Money & Politics

The Swamp Fighters: Dennis Kelleher on CFPB, Dodd-Frank and the Trump Era

Better Markets' Dennis Kelleher answers our questions about the power struggle at the Consumer Financial Protection Bureau, battling with Wall Street lobbyists on K Street and life in the swamp during the Trump era.

The Swamp Fighters: Dennis Kelleher
Dennis Kelleher; Illustration by Christa Cassano

Dennis Kelleher; Illustration by Christa Cassano

In the wake of the 2008 financial crisis, Dennis Kelleher founded Better Markets, an upstart nonpartisan nonprofit, to protect the public’s interest on Wall Street. During the Obama years, Kelleher and the Better Markets team, all 20 of them, participated in more than 225 rule-makings — more by far than anyone else in the finance arena, other than the biggest trade groups for Wall Street.

He describes the Trump era as a siege on Washington. “There are a bunch of us in foxholes behind enemy lines, and our job is to prevent as much damage behind enemy lines as possible until the enemy is thrown out of the city,” he told us. “That’s the way I think of it. We’re behind enemy lines, fighting like crazy to prevent as many of the financial protection rules from being gutted, weakened or destroyed as possible.”

We caught up with him in his K Street office in downtown DC. This interview is part of a series of articles on DC groups working to fight the “swamp” in DC. It was conducted in person and over email, and has been edited and condensed for clarity. Over Thanksgiving weekend, Richard Cordray, the first and only director of the Consumer Financial Protection Bureau, stepped down. But before doing so, he named Leandra English his deputy and, citing rules set out in Dodd-Frank regarding leadership transfer, put her in charge as acting director. President Trump disagreed and named his own interim chief, Office of Management and Budget Director Mick Mulvaney. English filed suit, but her request to block Mulvaney from taking the job was denied on Tuesday by US District Judge Timothy Kelly — a Trump appointee. What’s your view of the situation?

Dennis Kelleher: People should not get distracted by the personalities or the legal details of this fight. What’s important is that this shows once again that President Trump is Wall Street’s most reliable ally and appears to be willing to do virtually anything that the financial industry wants him to do, no matter how much it hurts Main Street and the Americans he claims to care about.

The CFPB was created with one mission: Protect financial consumers. The industry simply does not want an effective consumer protection cop on the Wall Street beat.

The CFPB is the most successful consumer protection agency in the history of the country, and that’s why the financial industry has been trying to kill it. The CFPB has returned about $12 billion to more than 27 million ripped-off Americans. That’s $12 billion the industry wanted to keep in its pockets, rather than being forced to return that money to the people they ripped off. Before the 2010 Dodd-Frank law created the CFPB, consumer protection was spread across more than six agencies, and it was not a priority for any one of them. The CFPB was created with one mission: Protect financial consumers. The industry simply does not want an effective consumer protection cop on the Wall Street beat.

Although it’s not often discussed, the CFPB is vital also for financial stability, because predatory conduct is often the springboard for financial crashes. That’s what happened in the years before the 2008 financial crash. Financial predators ripped off unsuspecting and unprotected mortgage consumers who were victims of egregious fraud. Federal regulators did nothing, and actually stopped state regulators from enforcing their state consumer protection laws. The result was rampant predatory lending, the collapse of underwriting standards, and the creation, packaging, sale and distribution of fraudulent derivatives and structured products — all of which inflated the subprime bubble that crashed the financial system. The risk of that happening again (undoubtedly in a new and different form) is virtually assured as the Trump administration, on behalf of the financial industry, appears committed to crippling the CFPB and leaving consumers once again unprotected.

What do you think we can infer from his choice of Mulvaney as the interim chief — someone who once testified before Congress that he doesn’t like the fact that the CFPB exists?

Kelleher: Showing his true beliefs, the president has appointed someone to head the CFPB who has attacked it and voted to kill it. We don’t have to infer what Mr. Mulvaney will do as the acting director of the CFPB, because as a congressman, he called the CFPB a “sad, sick joke.” Only someone who believed the biased talking points of the financial industry could make such a statement. Only a president who wanted to destroy an agency would put such a person in charge of it. That is exactly what the president has done here, with the clear intent that Mr. Mulvaney will prevent the CFPB from doing its critical job protecting consumers from financial predators.

While the champagne corks are popping on Wall Street and at its lobbyists’ offices in Washington, DC for Mr. Mulvaney’s appointment, it is a sad day for everyone else and for the country. The CFPB was created to stand up for anyone who has a bank account, credit card, debit card, car loan, student loan, home loan, payday loan, credit report or any other financial product of any type — which is virtually every single American — and crippling it is going to harm every one of those people, who will once again be left largely defenseless against gigantic financial institutions and financial predators.

