It seems safe to say that Bernie Sanders won’t be leading his revolution to reform Wall Street next year. One of the presumptive candidates, Hillary Clinton or Donald Trump, will be in a position to deal with the financial industry — if they choose to.
Sanders spent much of the primary season slamming Clinton for being too cozy with Wall Street. Pressured from the left, Clinton has said she believes Wall Street needs stricter regulations, and that she would implement tough reforms. Trump, though he personally appears to have a more distant relationship with the Street, has spoken out against government regulation of the financial industry.
Clinton told voters that she has “a very aggressive plan to rein in Wall Street” and vowed to go after financial executives “who are responsible for the decisions that have such bad consequences for our country,” as she put it at a primary debate last November. Her proposal includes extending the statute of limitations on some financial crimes, enhancing whistleblower rewards and other measures aimed at encouraging prosecutors to pursue individual executives and bankers at companies accused of wrongdoing.
Trump, meanwhile, has professed a love for bankers and Wall Street — a relationship that would go well with the image he has crafted as a hyper-wealthy New York businessman. “I am friends with all the major banks,” the Republican said in a recent New York Times interview.
But during this 2016 election cycle, many bankers have been wary of The Donald’s unpredictability, his many lawsuits and his comments that hedge fund managers are “getting away with murder” under the corporate tax code. In his new-fashioned role as a champion for disillusioned working-class voters, Trump has railed against companies taking jobs overseas and against financial executives paying low taxes.
One of the core goals in Clinton's Wall Street proposal is to “defend” Dodd-Frank, the regulation implemented in 2010 after the financial crisis that is designed to cut down on banks' risk-taking, protect the economy if a crash happens again and shield consumers from predatory practices.
Clinton has criticized GOP attempts to weaken Dodd-Frank and has specifically called out the “shadow banking system” — including hedge funds, investment banks and other non-bank financial companies — which is less heavily regulated, and the former secretary of state likes to remind voters it can cause just as many problems as too-big-to-fail banks.
Trump told Reuters in May that he believed the financial reforms were hurting the U.S. economy and that, if elected, he would dismantle nearly all of them.
“Dodd-Frank has made it impossible for bankers to function,” Trump said. “It makes it very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs. And that has to stop.”
He added that his plan “will be close to dismantling of Dodd-Frank” but has not released details on how he would rewrite the law.
House Republicans on Tuesday unveiled a plan to cut significant portions of Dodd-Frank. Their plan would replace the measure that requires firms to develop blueprints for winding down in a crisis and would repeal the Volcker Rule, which is meant to prevent banks from making some risky bets with taxpayer money.
On taxes, Trump has sometimes sounded like his Democratic rivals.
Sanders frequently talked about “billionaires” who do not pay their fair share, and Clinton has called for closing the carried interest loophole, which provides a particularly low tax rate for certain kinds of Wall Street income. Trump has blasted “hedge fund guys” for paying too little in taxes, and when he released his tax plan last fall, he touted it as being great for the middle class.
But while Trump talked about getting rid of the carried interest loophole, his tax plan also gave large tax cuts to business owners by cutting the corporate tax from 35 percent to 15 percent, reducing the capital gains tax from 23.8 percent to 20 percent, and getting rid of the estate tax completely.
Since becoming the presumptive Republican nominee, Trump’s rhetoric on tax increases has become more fluid. As recently as last month he was saying that those with high incomes could see tax increases under a Trump administration. But in a later interview with the Wall Street Journal, he said he would try to negotiate with Democrats to lower taxes for wealthy households.
“There will be a give and take. They’re going to want other things having nothing to do with this,” Trump said. “It’s one very big, very complex proposal, into a negotiation.”
Trump’s comments about lowering taxes don’t seem to have won over too many Wall Street bankers. Some of those who know Trump or who have done business with him say he is unpredictable and can’t be trusted to look out for Wall Street’s interests.
Wade Black, chief operating officer for the New York financial firm Scarsdale Equities LLC, told International Business Times last month that a lot of Wall Street money is likely to go to Republicans other than Trump.
“I think they're pragmatists in the long run,” he said, referring to conservative donors in the banking industry. “They'd probably rather have Hillary in the White House and a Republican Congress to maintain the status quo.”
Clinton, meanwhile, has deep connections to the financial industry despite her campaign promises to take on the big banks. The Clinton Foundation, as well as her Senate and presidential campaigns, benefited from major donations from those in the financial industry, with her 2016 presidential bid alone bringing in $1.9 million from the financial sector. An analysis by the Wall Street Journal showed that Clinton has received a significant amount of cash from donors who switched their allegiance to her after previously supporting Republicans who dropped out of the 2016 race.
Trump has just started seriously courting donors after running a largely self-funded campaign for most of the primary season. So far, he does not have anywhere near the Wall Street support that Clinton does, and many wealthy donors have chosen to avoid The Donald.
The former secretary of state acknowledges her donations from the industry she’s promising to regulate, but she has understated her Wall Street support at times, and has argued that her support for the big bank bailout after the 2008 financial crisis was meant to help the auto industry. She has also come under significant scrutiny from Sanders and others for speeches she gave to Goldman Sachs, for which she earned $675,000.
Beyond these money ties, Clinton’s campaign has boasted that she received Wall Street policy advice from former Democratic Rep. Barney Frank, who was appointed to the board of New York’s Signature Bank after he left Congress, and from Gary Gensler, a former Goldman Sachs executive who President Barack Obama appointed to lead the Commodity Futures Trading Commission.
Connections don’t preclude Clinton from enacting tough Wall Street reforms, but they do put her in a somewhat awkward position as she criticizes her donors’ industry. The presumptive nominees of both parties directly appealed to Sanders supporters in their speeches Tuesday night. For Clinton in particular, persuading Sanders voters to back her will require convincing them that she shares their frustration with the 1 percent.