If Trump wants law and order, he should rethink cutting regulation
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Just weeks ago, people craved transparency, efficiency and accountability as remedies for the corporate fraud and market manipulation of the past many years. The last decade or so has been called the most criminogenic in U.S. history.

With nearly $25 trillion in lost gross domestic product (GDP) in the United States alone, due largely to the mortgage meltdown, there has been broad recognition that we must fix the system to restore our prosperity.

The near-catastrophic economic crash less than a decade ago was enabled by loose regulations, zero enforcement, and zero punishment for white collar crime.


The “rule of law” was clearly ignored. Even though copious evidence surfaced of apparent criminal violations in foreclosure cases, there was a marked absence of prosecution. Prosecution for financial fraud hit a 20-year low during the Obama administration.

The evidence, including records from federal and state courts and local clerks' offices around the country, showed widespread forgery, perjury, obstruction of justice, and illegal foreclosures on the homes of thousands of active-duty military personnel.

There was also evidence of almost routine manufacturing of false mortgage assignments, documents that transfer ownership of mortgages between banks or to groups of investors.

In December 2012, many watched in disbelief as the Department of Justice did not file for criminal penalties against HSBC for laundering drug money and helping to finance terrorists. The bank was ordered to pay a steep civil fine, but no criminal charges were lodged against any HSBC official. A New York Times editorial called the decision a “dark day for the rule of law.” Since then, there have been many such dark days.

Shockingly, despite cries of millions across the political spectrum to break up the big banks, the “too-big-to-fail” banks have actually gotten bigger. While there were strong appeals for regulatory reform, people wanted tougher regulations with actual law enforcement.

Is America still distinguished by the “rule of law” or the absence of it? There was a clarion call for punishment of the miscreants to serve as a deterrent to unlawful behavior. Nothing was done.

Shell-shocked Americans are living through the worst recovery in modern times. The U.S. economy has only grown 2 percent a year since it bottomed out in June 2009. That's far below the typical growth in rosy times of more than 4 percent a year that the U.S. has experienced since World War II.

President Trump came in on the strength of dissatisfaction of the Obama administration’s policies. In addition to the foreign and domestic policy failures, the past administration presided over an economic meltdown that took the global economy to the brink of destruction. President Obama, while saying that the big banks did some reprehensible things, he suggested that most of their actions were not illegal. It was greed, he told us. While it’s true that greed is not a crime, fraud is.

This was the worst fraud ever perpetrated upon a global economy. It is not over yet as we still suffer through a very slow recovery.

The Dodd-Frank Act was the biggest Wall Street regulatory overhaul in decades. It set forth a long list of rules intended to keep the financial system from a repeat of the 2008 to 2009 crisis. The rules included strict new capital standards on banks, annual stress tests for banks considered “too big to fail,” stringent derivatives trading rules, and restricted trading on their own account by means of the so-called Volcker rule. The legislation also created a new consumer protection watchdog to guard against predatory lending.

Trump is proposing to repeal and replace this law to jumpstart the economy. He plans to boost the economy by, in part, cutting regulations. More broadly, Trump asserts we must cut two regulations for every one added until the economy shows “significant growth.”

Republicans believe we need smarter, not more, regulations. Financial regulation imposes heavy costs on the economy. Too much regulation can stifle financial innovation, reduce the flow of credit to worthy firms and consumers, and slow economic growth. Moreover, regulation is not needed to the same degree at all times.

Thus, to prevent future crises we need a more dynamic approach to regulation and oversight—one that is strong precisely when market forces become weak. Very specific, almost automatic triggers could be written into law to prompt regulators to increase scrutiny.

But buyer beware. However attractive regulatory easing may sound, we must not forget that the banks remain unpunished, unapologetic, and unafraid. Any attempts at reducing regulations should be weighed against the cold, sobering reality of the ongoing scandalous, unlawful business practices and resulting penalties and actions against Wells Fargo, Citibank, Morgan Stanley, Deutsche Bank, TCF Bank, and more.

Sen. Elizabeth WarrenElizabeth Ann WarrenTrump to nominate budget official as next consumer bureau chief Sessions floats federal law that would protect states that decriminalize marijuana Bank regulator faces backlash over comments on racism MORE (D-Mass.) tweeted, “The Wall Street bankers may be popping champagne, but Americans haven’t forgotten the 2008 financial crisis-and they won’t forget today.”

She is right. President Trump won the election in part because he convinced the American people that he would be “the law and order” president. Alas, if he insists on a lighter regulatory touch, he may become the “law and disorder” president.

Michael G. Winston, author of World-Class Performance, spent more than 30 years in executive positions at major companies including Merrill Lynch, Motorola, and Countrywide Financial, where he was a whistleblower on fraud and brought the mortgage giant to its knees. He is a founding member of Bank Whistleblowers United.

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