Dems rip Trump's Fed pick as Senate panel mulls three key nominees

Dems rip Trump's Fed pick as Senate panel mulls three key nominees
© Greg Nash

The Senate Banking Committee on Tuesday grilled three of President TrumpDonald John TrumpBubba Wallace to be driver of Michael Jordan, Denny Hamlin NASCAR team Graham: GOP will confirm Trump's Supreme Court nominee before the election Southwest Airlines, unions call for six-month extension of government aid MORE’s major financial regulatory nominees, all of which are expected to be confirmed by the full chamber.

The Banking panel hosted Trump’s nominees for chairman of the Federal Deposit Insurance Corporation (FDIC), a Federal Reserve governorship and the Financial Stability Oversight Council’s (FSOC) member from the insurance industry.

Republicans were supportive of the entire slate, while Democrats honed in on Marvin Goodfriend, Trump's nominee to the Fed board.

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The three nominees would play crucial roles in the Trump administration’s efforts to loosen Dodd-Frank Act restrictions on banks and financial institutions, a sticking point for Democrats critical of the president’s choices.

Sen. Sherrod BrownSherrod Campbell BrownBipartisan praise pours in after Ginsburg's death Emboldened Democrats haggle over 2021 agenda Hillicon Valley: Russia 'amplifying' concerns around mail-in voting to undermine election | Facebook and Twitter take steps to limit Trump remarks on voting | Facebook to block political ads ahead of election MORE (D-Ohio), the committee’s ranking Democrat, urged the nominees not to fall victim to the “collective amnesia” of the financial crisis among those pushing for looser banking rules.

“Wall Street profits and household debts are at record highs, and corporations and the wealthy are enjoying windfall tax cuts,” Brown said.

“Use your positions to make the economy work better for American families.”

Republicans praised the nominees, touting their qualifications and intent to pare back rules they consider burdensome.

“We are fortunate to have three highly-qualified individuals to consider for these positions, which are critical to ensuring a safe, sound, and vibrant financial system and a healthy, growing economy," said Banking chairman Mike CrapoMichael (Mike) Dean CrapoBottom line Davis: The Hall of Shame for GOP senators who remain silent on Donald Trump Top GOP senator urges agencies to protect renters, banks amid coronavirus aid negotiations MORE (R-Idaho).

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Jelena McWilliams, Trump's pick to lead the FDIC, is the executive vice president and chief legal officer of Cincinnati-based Fifth Third Bank. McWilliams recounted her experiences living in and fleeing the former Yugoslavia, coming to the U.S. at age 18 with just $500.

“My parents’ meager savings disappeared overnight when a local bank closed its doors. Yugoslavia had no deposit insurance and my then 68-year old father returned to work as a day laborer,” said Williams, a former aide to Crapo.

“I can assure you that the core mission of the FDIC resonates profoundly with me and, if confirmed, I will not take its mission or my duties lightly.”

McWilliams said one of her main concerns is preventing the ongoing consolidation and closure of community banks. She suggested exempting community banks from the Dodd-Frank Act rule on proprietary trading, loosening their capital requirements and streamlining anti-money laundering reporting.

Democrats had few aggressive questions for McWilliams, although Brown seemed surprised when she declined to agree with him that excessive leverage at major banks triggered the financial crisis.

Instead, Democrats trained their fire on Goodfriend, the Carnegie Mellon University economics professor Trump nominated to the Fed. Goodfriend worked for the Federal Reserve Bank of Richmond between 1978 and 2005, serving as the director of research and a policy adviser. He also served as an economist for the Fed and was on President Reagan’s Council of Economic Advisers.

Democrats blasted Goodfriend for his previous statements that heavy financial regulation would lead to a “European socialist model” in the U.S., and fears about imminent inflation spikes that never happened.

Goodfriend insisted in 2011 that further Fed interest rate cuts would risk ballooning inflation past the Fed’s 2 percent target without making a dent on unemployment, then at roughly 9 percent. He’s argued that the best way for the Fed to maintain low unemployment is by focusing on price stability. Unemployment is now close to 4 percent while inflation remains stuck below the Fed target range while the central bank brings rates higher.

Dems ripped Goodfriend for his incorrect predictions and pushed him to admit his mistakes.

“Why have you been wrong so many times?”  Brown asked Goodfriend. “Would the economy be in this good of shape if they had been listening to Marvin Goodfriend during this period?”

“These wrong predictions aren’t an outlier for you,” said Sen. Elizabeth WarrenElizabeth WarrenJudd Gregg: The Kamala threat — the Californiaization of America GOP set to release controversial Biden report Biden's fiscal program: What is the likely market impact? MORE (D-Mass.). She insisted that Goodfriend’s focus on inflation “does enormous harm to the economy and working families” and could have cost millions of jobs created after the crisis.

“American families are very lucky that you weren’t on the Fed board over the past few years, and I think it would be a mistake to put you on there now,” Warren said.

Goodfriend, who appeared shaken by the hostile questions, insisted that he would pay close attention to the employment side of the Fed's dual mandate and admitted his predictions were off.

“Our goal is to get unemployment down to the natural rate, and therefore I’m supportive of a natural long-run inflation target,” Goodfriend said. “Whether or not I’ve talked about the dual mandate, I totally support it.”

Sen. Pat ToomeyPatrick (Pat) Joseph ToomeyAppeals court rules NSA's bulk phone data collection illegal Dunford withdraws from consideration to chair coronavirus oversight panel GOP senators push for quick, partial reopening of economy MORE (R-Pa.) gave Goodfriend credit for his attention to price stability risks, suggesting that excessive equity and sovereign debt holdings could both be bubbles threatening the economy.

The third nominee, insurance attorney Thomas Workman, would serve on FSOC, the interagency board of financial regulators, as the member with insurance expertise as mandated by Dodd-Frank. He was president and CEO of the Life Insurance Council of New York from 1999 to 2016. Workman was an attorney for Bricker & Eckler in Columbus, Ohio from 1973 to 1999.

Workman would join FSOC as it reconsiders its listing of large insurance companies as critical enough to the financial system to trigger a crisis. FSOC lifted its classification of AIG as a systemically important financial institution in September, while the Justice Department dropped its case appealing a decision that delisted MetLife.

Prudential is currently the only insurance company considered systematically important by the federal government.

Even so, Workman declined to answer a question about whether he thought the $50 billion threshold at which FSOC can declare a nonbank financial firm systemically important, citing his unfamiliarity with the issue.

Workman did express openness to shifting FSOC’s designation process to an analysis of a firm’s activities instead of amount of assets.