About Bartlett Naylor

Bartlett Naylor is financial policy advocate in Public Citizen’s Congress Watch division, helping to promote responsible reform of the nation’s financial sector. Naylor is an expert on corporate governance, financial markets and shareholder rights. Previously, Naylor served as chief of investigations for the U.S. Senate Banking Committee. He was also director of the Teamsters Office of Corporate Affairs, and a consultant with Capital Strategies Consulting, Inc.

Posts by Bartlett Naylor:

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Banking Behind Closed Doors

America deserves and needs strong Wall Street protections. The Wells Fargo and Equifax scandals demonstrate that Congress should adopt additional reforms. The mega-banks remain too big to fail, and too big to jail. Yet on Dec. 5, the Senate Banking Committee approved a bill that heads in the opposite direction. And this isn’t a Republican-only bill; some Democrats helped.

Sen. Brian Schatz (D-Hawaii) lamented that four of his Democratic colleagues joined with all 12 Republicans to clear this bill. He contrasted this with the Democratic resolve to contest the tax bill that gives breaks to corporations. He noted his party’s defense of the Affordable Care Act. “What a shame that the one area where we can achieve bipartisanship is on a bill making banks more profitable.”

Officially, S. 2155 goes under the title “Economic Growth, Regulatory Relief and Consumer Protection Act.” Its chief sponsor is Sen. Mike Crapo (R-Idaho), chair of the committee. Unofficially, the bill is dubbed the “Bank Lobbyists Act“ because most of its measures come from straight from the banking industry.  These financial lobbyists number some 3,000, or about 5 for every member of Congress. The financial sector made $1.2 billion in political contributions leading to the 2016 election. That works out to $3.7 million for each member of Congress. These contributions come with a price; Wall Street wants payback for their largesse. Hence, the Bank Lobbyists Act.

Perhaps some sympathy might be found for the banking industry were it suffering. But it’s not. Banks of all sizes are making record profits.  And for all the whining about compliance burdens preventing banks from doing their job, the data shows this is false as well: Lending is at record level. The economy reflects this– unemployment is down, the stock market is setting new highs.

The most threatening provision in this bill is one that reduces oversight of 25 large banks. These are banks that hold between $50 and $250 billion in assets. There are only 13 banks that are larger, with more than $250 in assets. Collectively, these 25 banks between $50 and $250 billion hold $3.5 trillion in assets. Many of them faltered leading into the 2008 crash, and received $47 billion in taxpayer bailout funds. Because of this, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act directed regulators to establish “enhanced supervision,” the details of which were left to the regulators. Under the new bill, the enhanced supervision would be reserved for banks with more than $250 billion in assets, though banks of that size could absolutely impact our economy– posing a systemic risk

What’s the benefit of eliminating enhanced supervision for these 25 large banks? The main benefit is for shareholders and especially the managers of these 25 banks. That’s because CEO compensation turns on the stock price. Without enhanced supervision, this class of 25 large banks will be able to finance more of their activity with borrowed money, and less from shareholder money. Profits are spread over a reduced shareholder base, increases the stock price, which increases the CEO’s stock-based paycheck.

What’s the harm of losing this special oversight for these sized banks? With less shareholder capital, and more borrowed money being used to operate the bank, unexpected losses could render the bank unable to pay back its debts. When its liabilities become greater than its assets, the bank fails. And if regulators decide that the failure of one of these large banks would harm the large economy, as they did with some of them in 2008, they may plunge into taxpayer wallets to help pay off the bank’s debts.

The “Bank Lobbyists Act” contains other harms, largely aimed at stripping away borrower protections. Under the bill, customers at smaller banks might be lured into unaffordable loans because they won’t see the cost of insurance and taxes in the proposed monthly payment through what’s known as escrow. Also under this bill, mobile home buyers can be steered by sales agents to lenders who might not offer the best terms. Another section of the bill voids some required appraisals, meaning that some borrowers might end up taking out loans that are larger than the value of the house.

