEASE
Sunday, March 15, 2020
Contact:  press@bettermarkets.com

Washington, D.C.  –  Dennis M. Kelleher, President and Chief Executive Officer of Better Markets, issued the following statement in response to reports that the Trump administration is considering weakening key financial rules put in place to protect taxpayers and prevent bailouts of Wall Street’s financial firms like 2008:

“Treasury Secretary Mnuchin and others are considering repealing or weakening key financial rules enacted to protect the American taxpayer and prevent bailouts.  Unfortunately, this is just the latest shameless attempt by Wall Street’s biggest firms and their allies to use the coronavirus crisis as a pretext to get changes they have lobbied for since 2010.

“That would be dangerous, counterproductive and irresponsible.  Those are the very rules that have made the financial system much stronger and more resilient, making taxpayer bailouts of Wall Street much less likely.  Frankly, those rules are why we don’t already have a financial crisis.  Moreover, re-empowering the Federal Reserve to selectively and secretly bailout Wall Street’s biggest firms will almost certainly cause a massive public backlash much worse than last time, which gave rise to the Tea Party and Occupy Wall Street as well as social and political upheaval that continues to rock the country.  Such action will undermine the credibility and legitimacy of the Federal Reserve, putting its very existence at risk.

“Such actions are also unnecessary.  Responding to the coronavirus as if it was the 2008 financial crash simply misunderstands the current crisis, which is not caused by self-inflicted weakness of the country’s largest financial firms.  While the coronavirus crisis will likely cause an historic economic slowdown and demand shock, that will not likely lead to a financial crash if properly addressed.  That means elected officials should enact massive fiscal stimulus to replace lost wages, pay sick leave, ensure health care coverage, among other things.  The Federal Reserve should use its existing powers, as it did today, to ensure the financial system remains strong and that there is sufficient liquidity.  Unlike 2008, the Congress should directly bailout suffering Main Street American families, which, if done right, will actually save Wall Street firms as well.

“Giving the Federal Reserve more powers will also only feed the false belief that the Federal Reserve is the answer to all problems, letting elected officials off the hook and fueling Trump’s unrelenting attacks on the Federal Reserve.  Backdoor bailouts by an anti-democratic and unaccountable agency like the Federal Reserve may be politically preferable to some elected officials, but it is the wrong thing to do and will not effectively fight the demand shock facing the country. This time, elected officials need to take the lead role and fulfill their duties, letting the Federal Reserve fulfill its secondary, support role.  

“If anything, financial regulators should immediately strengthen certain financial rules, which they are fully empowered to do.  For example, all capital distributions via stock buybacks, dividends or otherwise by all financial firms should be prohibited.  Unfortunately, in 2008, Wall Street’s banks continued to make capital distributions after Lehman collapsed, as we wrote about here.”

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.

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