The Trial Lawyer Summer 2018 - Page 71


What you are about to read is not about Russia , the 2016 election , or the latest person to depart from the White House in a storm of tweets . It ’ s the Beltway story hiding in plain sight with trillions of dollars in play and an economy to commandeer .
While we ’ ve been bombarded with a litany of scandals from the Oval Office and the Trump family , there ’ s a crucial institution in Washington that few in the media seem to be paying attention to , even as President Trump quietly makes it his own . More obscure than the chambers of the Supreme Court , it ’ s a place where he has already made substantial changes . I ’ m talking about the Federal Reserve .
As the central bank of the United States , the “ Fed ” sets the financial tone for the global economy by manipulating interest rate levels . This impacts everyone , yet very few grasp the scope of its influence .
During times of relative economic calm , the Fed is regularly forgotten . But what history shows us is that having leaders who are primed to neglect Wall Street ’ s misdoings often sets the scene for economic dangers to come . That ’ s why nominees to the Fed are so crucial . We have entered a landmark moment : no president since Woodrow Wilson ( during whose administration the Federal Reserve was established ) will have appointed as many board members to the Fed as Donald Trump . His fingerprints will , in other words , not just be on Supreme Court decisions , but no less significantly Fed policymaking for years to come — even though , like that court , it occupies a mandated position of political independence .
The president ’ s latest two nominees to that institution ’ s Board of Governors exemplify this . He has nominated Richard Clarida , a former Treasury Department official from the days of President George W . Bush who later became a strategic adviser to investment goliath Pimco , to the Fed ’ s second most important slot , while giving the nod to Michelle Bowman , a Kansas bank commissioner , to represent community banks on that same board .
Like many other entities in Washington , the Fed ’ s Board of Governors has been operating with less than a full staff . If Clarida is approved , he will join Trump-appointed Fed Chairman Jerome Powell and incoming New York Federal Reserve Bank head John C . Williams — the New York Fed generally exists in a mind meld with Wall Street — as part of the most powerful trio at that institution .
Williams served as president of the San Francisco Fed . Under his watch , the third largest U . S . bank , Wells Fargo , created about 3.5 million fake accounts , gave its CEO a whopping raise , and copped to a $ 1 billion fine for bilking its customers on auto and mortgage insurance contracts .
Not surprisingly , Wall Street has embraced Trump ’ s new Fed line-up because its members are so favorably disposed to loosening restrictions on financial institutions of every sort . Initially , the financial markets reflected concern that Chairman Powell might turn out to be a hawk on interest rates , meaning he ’ d raise them too quickly , but he ’ s proved to be anything but .
As Trump stacks the deck in his favor , count on an economic impact that will be felt for years to come and could leave the world devastated . But rest assured , if the Fed can help Trump keep the stock market buoyant for a while by letting money stay cheap for Wall Street speculation and the dollar competitive for a trade war , it will .
At a time when inequality , economic hardship , and household and personal debt levels are escalating and wages are not , why should any of this matter to the rest of us ? The answer is simple enough : because the Fed sets the level of interest rates and so the cost of money . This , in turn , indirectly impacts the value of the dollar , which means everything you buy .
Since the financial crisis , the Fed has kept the cost of borrowing money for banks at near zero percent interest . That allowed those banks to borrow money to buy their own stock ( as did many corporations ) to inflate their value but not , of course , the value of their service to Main Street .
When money is cheap because interest rates are low or near zero , the beneficiaries are those with the most direct access to it . That means , of course , that the biggest banks , members of the Fed since its inception , get the largest chunks of fabricated money and pay the least amount of interest for it .
Although during the election campaign of 2016 Trump chastised the Fed for its cheap-money policies , he ’ s since evidently changed his mind ( which is , of course , very Trumpian of him ). That ’ s because he knows that the lower the cost of money is , the easier it is for major companies to borrow it . Easy money means easy speculation for Wall Street and its main corporate clients , which sooner or later will be a threat to the rest of us .
The era of trade wars , soaring stock markets , and Trump gaffes may feel like it ’ s gone on forever . Don ’ t forget , though , that there was a moment not so long ago when the same banking policies still reigning caused turmoil , ripping through the country and devouring the finances of so many . It ’ s worth recalling for a moment what happened during the Great Meltdown of 2008 , when unrestrained mega-banks ravaged the economy before being bailed out . In the midst of the current market ecstasy , it ’ s an easy past to ignore . That ’ s why Trump ’ s takeover of the Fed and its impact on the financial system matters so much .
Let ’ s recall that , on September 15 , 2008 , Lehman Brothers crashed . That bank , like Goldman Sachs , a former employer of mine , had been around for more than 150 years . Its collapse was a
The Trial Lawyer x 69