Beware, everyone, the stage is being set for another financial crisis. Last Friday, President Donald Trump began a quest to disassemble the Dodd-Frank Act, a bill created by Barack Obama in the wake of the 2008 financial crisis that placed stricter regulations on the financial sector. He plans to “do a big number on Dodd-Frank” while at the same time attempting to reverse the fiduciary rule which demands that retirement advisers with the title "fiduciary" act in the best interest of who they work for, instead of trying to line their own pockets with the most profit possible. These mandates would foster short-term growth in the financial sector and perhaps in the economy overall, but would set up a potential catastrophe down the line.
One of the promises of the Trump administration was to roll back regulations that were choking business and growth, which is a valid position to have. Regulations, by design, make it more difficult to do business than it would be in a completely unregulated market. But it is regulations that make it so meat packers can’t leave fecal matter in ground beef, or that farmers can’t put sawdust in flour to save money, or that workers actually get paid when they perform work. The goal should not simply be to eliminate regulation wherever and whenever we run into it. Our politicians, as well as citizens, need to be extremely careful and selective in what regulations we choose to eliminate. Allowing advisers to focus on personal interests over the best interest of their clients may make it easier for them to do business, but it also puts people's retirement at risk.
This plan to dismantle Dodd-Frank has even caused Europeans on both sides of the aisle to be on edge. Board members of Germany’s Bundesbank and the president of the European Central Bank, who usually disagree on monetary policies, stood together in criticism of Trump, calling it a “big mistake” that could lead to another financial meltdown.
If the only voices of support for these actions come from J.P. Morgan and Goldman Sachs, is this really the kind of initiative we should be trying to achieve?