Unlikely Dodd-Frank protectors
Mark Twain famously quipped, “The reports of my death have been greatly exaggerated.” The same might soon be said about the 2010 Dodd-Frank law.
In the last issue of Simply Stated, we opined that although President-elect Trump promised to dismantle Dodd-Frank, we thought repair was more likely than repeal. We noted that bankers had been working closely with regulators over the past six years honing regulations into something they could live with, and although they would like to see several specific aspects removed, they were not passionate about scrapping the law altogether.
Enter Goldman Sachs chairman Lloyd Blankfein who, along with several other Wall Street bankers, is now actively urging against full repeal. So why, after complaining for years about Dodd-Frank, are these big bankers willing to see it live on — especially now, when they have their best kill-shot in their cross-hairs?
“It’s not in Goldman’s interest,” explains Blankfein. He said that regulatory costs have helped raise the barriers to entry in his business, higher than at any other time in modern history. As a result, he forecasts more opportunities for global giants like Goldman to gain market share, as “only a handful of players will likely be able to effectively compete on a global basis.”
So, if we understand Blankfein, Dodd-Frank regulations are so complex, onerous and expensive that they pose a barrier to entry from his banking competitors. Interesting vision, Mr. Blankfein, but what about everyone else — all the public companies whose cost of compliance continues to escalate?
But it’s not just Goldman Sachs. Last month four trade associations representing banks and credit unions penned letters to Senate leaders urging regulatory restraint regarding Dodd-Frank’s Consumer Financial Protection Bureau.
Add to that, as we previously noted, there is no rallying opposition among non-financial sector CEOs to fight for repeal either.
Whether it’s regulatory battle fatigue, or big bank gatekeeping, be assured that there is far more fight in those who will rise in opposition to the full repeal of Dodd-Frank.
We began with Mark Twain. We conclude with Mark Antony (Julius Caesar: Act 3, Scene 2): “Friends, Romans, countryman, lend me your ears; I come to bury Caesar, not to praise him.”
Senate Republicans may come to Washington to bury Dodd-Frank, only to have their big bank supporters praise it.
Looks more and more like Dodd-Frank repair, not repeal.
SEC: Nominee on deck
President-elect Trump has nominated Jay Clayton to chair the Securities and Exchange Commission replacing Mary Jo White who steps down this month. Clayton, a partner in the prominent law firm Sullivan & Cromwell, has advised on a very long list of major deals including the Alibaba IPO and the sale of the NBA’s Atlanta Hawks. He also helped secure mortgage settlements with the government on behalf of large financial institutions.
“We need to undo many regulations which have stifled investment in American businesses and restore oversight of the financial industry in a way that does not harm American workers,” Trump said in a statement. “Robust accountability will be a hallmark of his tenure atop the SEC, and the financial security of the American people will be his top priority.”
If confirmed, Clayton said he wants the SEC to strike a balance between providing oversight and helping the economy. “We will carefully monitor our financial sector, as we set policy that encourages American companies to do what they do best: create jobs,” Clayton said.
Although some are critical of Clayton’s closeness to Wall Street banks, there is no denying that Clayton has a deep understanding of transactions and regulations.
Mary Jo White was nominated by President Obama in January of 2013. She formerly served as United States Attorney for the Southern District of New York. Widely viewed as a tough but fair enforcer of the rules, she was apparently not tough enough for Senator Elizabeth Warren, who called her leadership of the Commission “extremely disappointing.”
Though both White and Clayton appear to have the necessary qualifications to Chair the SEC, the difference may come down to perspective. While White approached the position with a former prosecutor’s mindset, Clayton spent his career successfully working through a regulatory maze, bringing parties together, and closing deals.
If confirmed, we are hopeful that his transactional experience better suits him to strike the right balance between regulatory reform and industry oversight.
Dwindling number of public companies
The number of U.S.-listed companies has declined by more than 3,000 since peaking at 9,113 in 1997, according to the University of Chicago’s Center for Research in Security Prices. As of June, there were 5,734 such public companies, little more than in 1982, when the economy was less than half its current size. Meanwhile, the average public company’s valuation has ballooned.
And fewer companies going public
Dealogic reports that 111 companies have gone public on U.S. exchanges in 2016, raising $24 billion, the lowest total in more than a decade. There were just 26 U.S.-listed technology IPOs last year, raising $4.3 billion. Meanwhile, private U.S. tech companies tapped the late-stage funding market 809 times last year, raising $19 billion, according to Dow Jones VentureSource.
Sovereign-wealth funds, pools of capital invested by nations, have roughly $7.4 trillion under management, more than double the $3.5 trillion they held in 2007, according to the Sovereign Wealth Fund Institute, a research and data firm. Assets under management at U.S. private equity firms totaled $1.4 trillion, an increase of more than 30% since 2007 and nearly four times the tally in 2000, according to the most recent data from Morningstar’s PitchBook.
President, Chief Cook and Bottle Washer
The number of U.S. food manufacturers run by single owners but no employees nearly doubled from 2004 to 2014. There were more than 350,000 manufacturing establishments with no employee other than the owner in 2014, up almost 17% from 2004, according to the most recent Commerce Department data. By comparison, there were 292,543 establishments with other employees, down 12%. The shift creates a challenge for building back U.S. manufacturing jobs, reports the WSJ.
The Bureau of Labor Statistics reported that the number of jobs created by establishments less than one year old was a mere three million in 2015, down from 4.1 million in 1994 when the U.S. economy was much smaller. The labor bureau added that this trend is “combined with that of fewer new establishments overall.”
Fifty-two percent of U.S. households are at risk of running low on money during retirement, based on projections of assets, home prices, debt levels and Social Security income, according to Boston College’s Center for Retirement Research. That is up from 31% of households in 1983. Roughly 45% of all households currently have zero saved for retirement, according to the National Institute on Retirement Security.
Climate Change: A new finanical disclosure in the making
The Task Force on Climate-related Financial Disclosures (TCFD) issued a report saying greenhouse gas emissions pose a serious risk to the global economy and that “investors need better information to assess which firms are most vulnerable to shifting weather patterns and related threats.”
The Task Force was established in 2009 by the Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system.
When the task force met in London last month, it issued its recommendations — that companies should publish an assessment of losses they could suffer through climate change as part of their routine financial statements.
FSB Chair Mark Carney said: “The disclosure recommendations will give financial markets the information they need to manage risks, and seize opportunities, stemming from climate change. As a private sector solution to a market issue, the Task Force has focused on the practical, material disclosures investors want and which all capital-raising companies can compile.”
After a review period, the final Task Force recommendations will be presented to G20 Leaders in advance of their Summit in Hamburg in July.
Reflections on Hope
Once past the voting, politics is about public policies, whose real-world effects either sustain or diminish hope. Hope is the helium-filled balloon of politics. Governing in office is the gravity that pulls it back to earth.
He that lives upon hope will die fasting.
Hope is the companion of power, and mother of success; for who so hopes strongly has within him the gift of miracles.
But what is hope? Nothing but the paint on the face of existence; the least touch of truth rubs it off, and then we see what a hollow-cheeked harlot we have got hold of.
Simply the right choice
Weinberg & Company is a leading, international, full service, multi-office CPA firm serving clients throughout the United States and the Pacific Rim. Founded over two decades ago, the practice groups include: Assurance and Audit, Tax and Accounting, and Advisory Services. Weinberg has a depth of knowledge and experience to meet the needs of both public and privately held companies, high net worth individuals, entrepreneurs, family offices, and can provide customized business management services. www.weinbergla.com
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