This 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 as the deregulation candidate. This week as president, he took more action to rein in financial watchdogs by issuing an executive order taking them under his control.
[MUSIC PLAYING]
This is Swamp Notes, the weekly podcast from the FT News Briefing, where we talk about all 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 discuss is Brooke Masters, the FT’s new US managing editor. Hi, Brooke.
Brooke Masters
Hi.
Marc Filippino
And we’ve also got Stefania Palma here with me in 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 executive 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 is a bit of an oxymoron, given that these agencies are in fact meant to be independent. But in practical terms, Trump essentially said the White House would be establishing performance standards for the federal agencies that they now must consult with the White House on things like their priorities or sort of broader strategic plans.
The order made a point of sort of highlighting that the Federal Reserve’s monetary policy functions would not be captured by this new measure. That essentially means that presumably its supervisory functions would be captured by this. But the key kind of regulators that this applies to are things like the Securities and Exchange Commission, which is obviously sort of a top Wall Street watchdog, as well as the Federal Trade Commission, which is a key antitrust regulator.
Marc Filippino
Yeah, and also budgets will be adjusted, which kind of goes hand in hand with what’s going on at the Department of Government Efficiency with Elon Musk. So the big ones here are the Securities and Exchange Commission, as you mentioned, Stefania, and the Federal Trade Commission, the FTC. Brooke, why is Trump trying to rein them in? What is he troubleshooting for?
Brooke Masters
He’s following up on the general view and the business community that under President Joe Biden, Gary Gensler, who ran the SEC, and Lina Khan at the FTC, were both using regulation and enforcement cases to do things that were too constricting to business, that they have made it too hard to do business in America, and they wanna sort of unleash capitalism and, you know, generate more growth.
Marc Filippino
Is there anything in particular that the Trump administration might be targeting?
Brooke Masters
I think one of the obvious places where we’ve seen action is around crypto, where, for example, the SEC actually reversed guidance that the Gensler SEC had issued that made it hard for banks and asset managers to hold crypto. And they’ve said it’s fine. They did that within the regulatory framework, but I think they can also use this executive order to get rid of things. Similarly, they’ve been dropping cases involving crypto, which will therefore make it much easier for folks to keep pushing forward and bringing crypto more within the standard financial markets.
Marc Filippino
Guys, I wanna play a clip of the announcement of this executive order for you because it raises some questions for me. This is White House staff secretary Will Scharf speaking.
Will Scharf voice clip
Relating to independent agencies: This executive order would establish important oversight functions in the Office of Management and Budget and its subsidiary office, OIRA, supervising independent agencies and many of their actions, and also re-establishes the long-standing norm that only the president or the attorney-general can speak for the United States when stating an opinion as to what the law is.
Marc Filippino
Stefania, what do you make of that?
Stefania Palma
I mean, honestly, this really does kick off, I think, quite a fraught legal debate in that, sure. The president does have oversight over the executive branch and federal agencies, but at the same time, federal agencies originate, some of them, from Congress, that essentially not only sometimes sort of create them, but also give them authority via legislation. The whole point, some would argue, of regulators is their independence, in a sense, also because of levels of expertise.
Regulators like the SEC or the FTC really deal with very . . . at times, complex, dark corners of securities law and antitrust law that only specific experts, some would argue, would be able to look at and also enforce the law in these areas. But also, I think a statement like this kind of runs counter to the set-up that — and perhaps a norm that has been followed for many years — which is that ultimately the regulators are the ones 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 know, we talked a little bit about some of this stuff, 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 actually, you know, he’s expected to do away with that bureau altogether. We don’t have time for all of it. But like Brooke, these are meant to be business-friendly changes. What are you seeing on that front? Are they making businesses happy?
Brooke Masters
I think certainly you can see that bank stocks are doing really well. So, you 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 a lot more concern at places such is like the pharmaceuticals industry, which is like if you fire all the people at the FDA, who is going to approve the drugs?
And ultimately, you know, drug companies make money through innovation and they do need someone to, you know, review their drugs. So I think it’s one thing to, like, remove some of the rules, which, at least in the short-term, does seem like it will boost business. It’s something completely different to remove the people who approve new things, because those are crucial functions of the government as well.
Marc Filippino
If you’re a business, I guess, what are some of the the pros and cons of operating in this environment, Brooke?