Sen. Schatz joined six other progressives on the Senate Banking Committee to promote improvements to the bill by way of amendments. For nearly seven hours, these progressives advanced excellent ideas. Sen. Elizabeth Warren (D-Mass), for example, proposed several amendments to retain enhanced supervision for banks guilty of misconduct, or for those who dismiss whistleblowers. These drew only seven votes.   Sen. Catherine Cortez Masto (D-Nev.) proposed restoring the right of customers to join class action lawsuits when they’re scammed by financial firms. That also lost with only seven affirming votes. Sen. Jack Reed (D-R.I.) proposed that executives, not shareholders, pay for fines for bank misconduct. Blocked, again with only seven votes supporting. Sen. Robert Menendez (D-N.J.) proposed protections for student and military personnel borrowers. Also blocked. Sen. Sherrod Brown (D-Ohio), the ranking Democratic member on the committee, proposed retaining escrow services. That was also not accepted by the committee.

None of these commonsense amendment proposals prevailed that might have lessened the harm posed by the bill. Why? Because the bloc of Republicans and Democrats had cemented a deal in private. Some of these bloc members are on the committee, but others are not. Apparently, any new ideas posed regarding the bill would have needed the approval of this entire bloc.  Thus, the official Senate Banking Committee was effectively replaced by an ephemeral group that makes laws behind closed doors. Whether bank lobbyists join such meetings can only be imagined.

This is troubling. It’s troubling because campaign contributions shouldn’t define access, let alone policy. It’s troubling because Senators and Representatives are sent to Congress by the public to debate and shape bills in public. Private negotiations may be inevitable, but the real and final work should be available for everyone to monitor. Some of these same Democrats who joined in the Crapo negotiations had derided the tax bill negotiations, where senators were forced to consider a bill text that they hadn’t even seen, let alone subject to hearings.

As this bank deregulation bill looks to be on a path to reaching the Senate floor early next year, and unfortunately, due to the work of bank lobbyists, there may well be more than the 60 votes necessary to surmount a filibuster.

Americans should be worried. What led to the 2008 financial crash was a constellation of overlooked complexities: We know now that supervisors were asleep; we know now that frauds went unchecked; and we know now that fabricated mortgage applications and inflated credit ratings contributed to the problem. We didn’t pay enough attention to any of these issues before it was too late. What will cause the next financial calamity may be new or other overlooked complexities. It may be tied to lack of escrow, or appraisals, as provided in this bill or it may be a storm of financial contagion among these 25 large banks, each with as much as $250 billion in assets, and collectively with $3.5 trillion in assets.

Less than a decade after a crash that cost millions their jobs, their homes and savings in a crash that drained more than $1 trillion from the economy, Congress should not be looking to pad bank profits. Congress should approve stronger reforms.

Contact your senators and representative at 202 224-3121. Tell them that that if they want to pass a banking bill, make it one that serves Main Street, not Wall Street.

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Toward Ending the Corporate Manipulators’ Subsidy

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Tucked in a tax bill with overwhelming benefits for corporations and wealthy individuals, House Republican tax writers included a welcome policy and a partial step towards ending subsidies for obscene executive compensation. In Section 3802, the bill ends all deductions for pay in excess of $1 million for the five senior executives at a publicly traded company. The bill authors even call this pay “excessive.” Currently, because of a loophole in the tax code, pay beyond $1 million can be deducted if it is “performance” based, such as stock options. According to the bill authors, a tax break for this “performance” pay “has led to perverse consequences as some executives focus on –and could, in rare cases, manipulate –quarterly results (off of which their compensation is determined), rather than on the long-term success of the company.”

Agreed. Executive compensation is excessive. And it has exploded. Where CEOs once earned 25 times that of the median paid worker, that ratio is now more than 300. The CEOs of the major banks each receive more than $20 million annually. The best paid CEO in a given year often nears $100 million, as did the Alphabet CEO in 2016. The average pay among S&P 500 firms topped $13 million last year. Any portion of that excessive pay characterized as based on “performance” would be able to be deducted from the corporations’ tax bills, meaning regular American taxpayers are subsidizing these ludicrous paychecks.

