That is an audio transcript of the FT News Briefing podcast episode: ‘Swamp Notes — Trump tries to bring watchdogs to heel’
Marc Filippino
Donald Trump campaigned because the deregulation candidate. This week as president, he took more motion to rein in financial watchdogs by issuing an executive order taking them under his control.
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That is Swamp Notes, the weekly podcast from the FT News Briefing, where we discuss all of the things happening in US politics. I’m your host, Marc Filippino, and this week we’re asking: what does Trump’s grip on regulators mean for the business community? Here with me to debate is Brooke Masters, the FT’s latest US managing editor. Hi, Brooke.
Brooke Masters
Hi.
Marc Filippino
And we’ve also got Stefania Palma here with me within the DC studio. She’s the FT’s legal and enforcement correspondent. Hey, Stefania.
Stefania Palma
Hi, Marc.
Marc Filippino
All right Stefania, so let’s start with what happened this week. What was in the chief order that Trump issued on Tuesday?
Stefania Palma
So Trump essentially signed an executive order that, quote, reins in independent agencies. Some would argue that may be a little bit of an oxymoron, on condition that these agencies are in reality meant to be independent. But in practical terms, Trump essentially said the White House could be establishing performance standards for the federal agencies that they now must seek the advice of with the White House on things like their priorities or form of broader strategic plans.
The order made some extent of form of highlighting that the Federal Reserve’s monetary policy functions wouldn’t be captured by this latest measure. That essentially implies that presumably its supervisory functions could be captured by this. But the important thing form of regulators that this is applicable to are things just like the Securities and Exchange Commission, which is clearly form of a top Wall Street watchdog, in addition to the Federal Trade Commission, which is a key antitrust regulator.
Marc Filippino
Yeah, and likewise budgets can be adjusted, which sort of goes hand in hand with what’s happening on the Department of Government Efficiency with Elon Musk. So the massive ones listed here are the Securities and Exchange Commission, as you mentioned, Stefania, and the Federal Trade Commission, the FTC. Brooke, why is Trump attempting to rein them in? What’s he troubleshooting for?
Brooke Masters
He’s following up on the final view and the business community that under President Joe Biden, Gary Gensler, who ran the SEC, and Lina Khan on the FTC, were each using regulation and enforcement cases to do things that were too constricting to business, that they’ve made it too hard to do business in America, they usually wanna form of unleash capitalism and, you already know, generate more growth.
Marc Filippino
Is there anything specifically that the Trump administration could be targeting?
Brooke Masters
I feel certainly one of the apparent places where we’ve seen motion is around crypto, where, for instance, the SEC actually reversed guidance that the Gensler SEC had issued that made it hard for banks and asset managers to carry crypto. They usually’ve said it’s effective. They did that throughout the regulatory framework, but I feel they can even use this executive order to do away with things. Similarly, they’ve been dropping cases involving crypto, which is able to due to this fact make it much easier for people to maintain pushing forward and bringing crypto more throughout the standard financial markets.
Marc Filippino
Guys, I wanna play a clip of the announcement of this executive order for you since it raises some questions for me. That is White House staff secretary Will Scharf speaking.
Will Scharf voice clip
Referring to independent agencies: This executive order would establish necessary oversight functions within the Office of Management and Budget and its subsidiary office, OIRA, supervising independent agencies and plenty of of their actions, and likewise re-establishes the long-standing norm that only the president or the attorney-general can speak for the US when stating an opinion as to what the law is.
Marc Filippino
Stefania, what do you make of that?
Stefania Palma
I mean, truthfully, this really does kick off, I feel, quite a fraught legal debate in that, sure. The president does have oversight over the chief branch and federal agencies, but at the identical time, federal agencies originate, a few of them, from Congress, that essentially not only sometimes form of create them, but in addition give them authority via laws. The entire point, some would argue, of regulators is their independence, in a way, also due to levels of experience.
Regulators just like the SEC or the FTC really take care of very . . . at times, complex, dark corners of securities law and antitrust law that only specific experts, some would argue, would have the opportunity to take a look at and likewise implement the law in these areas. But in addition, I feel a press release like this sort of runs counter to the set-up that — and maybe a norm that has been followed for a few years — which is that ultimately the regulators are those who think through things like regulation, who make decisions around enforcement without necessarily being encroached upon by the office of the president.
Marc Filippino
I just wanna mention that this definitely isn’t Trump’s first move towards deregulation since he’s come into office. You understand, we talked slightly bit about some of these things, but there have been stop work orders, there have been mass firings and litigation. Regulations are being gutted from the Consumer Financial Protection Bureau. And Trump is definitely, you already know, he’s expected to put off that bureau altogether. We don’t have time for all of it. But like Brooke, these are supposed to be business-friendly changes. What are you seeing on that front? Are they making businesses completely satisfied?
Brooke Masters
I feel definitely you may see that bank stocks are doing rather well. So, you already know, investors in financial services think that the reining in of the SEC and the banking regulators is gonna be good for them. There’s loads more concern at places such is just like the pharmaceuticals industry, which is like in the event you fire all of the people on the FDA, who’s going to approve the drugs?
And ultimately, you already know, drug firms generate profits through innovation they usually do need someone to, you already know, review their drugs. So I feel it’s one thing to, like, remove a few of the rules, which, at the least within the short-term, does look like it’ll boost business. It’s something completely different to remove the individuals who approve latest things, because those are crucial functions of the federal government as well.
