The stock market’s post-election Trump bounce is, like the electorate, sharply divided. Tech stocks are down, but financial companies are up strongly, apparently on optimism that Congress may well scale back or even replace the Dodd-Frank law, which Trump promised he would do. Such a momentous change is always more complex than it initially seems, though, and to understand this issue’s fascinating background, please read Shawn Tully’s revealing profile of Texas Congressman Jeb Hensarling. He may not become Treasury Secretary, as rumored – he says he doubts he will – but even if he doesn’t, he’ll powerfully influence the future of the U.S. financial system. Most business leaders need to know him better, and in Shawn’s article you’ll learn a lot you didn’t know.
Hensarling chairs the House Financial Services Committee. Any legislation that affects banks has to get past him. He is, Shawn says, “a zealous deregulator, spending hawk, and unbending free-market crusader–one who will relentlessly prod the Trump administration to uproot the Obama era’s sweeping financial reforms.” He despises Dodd-Frank and wants to replace it with a bill called the Financial CHOICE Act. But while Dodd-Frank is best known for tight regulation of the biggest banks, don’t assume that Hensarling is doing Wall Street’s bidding. His bill would authorize the SEC to impose even bigger penalties on Wall Street banks.
Hensarling is more interested in freeing America’s small banks and credit unions – there are some 6,000 of them – from most of Dodd-Frank’s constraints. The mechanism would be simple. Any institution that holds at least 10% of its assets as capital could take an “off-ramp” from Dodd-Frank. Hensarling figures the biggest banks won’t do it; they typically hold only 6% of assets as capital, and increasing the percentage would hobble their financial performance. But small banks mostly meet the 10% standard now or are are close. Besides, they weren’t the source of the financial crisis. If they’re unshackled from hundreds of Dodd-Frank rules that were written largely to control the big guys, they could lend much more freely. And small financial institutions do most of the lending to small businesses, which create most of America’s jobs.
Hensarling’s views are deeply grounded. As a student at Texas A&M he studied under an economics professor who became his mentor and a Texas Senator, Phil Gramm. Like Gramm, he became a passionate free marketer. In 2006 he even voted to repeal a law that restricted long-distance flights at Dallas’s Love Field, though American Airlines, a powerful Texas company, opposed repeal. Most of Hensarling’s fellow Texas Republicans sided with American; Hensarling viewed the law as regulation that made the economy less efficient and therefore had to go. It went.
Until last week, Hensarling’s free-market views carried only slight practical heft. They stood little chance of making it into a bill that a Democratic president would sign. Now they stand quite a good chance of influencing new laws, and one of Washington’s more obscure power players is suddenly poised to become one of its best known.
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What We’re Reading Today
Walgreens claims Theranos misled it
A redacted version of the complaint in Walgreen’s $140-million lawsuit against Elizabeth Holmes‘s company reveals that the retailer claims it learned of Theranos’ decision to void 31,000 of Walgreens customers’ test results via news reports. Theranos has since shut down its clinical lab, focusing instead on developing a portable blood testing device. Fortune
Snap files for IPO
In a confidential filing, Evan Spiegel‘s social media company, formerly known as Snapchat, began the process of possibly going public as early as March. Companies with less than $1 billion in revenue can file confidentially in order to delay publicly sharing financial data. The IPO could value the company at $20 billion to $25 billion. TechCrunch
Microsoft offers concessions to close LinkedIn merger
Satya Nadella‘s company offered the concessions to European Union regulators concerned about the $26-billion deal, but the nature of the concessions isn’t known. Salesforce CEO Marc Benioff has asked regulators to look closely at the data privacy issues that a combined Microsoft-LinkedIn could create. Reuters
Walmart to employees: Don’t download that app
Walmart has told employees not to download a chat app developed by OUR Walmart, a group formerly part of the United Food and Commercial Workers Union that pushes for higher pay. The app enables workers to discuss benefits and issues privately and to get advice on their rights. Doug McMillon‘s company described the app to managers as a scheme to gather workers’ personal information. WSJ
Building Better Leaders
Career breakthroughs aren’t dependent on your age
Researchers have found that physicists have career breakthroughs at all ages. Productivity rather than age determines the likelihood of a breakthrough. New York Magazine
When you make a big mistake…
…it’s important to own it. But don’t cop to it without also offering ideas for a solution. Fortune
Amazon is revamping its employee review process
The company may recast its system of ranking employees against each other. The new procedure “focuses on our employees’ strengths, not the absence of weaknesses,” said an Amazon spokesperson. Business Insider
Two fired from Trump transition team
Former Representative Mike Rogers and lobbyist Matthew Freedman were fired days after VP-elect Mike Pence took control of the team from Chris Christie. The firings might be related to the two men’s ties to Christie and to infighting with President-elect Donald Trump‘s son-in-law, Jared Kushner. NYT
IBM CEO pens a letter to Trump
Ginni Rometty suggests several ways to increase U.S. job creation, in particular by focusing on “new collar” jobs — those that require specific skills but not a two- or four-year college degree, including jobs in cybersecurity, data science, and artificial intelligence. Fortune
Trump’s first 200 days
A memo on laying the foundation for Trump‘s first 200 days shows that he plans to tackle trade issues on day 1. He will begin the process of withdrawing from or renegotiating Nafta by directing the Commerce Department to determine the ramifications of ending the treaty. He will also notify Canada and Mexico that the U.S. intends to propose amendments to the deal. CNN
Up or Out
Gap Inc. has tapped Teri List-Stoll as its CFO, starting in mid-January. WSJ
Fortune Reads and Videos
The acceptance of mobile payments could take decades
Michael Taiano, who heads a group at Fitch Ratings focused on the financial industry, says customers have no reason to use the technology. Fortune
Frontrunners to head Health and Human Services…
…include Rep. Tom Price, former Louisiana Governor Bobby Jindal, and former House Speaker Newt Gingrich. Fortune
Only one premium iPhone model will get a new screen next year
An analyst report dashes the hopes of many Apple fans who didn’t upgrade to the iPhone 7 over rumors that the next generation would include upgraded screens. Fortune
Domino’s Pizza makes its first delivery…
…via drone. It delivered a peri-peri chicken pizza and a chicken and cranberry pizza to a customer in New Zealand. Fortune
Quote of the Day
“[A]t some of our centers in the United States, as many as one third of employees have less than a four-year degree. What matters most is relevant skills, sometimes obtained through vocational training. In addition, we are creating and hiring to fill ‘new collar’ jobs – entirely new roles in areas such as cybersecurity, data science, artificial intelligence and cognitive business.” — IBM CEO Ginni Rometty, writing to President-elect Donald Trump. CNBC