As the Republican tax bill writers also note, this excessive pay has led to perverse consequences. American firms have chased short-term gains and sacrificed long-term growth. Companies buy back their own stock to juice the stock price, which boosts their stock option values. Instead, they could be reinvesting in the company through more efficient factories, including more worker training. Companies focused on the short term cut jobs or move them to low wage countries, a myopic step to reduce near term expenses. Companies focused on the long term add American jobs, as a McKinsey study found.

By eliminating this loophole that allows a deduction for performance pay beyond $1 million for certain executives, the Republican bill authors affirm an important policy that favors long term management. And this isn’t the first time Republican leaders have embraced this policy. Former Ways and Means Committee chair Rep. Dave Camp (R-Mich., since retired from Congress) put this same measure in his blueprint bill in 2014. Under the provision in the current proposal, tax revenue is estimated to increase by $9.3 billion over ten years.

However, by limiting the policy to these five executives, the bill misses the reality that short-termism permeates how pay affects performance throughout the company. Pay at every level is designed to help achieve the results that senior management intends.

New York Federal Reserve Bank President William Dudley, who this week announced his plans to retire from the post, has served at ground zero of the bonus culture on Wall Street. He’s commented frequently on the need for reform.

 “Bad incentives were a key contributing factor in the financial crisis.  In the United States, the Financial Crisis Inquiry Commission concluded that ‘Compensation systems—designed in an environment of cheap money, intense competition, and light regulation—too often rewarded the quick deal, the short-term gain—without proper consideration of long-term consequences.’  This theme applied to all levels of banking organizations. [Emphasis added]  One notable example was mortgage brokers, who were paid based on the volume of loans they generated, not their quality.”

Failure to consider long-term consequences applies today as well. Dudley points to Wells Fargo’s fake account scandal. “Compensation, once again, seems to be at the center of a scandal.  Neighborhood bankers were paid based on the volume of new accounts opened, apparently with utter disregard for whether customers wanted them or even knew about them.  And, like mortgage brokers in the early 2000s, it appears that job security depended almost exclusively on meeting targets, regardless of how those targets were met.”

Rep. Lloyd Doggett (D-Texas), a member of the tax-writing House Ways and Means Committee, sponsors legislation to end the loophole for all excessively paid employees, the Stop Subsidizing Multimillion Dollar Corporate Bonus Act (H.R. 399). Rep. Doggett’s bill enjoys 49 co-sponsors. His bill would generate $50 billion over ten years.

In the Senate, Sen. Jack Reed sponsors the same bill, which is S. 82. A similar bill authored by Sens. Richard Durbin (D-Ill.) and Kristen Gillibrand (D-N.Y.) (S. 1843) would also end the loophole, and bar firms paying more than $1 million entirely unless more than 50 percent of shareholders approve.

The version of this policy included in the current tax House bill absorbs only a few pages in a 425 page behemoth that is otherwise an obscene gift to corporations and the wealthy.

Even with all of its problems, this bill stands as a testament to the fact that Republicans can at least agree with Democrats that the bonus subsidy promotes deleterious corporate behavior. As the bill undergoes what debate and amendment is possible under the partisan reconciliation process, and ideally as its rancid inequalities are stripped, our nation’s lawmakers will take the commonsense step to terminate this loophole altogether.

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Treasury’s Treasures for Wall Street

In the Treasury Department’s 150-page inaugural financial sector report, responding to a presidential Executive Order, perhaps the most revealing sentence that explains why its recommendations threaten to run the industry off the guardrails is this: “The financial crisis that engulfed the U.S. economy in 2008 was initially precipitated by weaknesses in U.S. housing prices, an increase in mortgage delinquencies, and plummeting values of mortgage-backed securities.”

Weakness in housing prices? An increase in mortgage delinquencies? Did these problems emerge with no clear source, such as weeds in the backyard? No. Wall Street crashed the economy. Bankers caused this calamity. The industry trapped homebuyers in expensive mortgages they couldn’t afford then packaged them into toxic securities sold around the world. When mortgage  holders couldn’t pay, the housing bubble ruptured. In the end, millions lost their homes, their jobs and their savings; the economy lost some $20 trillion. Because of this, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act.

