While easy to celebrate the stock rally of late, appearances can be deceiving. The market rally is driven by the potential of nullifying laws, specifically the Dodd-Frank Act, in place that impede risky financial behavior that caused the greatest financial messes of our lifetime. We should proceed with caution or history may repeat itself.
Under President Donald Trump, the stock market is booming. The stocks continue to rally and the Dow Jones Industrial Average surged above 20,000 points the first time in history. Trump and his supporters have been lauding this market success as evidence his policies are working.
The stock rally is driven by investment banks’ potential to make hazardous, yet very profitable decisions. Before the passage of the Dodd-Frank Act, investment banks could make speculative investments with their customers’ money. The investment banks also invested most of their assets into high yielding, yet riskier types of investments.
A large amount of recognition for the stock rally attributed to investment banks. In effect, Goldman Sachs was one of the biggest winners of the Trump election and has contributed the most to the Trump stock rally. In fact, Goldman Sachs accounted for a substantial amount of the overall return. I should also note; several Goldman Sachs executives work within the Trump cabinet now.
This seems insignificant, but if there is a run on these banks as in 2008, investment banks will have significant solvency issues as we’ve seen with Bear Stearns. Considering these banks control the money supply, if the banks fail yet again, the American public will have difficulty accessing money, sending our economy plummeting, and the stock market again in a free fall.
Who will pay the price? You and me. Many pension funds are invested in the stock market. Some are already paying hefty premiums to hedge fund managers. As Americans continue to remain invested in the market, both directly and indirectly, the concern is that these investment banks haven’t learned their lessons, costing all of us a lot of money.
Mr. Trump has yet to sign anything into law or issue an executive order on the Dodd-Frank Act, but the threat is real. We might witness a stock rally, but at what price? If the investment banks want to gamble with money, they should stick to a casino. We’ve been through enough financial fiascos, no more.
Matt Fecteau of Pawtucket, R.I., was a Democratic congressional candidate in 2014. He is a former White House national security intern and Iraq war veteran. Follow him on Twitter @MatthewFecteau.
Related Slideshow: Trump’s Win - What Does it Mean for Rhode Island?
"We don't really know what a Trump presidency means for the nation, never mind the smallest state. One of the unintended consequences of last night's results is that Sen. Jack Reed won't be chairman of the Senate Armed Services Committee. Chalk that up as a loss for RI."
"Trump’s win means that his signature issue, illegal immigration, could have a big impact on RI, hopefully reversing our course as a sanctuary state and saving the state taxpayer millions of dollars. While we agree with his 'repeal and replace' Obamacare stance, we have no idea what that means to the RI debacle known as UHIP. It is not a stretch to believe that federal funding for this kind of system will be off the table so, will RI be stuck with this massively expensive system that still doesn’t work and that is expected to cost another $124 million to fix?
Trump's belief that there is significant fraud in the Food Stamp program and the policies that may come from that belief could have a negative impact on RI's local economy since there are businesses in certain cities that rely heavily on this program, fraud and all. On the upside, we may be able to ditch the UHIP program if there is significantly less need for processing welfare program requests (ie. Medicaid and food stamps) resulting from fewer illegal immigrants and less fraud. While we are ambivalent about his touted child care policies, if enacted, it may force our legislators to revisit the ever growing state cost of subsidies in this area and possibly reduce the fraud and abuse in this system."
"The RI congressional delegation just became even less powerful than it was. With unified government, Trump doesn’t need to quell Democrats’ concerns or acquiesce because he’s worried about a Democratically-controlled Senate.
His appointments will reflect that. His executive orders will affect that. And the conservative policy agenda he puts forward will affect that."
"Well there's a few things -- because there's not going to be gridlock, that's a big difference if it had been Hillary and a GOP Congress, in which nothing would got done. We'll at least get a half a billion in infrastructure that's going to pass which will have an impact.
I think you'll see there will be reduced reliance on government nationally -- and that's where we'll stick out like sore thumb. We've relied way too much on government -- and our government is highly inefficient and ineffective. Maybe, just maybe, in this who cycle of things we might be forced to be small and more efficient for once.
A couple of other things -- interest rates jumped. The one to follow is the ten year government bond rate -- which is tied to mortgages. It went from 1.7% to 2.05% in one day. The point is -- if the ten year stays high, mortgage rates will start going higher -- and in the short time people will run to re-finance.
That's the short term impact -- but then if rates stay hight, that will make mortgages more out of reach. And we just passed a bond issue to limit open space -- housing has limited upside here.
The next thing -- the Fed Reserve will go ahead with tightening next month. A strong dollar will hurt manufacturing. When the dollar is strong our exports become more expensive overseas.
Our goods production sector -- manufacturing and construction -- in the near term will do a little better, but as time goes on will be more limited. But something you won't hear, is there are lags in fiscal policy, of six months to year. So we won't really see the effects until the third our fourth quarter of 2017, going into 2018."
"As the unbelievable turned into reality this morning, it struck me that the presidential election was not really all about Donald Trump and Hillary Clinton. It was about a fed-up people, revolting against a corrupt system - the "beast" - that relentlessly favors insiders. Hillary personified the beast, while Donald personified the slayer.
Sadly, based on election results in our state, Rhode Island's version of the beast lives on. I fear our political class has not learned the lessons from the Bernie Sanders and Donald Trump movements - and will continue with their government-centric, anti-family, anti-business status quo."
"A Trump Presidency means the validation of the ugliest part of America. In RI, as with the rest of the country, the hammer of his hatred will fall hardest on minority communities. Being a blue state doesn't make us immune from this danger.
Trump won over 35% (39.5) of the vote here! We need to look in the mirror, and not lie about what the reflection shows us. No more hiding underneath a blue blanket. I expect those who claim Democratic values to be true to those values. The gulf between words and actions have turned into fertile ground for Trump's message to grow here in RI. If you call yourself a Democrat, if you claim to stand in opposition to Trump, now is the time to prove it. Show up and fight back."
