The largely unexpected 2008 global financial crisis is firmly etched in the minds of many as the worst financial crisis since the 1930’s Great Depression. The meltdown was triggered by the high default rate in the US subprime mortgage sector earlier in 2007. Predatory lending practices by private institutions, and prevailing low interest rates pushed many people to take mortgages, which they were unable to repay. What followed was a series of events, most notably the international banking crisis that witnessed the collapse of Lehman Brothers and other financial institutions.

The crisis was also marked by plunging stock markets, prolonged unemployment and foreclosures. It took the intervention of the US federal government and central banks across the world to forestall what would have precipitated into the collapse of the global financial market and ultimately the global economy. Besides the US, the countries that were hard hit by the crisis include Russia, Ukraine, Japan, Mexico, Germany and Turkey. The 2008 financial crisis was followed by an economic downturn and the European debt crisis that affected Greece and other EU countries.

The economic uncertainty being witnessed today has forced many experts to wonder whether we are on the cusp of another financial crisis. The investment manager who famously predicted the 2008 crash back in 2005 sees a pattern that could trigger a similar meltdown. According to an article published by the UK Express on January, 2018, investment manager James Stack used a homegrown Housing Bubble Bellwether Barometer to predict the 2008 crisis and the oncoming crisis. His proclamation is backed by the extreme valuations in the real estate sectors.

The speedy run in housing prices is egged by prevailing low interest rates that could lead to a series of rate increases followed by colossal loan defaults as happened in 2008. He is closely watching the homebuilder stocks for signs of the meltdown. The 66 year old manages assets worth $1.3 billion on behalf of high net-worth clients. Similar sentiments have been echoed in the past by billionaire investor, George Soros. Earlier in May, Soros told Time Magazine that the upcoming financial crisis will be prompted by surging dollar and capital flight from emerging markets.

The warning is mostly directed at the European Union. According to Soros, Europe will bear the brunt of the terminated Iran nuclear deal and erosion of the transatlantic alliance between the EU and the United States. The events will see major currency devaluations in the emerging markets. Countries like Argentina and Turkey are already experiencing runaway inflation, which points to this fact. Industry analysts are also keenly watching other potential triggers such as US federal and corporate debt, the return of adjustable rate mortgage, the China debt portfolio and rising conflicts in global trade.

In spite of all the gloom, Bloomberg Business Week columnist Peter Coy thinks otherwise. In an excerpt published in Bloomberg on November 2017, Coy believes the global economy will be good in 2018 unless someone does something really dumb. These claims are backed by a report from the International Monetary Fund showing an upswing in global economic activities after years of subpar growth. The fund predicts an impressive 2.5% growth in the US economy in 2018. The other economies that will record impressive growth include China 6.4% and Germany 1.6%.

Stable outlook will also be witnessed in countries like India and Spain. However, the optimism will not be felt at the same level in sub-Saharan Africa, Latin America and Middle East. Economists believe a healthy growth is crucial in cushioning the world against future downturns. The stability of the global economy will also depend on how well entrepreneurs and consumers, whether rising geopolitical threats affecting the world. For this reason, respective governments need to do their part by cutting taxes, lowering interest rates and increasing spending in key growth areas.

In a report published by The Nation Magazine, Krishen Mehta the former Senior Partner of PWC and a respected Global Justice Fellow at Yale University says the US has a reason to worry, and he offers a 4 point solution. The solutions include: strengthening the Dodd-Frank Act; reining in culprits involved in corporate misconduct; clamping down on the shell companies and getting corporations out of politics. The Dodd-Frank Act was ostensibly established to give the federal government an oversight role and authority over the US financial institutions.

The enhanced prudential standards emphasized stricter risk management requirements, stress test and pragmatic resolution planning. However, components of the act were revised in May 2018 and this opened the doors to potential risks. New regulations now forbid the federal government from applying oversight on banks with up to $250 billion in assets. The easing of the restrictions has seen some of the leading financial institutions in the US such as Goldman Sachs and American express issue risky, unsolicited secured loans of up to $100,000. If left unchecked such decisions can easily lead to serious financial calamity.

Deregulation has also made it easier for banks with assets amounting to $ 10 billion or less to be exempted from the Volcker Rule, which restricted the use of customer funds in making printable investment initiatives. Shell companies are notorious in facilitating undesirable practices such as tax evasion, money laundering and influencing politics. The US needs to address this problem head on by closing the loopholes to secure the country’s financial system. The government must also rein in runaway corporate misconduct by prosecuting the culprits involved in the acts.

In view of the billions of dollars spent in the bailout, Mehta notes that no serious cases of financial impropriety were forwarded for prosecution following the 2008 financial crisis. He reiterates that executives and corporate boards must always be held to account. Corporations offering donations to influence politics must also be stopped to give the legislatures the free hand to legislate without favor. With these changes, emancipated politicians will aptly stabilize the financial system and scrutinize corporate actions. The benefits will go a long way to build public trust and confidence.

The CFPB Under a Trump Administration: What You Need to Know

The 2016 election to succeed President Barack Obama was a surprising turn of events that many Americans are still trying to understand. The prospect of the United States being presided by New York billionaire Donald Trump was an unlikely scenario, but now that voters have decided their political leader for the next four years, the time has come to take into account what the future may bring.

Financial Reforms Proposed by Donald Trump

Many of the talking points pushed by President elect Trump during his controversial campaign have been revised downward in an effort to conform to reality. Some examples in this regard include the wall along the southern border with Mexico and blocking the entry of people who adhere to the Islamic faith. These harsh proposals have been softened, but there are two particular talking points that political analysts are concerned about: the Dodd-Frank Act and the future of the Consumer Financial Protection Bureau, better known for its initials CFPB.