What’s needed, as Americans agree, is stronger Wall Street reform. Instead, Treasury proposes deregulation in its June 12 report.

From Treasury’s passively voiced pathology, its report becomes a concoction of recycled bank lobby wish lists. It recommends less capital, less analysis for banks. Treasury wants to revisit the Community Reinvestment Act, a law that encourages banks to make loans in the localities where they collect deposits.

Treasury takes its sharpest shots at the Consumer Financial Protection Bureau and the Volcker Rule.

The Volcker Rule restricts deployment of government-backed deposits for gambling, primly termed “proprietary trading.”  Losses from traffic in toxic mortgage securities led to massive taxpayer bailouts.

Treasury claims to support the Volcker Rule principle but then proposes to clip its wings by proposing to remove what’s called the “purpose test.” That’s the core test of whether the bank is buying and selling a security to satisfy customer demand, which is permitted, or attempting to profit on an expected change in price, as in buying low and selling high, which is not permitted.  All financial instruments of this type that are held less than 60 days are assumed to be gambles unless the bank can prove otherwise. Bankers complain that this requires them to prove intent, a subjective measure.  However this can be solved and violations would be avoided if banks served only as brokers, matching buyers with sellers, without dealing directly in the security. But, Treasury doesn’t entertain that sensible option.

Under its suggestions in the report, Treasury would excuse banks with less than $10 billion in assets from the Volcker Rule. Among the problems that exemption would pose, it would invite speculators to acquire a bank. Losses among smaller banks may not cause systemic tremors, but such a wide exemption could reprise the savings-and-loan (S&L) crisis, where deregulation allowed this sector to own real estate. In this 1980s case, unscrupulous developers simply bought S&Ls as vehicles to fund their own real estate projects. That led to a glut of empty office buildings, and cascading rental prices even for legitimate developers.

Treasury would also let a bank of any size escape the Volcker Rule prohibition on proprietary trading if its trading assets remain below $1 billion. Again, if Treasury supports the principle of the Volcker Rule, it shouldn’t encourage bankers to engage in taxpayer-backed speculation at any size.

Treasury further proposes in its report to relax the restrictions on bank ownership of hedge funds. The Volcker Rule required that banks shed their hedge funds, which are high risk ventures. At their discretion, regulators could allow banks to own 3 percent of a hedge fund, provided that they support that with capital in addition to what supports the banks’ other operations. Treasury proposes to give banks three years, instead of one, to start new hedge funds before the size limits apply. Treasury should instead propose a ban on bank sponsorship of hedge funds. Wealthy investors already have plenty of hedge funds from which to choose.

If the Volcker Rule has problems, the answer is to reinstate the Glass-Steagall separation of commercial and investment banking to bar banks from proprietary trading and market making altogether.

As for the Consumer Financial Protection Bureau (CFPB), Treasury ignores why it was created. Before the 2008 crash, bank regulators subordinated consumer abuse as they focused on bank profits, a proxy for bank safety. They missed the fact those bank profits were built on a Ponzi scheme of reckless lending and mortgage securitization. Elizabeth Warren, then a Harvard professor, conceived the CFPB as a single-purpose cop to supervise banks’ consumer credit operations and to punish unfair, deceptive and abusive practices.

In 150 pages, Treasury makes no mention of foreclosure victims, of the Wells Fargo faux account scandal (Wells Fargo did advise on the report), of onerous payday debt traps.  Instead, Treasury introduces the CFPB as an agency with an “unaccountable structure and unduly broad regulatory powers [that] have led to regulatory abuses and excesses.” From this claim, Treasury proposes to dull the CFPB’s teeth. It proposes that the director be removed at the will of the president. That’s not the procedure with the other bank cops. They are correctly independent of the president, and can only be removed for inefficiency, neglect of duty, or malfeasance in office. That’s because bankers with White House influence shouldn’t be able to prevent an investigation or a fine from the CFPB or any agency. Also, as with other banking agencies, the CFPB budget is insulated from Congressional approval for the similar reasons; bankers with influence over Congressional appropriators shouldn’t be able to influence bank regulator’s decisions. Treasury wants that funding independence terminated for the CFPB.