Let’s take a step back and look at the bigger picture in Washington right now. How has the work you do changed since the election?

Kelleher: In some ways nothing has changed and in other ways everything has changed. We went from an administration that was working to prevent another historic crash and all the human wreckage that resulted from that — tens of millions of people unemployed, 16 million foreclosures filed, about 40 percent of all homes in America underwater — just massive economic and human devastation from coast to coast as a result of a financial recklessness and illegality on Wall Street. A big part of the Dodd-Frank law was to prevent that from happening again. But another big part of it that gets no attention is to [its aim] refocus and rebalance Wall Street financial activities to support real-economy jobs and growth, rather than high-risk activities moving paper around in a gambling way to pad their bonuses.

Now we have a White House that has merged with Wall Street for all intents and purposes. The administration has become a full employment act for bankers from Goldman Sachs. Being from finance in and of itself is not, in our view, a disqualification for being in public service. The difficulty is making sure that the people in the public sector hired from, in our case finance and the biggest too-big-to-fail banks, actually prioritize the public interest and are sufficiently self-aware and smart to understand that that which most benefits the biggest banks may not necessarily be in the best interest of the public and the country. We know from the 2008 crash that what’s good for Wall Street can be spectacularly bad for Main Street.

Most people don’t understand how power actually is exercised in this town. It’s great to pass a law like Dodd-Frank, but Dodd-Frank is largely meaningless until it’s implemented by the agencies and departments in the rule-making process. And the people who have a monopoly on the knowledge and experience of the rule-making process are the lobbyists and the so-called swamp.

The leaders of the swamp are Wall Street’s lobbyists and trade groups. There’s over 30 trade groups in Washington DC devoted to pushing the interest of finance. There is virtually no one on the progressive side who actually has the substantive expertise on the subject matters and the process expertise to engage at the SEC, the CFTC, the Fed, the OCC, the FDIC, the Treasury, the Department of Labor and understand the Administrative Procedures Act, which the departments and agencies have to follow in connection with proposing and finalizing rules.

So what Better Markets has done — you name it, we watch every rule that’s proposed. We write detailed comment letters, we file legal briefs and we meet with regulators. We’re still in the trenches, at the agencies and departments, fighting to get these rules put in place as strong as possible and in the public interest rather than in private interest.

What are some of the most significant changes since the start of this administration?

Kelleher: One is essentially the presidential directive that “Hey, we’re against regulation; we want to deregulate that.” The second level of activity has been who he’s put in place, because people are policy.

You know, the last thing most of the big banks want is Dodd-Frank to be repealed. They’ve spent a fortune and an enormous amount of time complying with and changing to conform to Dodd-Frank. And frankly, much of Dodd-Frank is actually in the best interests of even the biggest banks. Preventing them from blowing themselves up is not actually a bad thing, even for them. The problem that is sky-high bonuses sometimes cloud their view.

Upton Sinclair.

Kelleher: Right. “It’s hard to get a man to understand something when his paycheck depends upon him not understanding it.”

We expect to have pretty big fights over the Volcker Rule, over capital, over liquidity, over FSOC (the Financial Stability Oversight Council), over the designation of systemic nonbanks. One of the very troubling aspects of the rhetoric coming out of the administration since it got here is it has been attacking the FSOC. Now, nobody’s heard about the FSOC, and nobody really cares about it out there in the real world. It was created to police what people refer to as the shadow banking system.

Much of the financial crisis of 2008 started and spread in what’s called the shadow banking system. We had a two-tier financial system: A heavily regulated banking system and a nonregulated shadow banking system. Anytime you have two levels of regulation, the highest-risk activities go to the darkest, least-regulated part of the financial system.

What they do is they juice their profits because they’re not regulated, and because they’re not regulated, if they blow up, the taxpayers get the bill. So they get the bonuses, we get the bill. That’s what was happening before 2008. The bill came due in 2008 and 2009, and people are still paying the bill now.

I have to imagine that Trump didn’t come into office with much opinion one way or the other on the FSOC. So where are these attacks coming from?

Kelleher: President Trump has turned to and largely relied on advisers from the biggest too-big-to-fail banks in the United States, primarily Goldman Sachs and JPMorgan Chase. The president actually said in one meeting, “There is nobody better to tell me about Dodd-Frank than Jamie [Dimon],” the CEO of JPMorgan Chase, who has been the point person since Dodd-Frank was passed in 2010, bashing financial regulation and regulators.

