Monday, April 20, 2020

Secretary Mnuchin -vs- Jake Tapper



Treasury Secretary Steven Mnuchin appears on CNN to discuss the ongoing congressional funding issues around the Paycheck Protection Program.  Mnuchin notes the effectiveness of the Trump/Mnuchin community banks responding to their small business customers on Main Street.  This success was specifically by design and foresight two years ago.  

It is important to remember the modernized community and credit union banking system was specifically created by the Trump administration in 2017 and 2018 to be the direct conduit to main street.  It is likely the effectiveness of that agile financial system has actually stunned the institutional banks and their UniParty big club politicians.  The Big Club didn’t realize how nimble the banking system was that Trump/Mnuchin created.

In my opinion, the effectiveness of the community and credit union banking system has turned the eye of Sauron onto them.  Thus the Wall St. multinational banks are attempting to punish the White House by activating their paid footsoldiers in congress to impede it. 


Congress (both sides) are not blocking the PPP funding program (via SBA for Main Street) for the reasons most people think.  Pelosi and McConnell are both trying to help  their Big Bank/Big Club, Wall Street, benefactors by punishing customers of the Main St banking system Trump/Mnuchin put into place two years ago….

It’s a much bigger battle than most understand.


In late October 2017 the Senate voted, narrowly, to strike down a CFPB banking rule that was set to begin in 2019. The CFPB (Consumer Financial Protection Bureau), is the watchdog financial agency created by Congress in the aftermath of the mortgage mess.

The CFPB rule, five years in the making, would have allowed individual and class action lawsuits against financial institutions by consumers and lawyers instead of arbitration to settle disputes. The Democrats and those who supported the rule framed the arguments around protecting consumers from predatory banks. However, those against the rule pointed out the cost to smaller banks, community banks and credit unions.

Big banks and multinational financial enterprises (ie. The Big Club) can afford massive groups of lawyers to defend their interests; smaller community banks and credit unions cannot afford such litigious costs. The K-Street lobbyists were against the regulatory rule as a natural outcome of their general disposition toward regulation. However, K-Street was specifically ambivalent to the final senate vote because increased systemic regulation supports their competitive ability to dominate the U.S. financial system.


Trump and Mnuchin viewed the entire U.S. banking system as too monolithic and generally positioned to the benefit of Wall Street and not Main Street. As such their approach toward regulation was to split the regulatory financial system into two segments according to the size of the bank (or financial entity). Big institutional banks (more than $10 billion) retained comprehensive regulation over their practices; however, smaller banks do not have the same level of regulatory and compliance mandates. This approach is the modern era financial outlook that, like MAGAnomics, is entirely new and bold.

“we do not support a separation of banks from investment banks, we think that would have a very significant problem on the financial markets, on the economy, on liquidity; and we think that there is proper things that potentially we could look at around regulation, but we do not support a separation of banks and investment banks.”
~ Treasury Secretary Steven Mnuchin testifying to the Senate Banking Committee, May 18th 2017

At first blush that statement from Secretary Mnuchin might seem to run counter to the Trump administration’s prior policy statements outlining a preference for a reinstatement of some form of “Glass-Steagall” regulatory separation between commercial banking and investment banking. However, it doesn’t.

When combined with the totality of Mnuchin’s testimony before the Senate Finance Committee, Mnuchin is saying the current “too big to fail” (‘too big to succeed’) issue had created a problem for lending liquidity. Specifically, if divisional separation is required – the banks’ best interests would naturally put the investment division ahead of commercial lending and the liquid capital within the overall U.S. economy would shrink.

After watching hours of interviews and presentations, and after looking at the policy briefs from within the Mnuchin led Treasury, CTH understood what the administration was  doing based on the executive orders signed earlier in the year….


Back in July 2010 when Dodd-Frank banking regulation was passed into law, there were approximately 12 to 17 banks who fell under the definition of “too big to fail”.

Meaning 12 to 17 financial institutions could individually negatively impact the economy, and were going to force another TARP-type bailout if they failed in the future. Dodd-Frank regulations were supposed to ensure financial security, and the elimination of risk via taxpayer bailouts, by placing mandatory minimums on how much secure capital was required to be held in order to operate “a bank”.

One large downside to Dodd-Frank was that in order to hold the required capital, all banks decreased lending to shore-up their liquid holdings and meet the regulatory minimums.

Without the ability to borrow funds, small businesses have a hard time raising money to modernize or create new business. In the big picture growth in the larger economy is hampered by the absence of capital.

Another downstream effect of banks needing to increase their liquid holdings was exponentially worse. Less liquid large banks needed to purchase and absorb the financial assets of more liquid large banks in order to meet the regulatory requirements. Indeed this is exactly what happened.


In 2010 there were approximately twelve “too big to fail banks”, and that was seen as a risk within the economy, and more broad-based banking competition was needed to be more secure.

Unfortunately, because of Dodd-Frank, by 2016 those twelve banks had merged into only four even bigger banks that were now even bigger risks; albeit supposedly more financially secure in their liquid holdings.

This ‘less banks’ reality was opposite of the desired effect.

The four to six big banks (JP Morgan-Chase, Bank of America, Citigroup, Wells Fargo, US BanCorp and Mellon) now control $9+ trillion (that’s “TRILLION). Their size is so enormous that small number of banks now control most of the U.S. financial market.

Because they control so much of the financial market, instituting a Glass-Steagall firewall between commercial and investment divisions (in addition to the Dodd-Frank liquid holding requirements), would mean the capability of small and mid-size businesses to get the loans needed to expand or even keep their operations running would stop.
2010’s “Too few, too big to fail” became 2016’s “EVEN FEWER, EVEN BIGGER to fail”.

That’s the underlying problem for a Glass-Steagall type of regulation now. The Democrats created Dodd-Frank which:

•#1 generated constraints on the economy (less lending),
•#2 made fewer banking options available (banks merged),
•#3 made top banks even bigger.

This problem is why President Trump and Secretary Mnuchin created a parallel banking system of smaller community and credit union banks that are external to Dodd Frank regulations and can act as the primary commercial banks for small to mid-sized businesses.

This intended banking design of smaller, more connected to Main Street lending, is why President Trump and Secretary Mnuchin did not support the CFPB banking rule that allowed lawsuits against all financial entities.

The goal of “Glass Steagall”, ie. Commercial division -vs- Investment division, was actually achieved by generating an entirely new system of banks under different regulation. The currently remaining ten U.S. “big banks” operate as “investment division banks” per se’, and are subject to larger regulatory requirements. However, the lesser regulated community banks/credit unions operate as the “Commercial Side” benefiting Main Street.

Instead of fire-walling an individual bank internally within its organization, the Trump/Mnuchin plan fire-walled the banking ‘system’ within the U.S. internally.

Hope that makes sense.