Treasury also wants to strip the CFPB’s supervisory authority. Treasury recommends returning supervision to the other banking agencies, the ones that missed the reckless lending that led to the crash.

Treasury also isn’t happy with the CFPB public consumer complaint data base. Here, consumers can register complaints about a financial firm, such as a credit card company. Consumers can leave complaints or access the database to research companies they may want to avoid before signing a contract.  The Treasury report claims that it exposes companies to reputational risk. That’s a generous way of saying that a firm that abuses customers may lose business if the word gets out. Treasury wants the database closed to public viewing.

Treasury’s recommendations aren’t uniformly destructive. It advises expanding the powers of the Financial Stability Oversight Council. This collection of all the bank regulators was created to look across agency portfolios at problems that may fall outside any particular jurisdiction. That proved true when insurance giant AIG sold bond insurance without the ability to make good on claims.

This first report from the Treasury Department comes on the heels of the June 8 House passage of the Financial CHOICE Act, another massive insult to America’s financial stability. This bill, which passed with no Democratic support, contains similar provisions to the recommendations in the Treasury report. The CHOICE act repeals the Volcker Rule altogether. Both eliminate the independence of the CFPB. The CHOICE Act offers additional gifts to stock market scam artists. It also paralyzes regulators with unachievable analysis burdens. (If any new rules make it through this thicket, industry will undoubtedly complain about the length of analysis.)  But Treasury promises to generate more recommendations in the coming months to raise the speed limits on Wall Street, so it may well match the CHOICE act’s breadth.

Many of Treasury’s recommendations don’t need Congress; they can be accomplished by regulators. Trump has infested his administration with bankers. Goldman Sachs accounts for more than a dozen positions. Treasury Secretary Steven Mnuchin not only counts as a Goldman alumnus, but also ran a foreclosure mill called OneWest bank, hardly a resume that suggests empathy for heartland Americans.  SEC Chair Jay Clayton served as outside counsel for Goldman Sachs. Joseph Otting, the nominee for Comptroller of the Currency, worked with Mnuchin at OneWest bank. Within a year, vacancies will mean that Trump can take control of all the agencies, including the chair of the Federal Reserve.

There had been a flicker of hope for policy friendlier to Main Street. The president’s Executive Order to which this report responds issued principles. The first is to “empower Americans to make independent financial decisions.” Devaluing the CFPB contradicts that principle. The second is to “prevent taxpayer bailouts.” However, reducing the Volcker Rule limits on gambling makes bailouts more likely.

Candidate Trump promised to restore Glass-Steagall but unfortunately, there’s no mention of Glass-Steagall in this report, darkening that glimmer of hope.

Fortunately, the CHOICE act and the Treasury report remain proposals. Americans can tell their senators to ignore the CHOICE Act. If and when the Treasury proposals come before Congress or regulators, citizens can again voice their opposition. Public Citizen plans to alert our members when it’s time to comment.

(Photo: President Barack Obama signing the Dodd-Frank Act, taken by Lawrence Jackson.)

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Spin Class for Wall Street Apologists

Why do Wall Street lobbyists make the big bucks? One reason may be the unembarrassed ability to spin, to cast bad policy as good medicine. Sometimes, they even proffer “facts” from an alternate universe.

On June 8, the House of Representatives debated HR 10, the Financial CHOICE Act. This 600-page measure largely repeals the 2010 Wall Street Reform and Consumer Protection Act. The Volcker Rule restriction on bank gambling with consumer deposits? Gone. Power for regulators to respond to new financial shenanigans? Gone. Limits on banker pay that promotes reckless bets? Also gone.

To all Americans, especially the millions who lost their homes, their jobs, and their savings, Wall Street is no easy industry to champion on the floor of the House.

To defend this Wall Street gift, House Republicans adopted gymnastic rhetoric, even fabrication. Undoubtedly, the 3000+ bank lobbyists swarming Washington billed overtime with talking points.