The Dodd-Frank Act was enacted in the wake of the 2008 crash of Wall Street, which was caused in great part by the ample leeway that financial institutions had in relation to the debt instruments they created, managed and sold to American consumers. Congress took a hard look at certain financial products such as subprime mortgage loans, which many legislators believed were too complex for borrowers to understand.

A major provision of Dodd-Frank was the creation of the CFPB, which was proposed by Elizabeth Warren, a Harvard professor known for her extensive research into the personal bankruptcy trend of the late 20th century. One of the major accomplishments of the CFPB has been in the area of mortgage lending and the disclosures made to borrowers when they buy homes or refinance existing loans.

What President elect Trump would like to see under his administration is a radical overhaul of Dodd-Frank. A few months before the election, Trump expressed his desire to dismantle the law because he believes it is detrimental to business financing. In an interview with Reuters, Trump described Dodd-Frank as a major impediment to American bankers who find it difficult to offer loans to business owners.

In very broad terms, Trump would like to limit the oversight powers that government regulators currently have on financial institutions, and he thinks that doing away with the CFPB would be conducive to his reform plans.

Taking Steps Towards Deregulation

Trump’s proposal to do away with the CFPB is hardly a new concept. Texas Senator Ted Cruz, a former Republican candidate whose strong criticism of Trump was seen as a sign of a fractured GOP, introduced a bill to repeal the CFPB in 2015. This proposal, which was initially met with Democratic opposition, would be easier to pass under a Trump administration that features a House and Senate under Republican control.

One of the arguments presented by Senator Cruz in support of eliminating the CFPB is the leadership structure of this agency, which is under the purview of a single director. Other agencies such as the Federal Trade Commission are managed by a committee of five members; however, the CFPB was created in a certain manner that seeks to avoid Congressional politics that could derail policy.

In the five years since the enactment of the CFPB, the agency has been very active issuing directives and new regulations that have been welcomed by consumer protection groups but not so much by financial industry leaders. Republican Members of Congress believe that the leadership structure of the CFPB leads to arbitrary decisions that are not always the best for the American economy.

Although President elect Trump has mentioned his intention of introducing an initiative that will do away with the CFPB, doing so will not be so easy due to the manner in which the Dodd-Frank Act was written and implemented. Nonetheless, Trump has made an early and clever move towards minimizing the influence of the CFPB through his appointment of Paul Atkins to lead the team that will oversee the transition of the agency into the new administration.

Atkins served as a member of the Securities and Exchange Commission during the Bush administration. He is known to be in favor of not imposing too many regulations on the financial industry, and thus he may be able to work from within when the White House calls for an overhaul of the CFPB under the Trump administration.

The Reality of Reform

Details about how exactly President elect Trump intends to handle the CFPB are still forthcoming. Seasoned political analysts have explained that dismantling the agency will be nearly impossible. Should Trump decide to push for legislation to completely repeal the CFPB, he may encounter opposition from his own party.

Comprehensive reform to existing laws in the United States is not a simple task. The immigration reform package that was introduced in the early days of the first Obama administration is an example of how difficult it can be to pass such wide-ranging legislation even when it is backed by the Senate and the White House.

Some political analysts have mentioned that upending the CFPB would accomplish little in the way of stimulating the economy. What Trump more likely wants is to ease up on the onerous rules that the agency has imposed on banks and lending institutions. There are many Americans who could use quick cash while they wait for the economy to fully recover; it would be wise of the Trump administration to look into the CFPB issues that are unfavorable to lenders and to the borrowers they wish to serve.

Some of the work that the CFPB has completed since its inception has been beneficial to the financial industry. The simplification of the mortgage disclosure forms, for example, has brought about positive change at the closing table. In the past, complicated worksheets like the HUD-1 Settlement Statement resulted in confused home buyers who requested more time to mentally process what they were getting into.

The new mortgage disclosure forms are easier to read and do not require an experienced escrow officer to decipher. At the same time, some of the CFPB’s mandates have resulted in a limited ability by banks and lenders to market their products to consumers at a time when economic prospects are not the best in the U.S. Some states have expressed a desire to have more autonomy in relation to financial services offered within their jurisdictions; this would be a good time to empower state legislatures instead of deferring all regulations to the purview of the CFPB.

The Future of the CFPB and Financial Services

There is one way that Trump could be able to bring about positive change in the CFPB, and that would be through strategic riders attached to other bills that may not be directly related to the CFPB. Such riders often serve as compromises between legislative factions so that bills can be approved and enacted without causing partisan blockades that do not benefit Americans.

Similar to the good work of the CFPB, the Trump administration should not approach the Dodd-Frank Act in an overzealous manner; some provisions in that law have been positive for the American economy, even if they may appear to be unusual. For example, the Dodd-Frank Act requires investment banking firms such as Goldman Sachs to diversify their holdings by offering retail banking products. This has prompted Goldman Sachs to offer savings accounts and even personal loans as a matter of compliance; these products have thus far been welcomed by consumers because they are competitively priced, even though it seems strange to see Goldman Sachs offering debt consolidation loans.

In the end, the Trump administration would be better off taking a good look at what the CFPB has accomplished and what could be done to improve its operations before making any harsh determination to completely eliminate the agency. There is also another matter to consider: Trump’s distaste for lobbying, which he often flaunted during his campaign trail, could backfire as he tries to take down the CFPB. Some of the political lobbies related to the banking and lending industries are very powerful and will not go away so easily. If a lobby emerges to defend the CFPB, the White House could see a political fracture in Congress that may last for the entirety of Trump’s presidential term.