One of the dominant themes of President Donald Trump’s campaign was his promise to “drain the swamp.” Trump used this promise as a political hammer against Hillary Clinton, who spent much of the Democratic primary being attacked for her close ties to Wall Street, including being paid to give speeches to financial services companies. The day before Election Day, Trump called Clinton, “the face of Wall Street greed,” during a speech in Scranton, a working-class town in Pennsylvania.
Trump’s talk of swamp draining resonated in places like Scranton, carrying him to victory across key Rustbelt states. Now that he’s in the White House, though, Trump seems to have abandoned his plan to drain the swamp and replaced it with a new plan that fills the swamp with alligators.
Goldman Sachs alums are already in place in key administration positions, including Chief Strategist Steve Bannon, Treasury Secretary Steve Mnuchin, and National Economic Council Director Gary Cohn.
Trump also wasted no time in targeting regulations put in place to prevent a repeat of the global financial meltdown that cost American households $16.4 trillion of net worth. Only two weeks after taking office, Trump signed an Executive Order directing agencies to roll back or cancel regulations created by the Dodd Frank law signed by President Obama in 2010.
Before signing the Executive Order, Trump met with numerous CEO’s, including JP Morgan Chase’s Jamie Dimon. Before the meeting, Trump spoke to reporters about the Executive Order and his meeting with Dimon:
"We expect to be cutting a lot out of Dodd-Frank because frankly, I have so many people, friends of mine that had nice businesses, they can't borrow money," Trump said. "They just can't get any money because the banks just won't let them borrow it because of the rules and regulations in Dodd-Frank."
Trump added that "there's nobody better" to discuss financial rules with than Dimon, who became the bank's CEO at the end of 2005.
This seems to be a common misconception about Dimon, and it’s no surprise. The media narrative around Dimon is one of a savant, who knew to get out of the subprime mortgage market before the crash.
The problem with the fawning media coverage and praise from people like the president, who at one point considered Dimon for Treasury Secretary, is that it ignores the many scandals entangling JP Morgan Chase under his leadership.
In 2013, JP Morgan Chase agreed to a $13 billion settlement with the U.S. government to settle charges that the bank overstated the quality of mortgages it was selling to investors in the run-up to the financial crisis. That same year, it agreed to a $4.5 billion settlement with institutional investors who suffered losses on mortgage securities purchased from the bank.
Last month, the New York State Supreme Court ruled the bank violated investment agreements by making reckless purchases of subprime mortgages, causing losses of more than $1 billion. The suit, brought by Ireland-based Ballantyne Re and Orkney Re II, alleges that while JP Morgan Chase was unloading subprime mortgages to reduce its exposure, it did not do the same for its investors.
This case is reminiscent of another lawsuit brought against the bank. In 2015, JP Morgan Chase agreed to a $388 million settlement with the Fort Worth Employees' Retirement Fund and other investors, who claimed the bank misled them about the safety of $10 billion worth of residential mortgage-backed securities it sold before the financial crisis.
Given what appears to be the Trump Administration’s mission to gut-or even fully repeal-Dodd Frank, court cases like these deserve more scrutiny. Dodd Frank was created as a way to protect regular Americans from seeing their hard-earned money recklessly gambled away by Wall Street investment banks. If those safeguards are no longer in place, we are destined to return to the bad old days of CEO’s like Dimon using Wall Street as their own personal casino to gamble with America’s retirement money.
Also, with Dimon’s close ties to the president, there is no doubt who will be at the top of the list to get another taxpayer-funded bailout, when the next financial crisis strikes.
In the absence of these rules, the courts now serve as the last line of defense for investors. The only thing that will prevent investment banks from taking unnecessary risks with other people’s money is paying a substantial financial penalty for such recklessness. If that remedy is taken away from federal regulators, then it must be used by the courts to send a message.
If the judicial system fails to take on this responsibility, you can forget about draining the swamp. Instead, you will see the retirement accounts of hard-working Americans being drained into the swamp.