Come January 2019, turbulence is bound to hit the banking sector, as Rep. Maxine Waters (D., Calif) takes the reins as its new chief overseer.
Maxine Waters has quite a history, having pilloried several financial companies suspected of regulatory violations, and even having challenged President Trump himself on matters concerning his family’s financial dealings.
As the newly crowned head of the House Financial Services Committee, her powers extend toward shaping policies that affect the housing market, credit reporting, financial technology, and much more.
Considering her expertise (in politics) and lack of expertise (in the mechanics of the financial services sector), her role may be heavily weighted toward a political function, entailing bipartisan diplomacy toward sound regulation over the nation’s financial services.
But there is no politics with ideology, and there is no politician who is not driven to achieve goals stemming from ideological interest. It makes us wonder: is it even conceivable that Waters’ position will be aimed toward the mutual benefit of both the banking sector and its customers?
How is it that a career politician who has absolutely no “practical” (let alone theoretical) understanding of the world of finance--i.e. no real “skin in the game”--came to oversee its legislation?
Would you put your life in the hands of surgeon who has been indirectly exposed to medical practice but has never practiced medicine him/herself, let alone performed a surgery? Would you entrust the security of your nation to a general who has never once seen a battlefield?
Yet Maxine Waters has emerged onto this scene, guided neither by industry knowledge nor experience, but by a socio-political (minus economic) ideology--one whose conceptual model may not apply to the day-to-day realities of the financial world.
As the banking industry’s overseer, Waters will have the power to force banking executives to provide sensitive documents and to testify in matters prompted or managed by her lack of understanding. But her powers of investigation and judgment, like a fish out of water, will likely not be guided by practical and industry-informed reason--something the financial services industry needs--but by political motivation and social ideology.
Fortunately, Ms. Water will have a counterpart on the Senate Banking Committee: Sen. Mike Crapo (R., Idaho), who successfully negotiated a bipartisan compromise to loosen banking regulations.
But as the banking sector’s top regulator, Maxine Waters now has the unilateral authority to pry into the business of banks, similar to what she has done with Wells Fargo (who deserved it) and Equifax Inc., and like she is about to do with Deutsche Bank AG with regard to its business with the Trump family.
Regardless of any truths in the matter, the context, or her findings, the fact remains that such matters are best handled by authorities who have a real practical knowledge of the territory.
Ms. Waters does not, so we can expect that her somewhat “invasive” presence in the industry may result in extreme volatility and turbulence.
Financial executives are concerned. As Richard Hunt, chief executive of the Consumer Bankers Association, puts it, “We just hope that the common-sensical, rational Maxine Waters will be chair.”
When industry leaders accept basic common sense and rationality--in contrast to knowledge and expertise--as traits sufficient to regulating an industry, then we should all be concerned.
But when industry leaders are “questioning” whether the industry’s primary legislator even has the common sense and rationale to regulate the industry, then perhaps we should all be worried.
Some lobbyists believe that Ms. Waters’ pragmatism may be undervalued. One Democratic lobbyist, Dwight Fettig, says that “There are really a handful of issues where Maxine is actually much more in line with the larger business community...”
Pragmatic or not, her legislative history still doesn’t compensate for the lack of industry knowledge or necessary empathy (that can only be gained by hands-on experience) to truly understand both sides of the fence, that of the service provider and customer.
Beneath it all (or beneath what’s missing) are the driving forces of character and motivation. And with regard to both, let’s remember that Maxine Waters is a staunch defender of financial over-regulation. She has been vocal in calling for Trump’s impeachment. She has even urged liberals to shun Trump administration officials at stores, restaurants, and even gas stations.
And now that Waters is at the helm of the House Financial Services Committee, it would be prudent to assume that her political turbulence can easily spill over to the financial sector, an ideological contamination that should concern anyone deeply invested in financial services and securities.
As an investor or retiree, you have only one of two choices: ignore the looming volatility that is about to occur, or hedge the turbulence that is sure to define the sector.
If you choose to ignore it, you may win...or lose.
If you hedge it, you win either way.
If you need guidance on protecting your portfolio from the market volatility that may result from the banking sector’s regulatory turn, the Fed’s quantitative tightening policy choking economic growth, the ballooning national debt, the current U.S.-China trade war, or the bear market on the horizon, contact us.
It may be time to weatherproof your portfolio and financial future.