Brooke Masters
The rules of the road will be a lot more open. You probably can try more stuff. The chances that something could go terribly wrong go up. You know, when banks are less supervised and markets are free and easy, people push the boundaries. You know, they take big bets. They do interesting things. If the regulators are very disempowered, they can’t intervene early, which means the risk of a significant problem, either in like a mis-selling crisis or in some sort of systemic crisis, become higher.
Stefania Palma
I think it’s also worth maybe pointing out. Oftentimes, business really likes and seeks predictability. If all of a sudden you see regular users no longer being able to kind of carry out their core functions without kind of a White House seal of approval. It kind of does shake up the normal pipeline of sort of functions that are taken up usually by federal agencies. So what does that really look like? I don’t think a lot of people do know that in practical terms.
Brooke Masters
I was going to say, actually, there’s also a moat issue, which is that if you are an established business that’s already invested in complying with rules, you would really rather not have those rules go away because there are moat against new players who will also have to invest. If suddenly you could do whatever the heck you want, all that money you’ve spent on hiring 10,000 compliance people is wasted.
Marc Filippino
That’s interesting. I wanna go back to this point of instability that Stefania brought up, because I spoke to one of our colleagues, James Fontanella-Khan who covers mergers and acquisitions. He reported that M&A is down this year compared to last year, which is kind of surprising given how pro-business Trump is. Meanwhile, there aren’t a ton of companies going public in the US, and it’s because there is this lack of stability. But the folks that James spoke to weren’t super concerned, and I wonder if it’s just a matter of them waiting for the dust to settle.
Brooke Masters
Some of it is they’re waiting for the dust to settle. I mean, it’s very hard to IPO a business that has any overseas business at all 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 float a new business, you have to say, this is what this company is worth. And I think because the rules keep changing both on regulation and on other things. Many company owners are reluctant to sort of trust themselves to the market. And similarly with M&A, it’s, you know, if you’re buying something, how much is it worth? And will the Trump administration let you buy anything? Everything? Will they relax the rules or will they somehow come back? Nobody really knows.
Marc Filippino
Yeah. And then, you know, there’s the idea that, Stefania, that this executive order will almost certainly be challenged. Are there other ways that Trump could handicap regulators though? What do you think might be next?
Stefania Palma
I mean, I think what the administration has done so far has been quite broad — be it via sort of seeking to close down agencies altogether, as you pointed out, or sort of staff cuts now coming up with an order, including a statement as broad as saying only the president and the attorney-general under the president’s supervision will be able to sort of establish what kind of the letter of the law is, I struggle, sort of, to see of how else you could challenge, I guess, the administrative state. But one of the kind of latest statements made by the administration this week also, for example, takes aim at administrative law judges. These are in-house court judges at federal agencies. And what the administration is claiming is that they have also the authority to fire these administrative law judges. That would be yet another broadside against how these regulators function.
Marc Filippino
You know, the judges thing is a really important 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 government standpoint in a lot of different ways.
Brooke Masters
What I would say is that this executive order, I think, is the first time we’ve really seen a bold assertion of what’s known as unitary executive theory. There’s this theory that’s been floating around in conservative circles that basically everything that we thought we knew about the federal government, really, since the New Deal is wrong and that this whole independent agency idea was a mistake and everything should be done by the executive. I mean, it undercuts literally, you know, 80, 90 years of precedent. And to have it inserted in an executive order is a big deal.
Marc Filippino
Brooke, I wanna bring things back to the business community for the last question. What are you hearing and what are you looking for in response to all this?
Brooke Masters
I think there’s a lot of sort of hiding under the desk, and no one wants to be singled out as somehow an enemy of the Trump administration, because they do seem to be willing to break all kinds of norms. So I think companies are very reluctant to say anything highly critical. And I think in general, business is still hoping that the general deregulatory tone and this slowing down of the administrative agencies and forcing them to do less will translate into continued stock market gains, but they are very worried about what else is out there.
[MUSIC PLAYING]
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
Thank you.
[MUSIC PLAYING]
Marc Filippino
This is Swamp Notes, the US politics show from the FT News Briefing. If you wanna sign up for the Swamp Notes newsletter, we’ve got a link to that in the show notes. Our show is mixed by Sam Giovinco and produced by Katya Kumkova. Special thanks to 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 analysis from the Financial Times.