Here are some:

Predatory lenders seduced homebuyers into expensive loans, inflating a housing bubble.  When enough homeowners defaulted and the bubble burst, the economy entered a Great Recession, erasing $20 trillion from the economy. In response, Congress created the Consumer Financial Protection Bureau, mandated to protect consumers. The CFPB has returned some $12 billion to 29 million consumers scammed by financial firms.

Republican spin: The CFPB is unaccountable, a rogue Washington agency.

Since the Great Recession following the 2008 Wall Street crash and enactment of reform in 2010, the economy has added jobs for 85 straight months and the stock market is at record highs on strong corporate profits.

Republican spin: This is the most tepid recover in history.

Bank lending has hit record highs.

Republican spin: Regulation has clotted the arteries of loan making.

Community bank lending is robust.

Republican spin: Community banks are buried under a mountain of new rules, and have replaced loan-makers with compliance officers.

Since Congress approved interstate banking, mergers have led to a reduction in the total number of banks.

Republican spin: Wall Street reform has reduced the number of banks.

During the 2008 crisis, officials in the Bush Administration arranged mergers between some of the biggest financial institutions. For example, Washington Mutual and Bear Stearns became part of JPMorgan Chase.  The 2010 Wall Street Reform Act empowered regulators to break up the mega-banks.

Republican spin: Wall Street reform made the big banks bigger.

Wall Street brokers skim an estimated $17 billion a year from retirement savers by steering them to more expensive investments that pay the brokers a better commission. The Department of Labor’s new rule requires these brokers to put their customers’ interests first.

Republican spin: This measure hurts lower income savers (since they’re less profitable).

Mandatory arbitration clauses in contracts such as for a banking account bar victims from suing for misconduct in court, either separately or in class actions. That even applied to Wells Fargo, which created millions of unwanted accounts for existing customers.

Republican spin: This bill gives consumers “choice” by permitting mandatory arbitration.

Shareholders have the right to file proposals with companies they own. One common reform calls for separating the positions of chair and CEO of a firm, given that the CEO can hardly supervise himself.

Republican spin: Managers should focus on business, not nettlesome shareholder proposals.

Bankers made reckless loans and gambles to pocket enormous bonuses. Even the five senior executives at Bear Stearns and Lehman Brothers pocketed some $200 million each in the eight years before the firms failed. Among the reforms is disclosure of the CEO pay as a multiple of the median-paid employee. More than 200,000 investors have petitioned in support of this modest disclosure.

Republican spin: Investors don’t care about CEO disclosure.

Zero Democrats voted for this bill. They labelled the bill “rotten to the core” (Rep. Maxine Waters, D-Calif.); a “bloodthirsty predator” (Rep. Gwen Moore, D-Wisc.); “dangerous” (Minority Leader Nancy Pelosi, D-Calif), the “single worst legislation I’ve seen” (Rep. Stephen Lynch, D-Mass); a “pharmacy of poison pills” (Rep. Brad Sherman, D-Calif.); and more.  All of them called it the “Wrong Choice Act.”

One Republican, namely, Rep. Walter B Jones (R-N.C.), also vote against the Choice Act. Earlier, he joined with Rep. Marcy Kaptur (D-Ohio) to propose substituting the Choice Act with a bill to reinstate the Glass-Steagall separation of commercial and investment banking. The House Rules committee blocked it from coming to a vote on the House floor. Restoring banking to its core function of directing customer deposits made cheap and abundant by taxpayer-backed insurance (through the Federal Deposit Insurance Corp.) to business and consumer lending make sense. It also breaks up the very largest banks.

No amount of cosmetic surgery by Wall Street lobbyists can mask the existing problem that the behemoth banks remain too big to fail. Even Rep. Jeb Hensarling, (R-Texas), chair of the House Financial Services Committee and chief author of the bill, refers to the “too big to fail banks.” Other Republicans also use the phrase. The Choice Act contains a tissue of protection, namely an invitation for banks to maintain assets 10 percent greater than liabilities, in exchange for less reporting. If they decline the invitation, then even the Choice Act can’t pretend to solve the problem of “too big to fail.”