Marc Filippino
For those who’re a business, I suppose, what are a few of the the professionals and cons of operating on this environment, Brooke?
Brooke Masters
The principles of the road can be loads more open. You almost certainly can try more stuff. The possibilities that something could go terribly unsuitable go up. You understand, when banks are less supervised and markets are free and straightforward, people push the boundaries. You understand, they take big bets. They do interesting things. If the regulators are very disempowered, they’ll’t intervene early, which suggests the chance of a major problem, either in like a mis-selling crisis or in some form of systemic crisis, develop into higher.
Stefania Palma
I feel it’s also value possibly stating. Oftentimes, business really likes and seeks predictability. If unexpectedly you see regular users now not with the ability to form of perform their core functions without form of a White House seal of approval. It form of does shake up the conventional pipeline of form of functions which can be taken up normally by federal agencies. So what does that basically appear like? I don’t think quite a lot of people do know that in practical terms.
Brooke Masters
I used to be going to say, actually, there’s also a moat issue, which is that in the event you are a longtime business that’s already invested in complying with rules, you’d really relatively not have those rules go away because there are moat against latest players who may also have to speculate. If suddenly you could possibly do regardless of the heck you would like, all that cash you’ve spent on hiring 10,000 compliance people is wasted.
Marc Filippino
That’s interesting. I wanna return up to now of instability that Stefania brought up, because I spoke to certainly one of our colleagues, James Fontanella-Khan who covers mergers and acquisitions. He reported that M&A is down this yr in comparison with last yr, which is kind of unusual given how pro-business Trump is. Meanwhile, there aren’t a ton of firms going public within the US, and it’s because there may be this lack of stability. But the parents that James spoke to weren’t super concerned, and I ponder if it’s only a matter of them waiting for the dust to settle.
Brooke Masters
A few of it is that they’re waiting for the dust to settle. I mean, it’s very hard to IPO a business that has any overseas business in any respect because, are there gonna be tariffs on Mexico? Are there gonna be tariffs on Canada? What about steel? So it’s hard to value a business. To drift a brand new business, you’ve to say, that is what this company is value. And I feel because the principles keep changing each on regulation and on other things. Many company owners are reluctant to form of trust themselves to the market. And similarly with M&A, it’s, you already know, in the event you’re buying something, how much is it value? And can the Trump administration allow you to buy anything? The whole lot? Will they calm down the principles or will they someway come back? No person really knows.
Marc Filippino
Yeah. After which, you already know, there’s the concept, Stefania, that this executive order will almost definitely be challenged. Are there other ways in which Trump could handicap regulators though? What do you think that could be next?
Stefania Palma
I mean, I feel what the administration has done to this point has been quite broad — be it via form of in search of to shut down agencies altogether, as you identified, or form of staff cuts now coming up with an order, including a press release as broad as saying only the president and the attorney-general under the president’s supervision will have the opportunity to form of establish what form of the letter of the law is, I struggle, form of, to see of how else you could possibly challenge, I suppose, the executive state. But certainly one of the form of latest statements made by the administration this week also, for instance, takes aim at administrative law judges. These are in-house court judges at federal agencies. And what the administration is claiming is that they’ve also the authority to fireplace these administrative law judges. That may be one more broadside against how these regulators function.
Marc Filippino
You understand, the judges thing is a very necessary point. Just on Thursday, the Department of Justice said that it was gonna drop a long-running case against Elon Musk’s SpaceX. So we’re seeing the influence on business from the federal government standpoint in quite a lot of alternative ways.
Brooke Masters
What I’d say is that this executive order, I feel, is the primary time we’ve really seen a daring assertion of what’s generally known as unitary executive theory. There’s this theory that’s been floating around in conservative circles that principally the whole lot that we thought we knew in regards to the federal government, really, for the reason that Recent Deal is unsuitable and that this whole independent agency idea was a mistake and the whole lot must be done by the chief. I mean, it undercuts literally, you already know, 80, 90 years of precedent. And to have it inserted in an executive order is an enormous deal.
Marc Filippino
Brooke, I wanna bring things back to the business community for the last query. What are you hearing and what are you searching for in response to all this?
Brooke Masters
I feel there’s quite a lot of form of hiding under the desk, and nobody desires to be singled out as someway an enemy of the Trump administration, because they do appear to be willing to interrupt all types of norms. So I feel firms are very reluctant to say anything highly critical. And I feel typically, business continues to be hoping that the final deregulatory tone and this slowing down of the executive agencies and forcing them to do less will translate into continued stock market gains, but they’re very nervous about what else is on the market.
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Marc Filippino
On that note, I’m gonna thank our guests. Brooke Masters is the FT’s US managing editor. Thanks, Brooke.
Brooke Masters
Thanks for having me.
Marc Filippino
And Stefania Palma, she’s our legal and enforcement correspondent. Thanks, Stefania.
Stefania Palma
Thanks.
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Marc Filippino
That is Swamp Notes, the US politics show from the FT News Briefing. For those who wanna join for the Swamp Notes newsletter, we’ve got a link to that within the show notes. Our show is mixed by Sam Giovinco and produced by Katya Kumkova. Special because of Pierre Nicholson. I’m your host, Marc Filippino. Our executive producer is Topher Forhecz, and Cheryl Brumley is the FT’s global head of audio. Original music by Hannis Brown. Check back next week for more US political evaluation from the Financial Times.
