Financial Regulation: A New Era

Just because you're not perfect
doesn't mean you're disqualified from doing
anything worthwhile. Go forth!

Many have expressed fears of a Trump presidency because they believe that the business tycoon does not have what it takes. Just because his personal life is under microscopic scrutiny does not mean that he is any less competent than any other man. Every individual on earth regardless of where he or she may be from have done things that were shameful and morally objectionable. Does one's past failures restrict one's growth in the future? No! Only a mindset that believes such a lie can do that. What is of true concern is the man's vision for the United States and its place in the world.

The economic policies of Donald Trump give the illusion of financial liberalisation (deregulation as in late1990s) but it is actually more of a simplification of regulatory procedures and making laws more stringent and rooted in principles that will empower the American economy. Why? Take the Dodd-Frank Act for starters. The law is a mess with many of its legislations that exist on paper but are not being followed because they have not fully come into effect. Trump is not saying that laws don't need to be there. He is effectively advocating simplicity in effective regulation rather than complexity in ineffective regulation. The banks are going to lose their grip on the people because that was never how it was supposed to work. Banks will now serve people's interests rather than their own. The golden lustre of investment bankers will come to an end as will the illusions of grandeur that surround mega-rich Wall Street moguls. Trump advocates that Roosevelt's Glass-Steagall Act (GSA) also known as the Banking Act of 1933 should be put back into place. This would be a master-stroke. This would mean that investment and commercial banks have a clear boundary between them and banks can no longer gamble with tax-payer money which they have been doing consistently since the late 1990s. This abuse of American taxpayer money has continued even after the Dodd-Frank Act (DFA) was passed in 2010.

Dodd-Frank's Illusion of Strength

The DFA is over 1000 pages long with no clarity about what its really talking about. The GSA is about 40 pages in length and has been far more effective than the DFA. The GSA protected the American economy for over four decades without any major financial crash. Only when talks of repealing the GSA in 1960 began with the inception of the flawed Efficient Markets Paradigm (EMP) did things start going wrong. In 1999, the GSA was repealed under heavy pressure and influence from banks on political establishments. And one decade later, we saw a crash that was comparable to the great depression. Banks have become as powerful as nations and they have abused this power repeatedly. Consider the Obama cabinet and how its formation was influenced by monetary gain sourced from Citigroup for instance.



In any given situation, one must consider what the truth is. It is about sifting the wheat from the chaff and developing one's instinct and ability to extract the signal from the noise. People will be pleasantly surprised a year or two from now. They will see that things they once opposed, they are now in favour of.


Consider the economics within this. I am returning to the classical framework of (i)Land, (ii)Labour, (iii) Capital and (iv) Entrepreneur.

Learn from an ant. Hard work will never grow obsolete. 

Note that the Entrepreneur in this case is Trump. He specialises in real estate i.e. Land. He knows the labour market and the dynamics that underlie attainment of optimal efficiency. He specialises in growing capital exponentially by adding value through people and leveraging ones position using legal and corporate strategies.




Returning to financial regulation, the USA is in a big mess right now. The financial system is fundamentally flawed. Raghuraman Rajan has continually pointed this out. Alan Greenspan has admitted that he was wrong for four decades about Monetary Policy. This means that government regulation is necessary. Greenspan was wrong about markets being self correcting if left unchecked. Keynes was wrong when he said that the driving force of markets which he called 'animal spirits' should be left to their own devices. We have seen what happens when we do that. America went bust. This was followed by Iceland's collapse which triggered a domino effect all across Europe.

Ideas have consequences. Economics ideologies will have economic consequences. We don't need to think long and hard, but clear and straight. The fundamentals of economics will never change. The principles that hold nations together will never change. Hard work, honesty and respect for ones fellow citizens will always have its place. Sooner or later, truth will withstand the crucible of adversity. Greed offers a dreamy illusion of greatness. It feels good but is temporary. Take the right action and your feelings will eventually catch up with your actions. Be a long term investor in ideas that you believe in. It will yield a return that grows exponentially.