It also undertook many administrative efforts to improve the financial regulatory environment. It tried to ease the burden on fintech firms and financial startups, and tailored banking rules to be more sensible and purposeful. It prevented a mortgage servicer bailout during COVID-19 and provided a capital framework for Fannie and Freddie.
It failed to implement a crypto framework, but that’s partly on Congress. Besides, one of its SEC commissioners has done more than enough to lay the foundation for that framework.
Put differently, the first Trump administration moved financial market regulation in the right direction. But U.S. financial market regulations were still far from ideal at the end of Trump’s first four years, and the situation is much worse now.
The Biden administration reversed much of Trump 1.0’s work, proposed a punitive bank capital rule, and actively worked to freeze cryptocurrency firms out of the financial system. The Biden administration also openly called for anticompetitive measures related to stablecoins and supported launching a central bank digital currency.
On some fronts, there is good reason to be optimistic that Trump 2.0 will be better for financial markets. At the very least, based on Trump’s comments and the makeup of the new Congress, the administration should help move things in the right direction again. And it’s plausible that the United States will finally provide a reasonable framework for cryptocurrency firms and stablecoins while putting a stop to CBDCs, but that’s also up to Congress.
To get lasting change, though, the administration and Congress will have to work together to do much more than they did during Trump 1.0. In 2017, for instance, Congress and the first Trump administration decided to focus on tax reform rather than financial regulatory reform. No major changes were implemented, and now the U.S. framework is even further from ideal.
Yes, legislative changes will be difficult to achieve, but they are sorely needed. Without them, future administrations can easily reverse course again.
Government officials have been moving the United States further away from a free-enterprise system for decades, steadily producing more heavily regulated markets with increased government intervention. Yet, the new administration is, in many ways, aligned with recent critics of U.S. economic policy who blame all sorts of economic problems on the supposed overreliance on free market policies.
If Trump 2.0 adheres too closely with these critics’ views on financial markets, then bad policies could easily outweigh the good ones.
These critics, such as Oren Cass, Tucker Carlson, and Senator Elizabeth Warren (D‑MA), regularly attack the financial industry as harmful and wasteful. They endlessly recycle the age-old critique that markets merely benefit speculators at the expense of people in the “real” economy.
They want to give government officials more power over what people can do with their money. They want to penalize private equity firms, ban share repurchases, and implement a financial transaction tax. They want those in power to determine which investments count as “good” investments.
As my coauthor (Jennifer Schulp) and I explain in our new book, none of these critics have produced anything close to a principled reform agenda. That’s bad because the existing regulatory framework is nothing like a free market. It gives regulators enormous discretion to micromanage financial firms in the name of maintaining financial stability, but it fails to maintain it.
It merely provides a false sense of security at an enormous cost.
If Trump 2.0 chooses the path that these critics have outlined, it will undermine any positive reforms it might otherwise implement. The current system is already much closer to a government-directed system than is warranted, and Americans need its leaders to stand up for freer financial markets, not attack them.
A wholesale rebuild of financial market regulation would surely be next to impossible, but the administration could start small. For instance, federal law now mandates that banking regulators guard against threats to financial stability, yet it fails to define threats or financial stability. The administration could work with Congress to remove this vague mandate.
Just like during Trump 1.0, the new administration and Congress have every right to make whatever political calculations they choose. So only time will tell where Trump 2.0 takes us.