Sentient Republicans must have been uncomfortable with this tightly spun bill. Perhaps the most persuasive talking point left unspoken: the bill isn’t going anywhere. In other words, as with the 60+ times the House repealed Obamacare before the Trump administration, since the vote to repeal Wall Street reform wouldn’t actually change law, supporters won’t be held to account for the damage. As is the discourse on much of financial policy, the Choice Act and its fabricated promises won’t interrupt any dinner conversations in the heartland. Instead, it remains a profitable if dangerous spin class for Washington’s bank lobby.

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Treasury Secretary Mnuchin’s Unbelievable Testimony

Wall Street’s 2008 crash cost the economy some $20 trillion, with millions of Americans losing their homes, jobs and savings in what became the Great Recession. For Steven Mnuchin, these were good times. As Dune Capital hedge fund manager, he lapped up failed IndyMac, turned it into foreclosure machine OneWest at the expense of more than 100,000 homeowners and then flipped the company for a profit.

Now, as Treasury Secretary, his views on banking are proving similarly callous. Before the Senate Banking Committee on May 18, his first congressional testimony since assuming office, he nixed not one, not two, but three widely accepted ideas about how to fix Wall Street.

First, there’s the issue of banks having been considered too-big-to-fail. Washington bailed out the major financial institutions in 2008 because leaders concluded that their bankruptcies would be worse for the wider economy. During the crisis, as an emergency expedient, Washington actually worsened the too-big-to-fail problem by patching together some teetering firms with larger, bailed-out firms. The subsequent 2010 Dodd-Frank Wall Street reform legislation empowered regulators to unwind them.

What’s the Treasury Secretary’s view, according to last week’s hearing? Breaking up the banks would be a “huge mistake.”

Second, the major financial firms failed in 2008 when the value of their assets, many built on mortgage-backed securities, collapsed. The difference in value between assets and liabilities is called capital, and the capital of banks sank below zero during the financial crisis. The obvious answer: Banks should have more capital. Even U.S. Rep. Jeb Hensarling, (R-Texas), chair of the House Financial Services Committee, supports increases in bank capital.

What’s Mnuchin’s view? The big banks have “too much capital.”

Third, the financial crash followed by less than 10 years the repeal of the Glass-Steagall separation between commercial and investment banking. This 1933 law had limited the operation of firms with taxpayer-backed insurance from the Federal Deposit Insurance Corp. to relatively safe lending. Repeal sent these cheap and abundant funds into a gambling culture. It even prompted investment banks to expand risk-taking to defend their turf. Proponents from across the political spectrum support reinstating Glass-Steagall, including President Donald Trump himself.

Mnuchin’s take: He does “not support the separation of commercial and investment banking.”

Forty-seven senators did not consider Mnuchin worthy to serve as Treasury Secretary and voted against his confirmation. His background as a Goldman Sachs banker rightly troubled many, given Wall Street’s pernicious influence in Washington and Trump’s own pledge to “drain the swamp.” His harsh record at IndyMac-OneWest, also understandably alarmed senators. California state attorneys recommended litigation against the company. And, on May 17, the Department of Justice penalized a OneWest subsidiary $89 million over false claims for government insurance during Mnuchin’s tenure there.

Following an executive order, Mnuchin is now reviewing banking law changes. U.S. Sen. Catherine Cortez Masto (D-Nev.) pressed Mnuchin at the May 18 banking committee hearing on where he’s seeking counsel for this mission. She referenced his speech at a conference of bankers (price of admission: $12,000), where he said, “You should all thank me for your bank stocks doing better.”

A Treasury Secretary who recalls the Great Recession as a profitable time who also happens to works for a president with, at the very least, a credibility problem, isn’t a comforting foundation for banking reform. The public and our representatives in Congress need to believe Mnuchin shares America’s concerns if he intends to refashion the rules around Wall Street. As Sen. Sherrod Brown (D-Ohio), ranking member the Senate Banking Committee summarized, “You can’t lead if we don’t believe you.”

Unfortunately, his threats to oppose Wall Street reform seem all too believable.

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