You guessed that President Trump did not come in having deep thoughts about FSOC and that’s probably objectively true. But one of the things that’s interesting is when President Trump says something favorable to Wall Street or against the financial protection rules, people say, “Well, that’s who the people voted for,” and I say, “No, it isn’t.” Candidate Trump was the most anti-Wall Street presidential candidate since FDR. He railed against the banks. He railed against Wall Street. He ended his campaign with a dark two-minute commercial identifying the three biggest threats to the United States, and one of them was Lloyd Blankfein, the chairman and CEO of Goldman Sachs. He made it clear to people who were going to vote for him that he was going to crack down on Wall Street.

The whiplash is that President Trump apparently has never met candidate Trump, right? Because there’s no overlap between candidate Trump and President Trump when it comes to Wall Street.

So what happened?

Kelleher: We have an administration that is blindly and mindlessly committed to deregulating everything, including finance. The president of Goldman Sachs is the most senior official in the United States running national economic policy. He’s the chairman of the National Economic Council. His office is doors away from the Oval Office. Another former banker from Goldman Sachs, Steve Mnuchin, is treasury secretary. This is the bank — not any bank, the bank — candidate Trump identified as one of the biggest threats to the American people.

The real problem with the old system prior to the crash, is that the possibility of literally unimaginable riches is an incentive that guarantees that banks and bankers are going to take unreasonable risks. It’s as if somebody gave you a credit card and said, “This is my credit card, it has no limit, go to Las Vegas and gamble. You keep all the winnings, I’ll pay for all the losses. Have a good time.”

That was the problem with the financial system and the policies before 2008. If you see other people in your industry making $10 million, $25 million, $50 million, $100 million in one year from taking big bets, there’s this collective incentive to be as risky as possible. And that’s the system that these guys risk re-creating.

At the end of four years with President Trump and this Congress, what will be the state of Dodd-Frank? Is it there at all?

Kelleher: Dodd-Frank will be there. It’s extremely unlikely that the Dodd-Frank law would be repealed.

Why is that?

Kelleher: One reason is that it’s 900 pages affecting virtually every part of the financial industry and the financial sector. So you can’t just repeal it. It fundamentally changed so many different things, including prior law.

The worst-case scenario is the law is effectively gutted through the regulatory agencies. And of course, any law of any type that isn’t enforced is a dead letter. So they can effectively kill the law in many ways by not enforcing the law.

The real challenge is to have enough people on the field of battle — experienced, seasoned and capable — to both prevent as much damage as possible day in and day out and have the capacity and ability to be opportunistic when opportunities are there to grab a win.

You need political resistance but you also need robust, expert policy resistance. And that has been grossly, grossly neglected.

And what does that look like? If it were not being neglected, what would it look like?

Kelleher: It would look like much more funding of Better Markets and organizations like Better Markets — whether it’s Better Markets in the financial space, whatever groups should be in the environmental space, whatever groups should be in the health-care space.

Every time they do something, there ought to be somebody right there calling them on it on the administrative procedure side or on the legal side. Same thing with the environment. And there’s some of this, but it’s very ad hoc in the environmental space. When the EPA or the secretary of energy decides they’re going to do X, Y or Z, there should be a policy resistance that works with, or at least in parallel to, the political resistance. That should be across the board, and we’re seeing some nascent signs of that.

What we’re not seeing is the funders having any appreciation or awareness of the importance of that. And that, in my judgment, is one of the most critical mistakes being made in the early months of this administration. And every day that goes by is an opportunity lost, because if a year from now people smarten up and build up a policy resistance, that which has happened has happened. You can’t say, “Oh, well, we should have stopped that last year. We’ll do that now.” It doesn’t work that way. What you’ve lost, you’ve lost.

All the attention is on the kind of headline-grabbing interesting stuff that people think makes a difference in the streets, which, again — important, necessary, but not sufficient — gets all the attention. There’s really very few people who understand the importance of the 40-plus rules that have been finalized by the Commodity Futures Trading Commission, and yet they’re some of the most important rules that are going to prevent the next financial crash, if it’s prevented.

On the other hand, I don’t think it’s that difficult to understand that these people are engaged in a deregulatory frenzy that is detrimental to the life, health and economic well-being of every American. And engaging at the policy level in the trenches is imperative, as much as it is creating a political environment through political resistance to change the electoral dynamics next year and every year thereafter.

John Light


John Light is a reporter and producer for the Moyers team. His work has appeared at The Atlantic, Grist, Mother Jones, Salon, Slate, Vox and Al Jazeera, and has been broadcast on Public Radio International. He's a graduate of Columbia Graduate School of Journalism. You can follow him on Twitter at @LightTweeting.

Susannah Jacob

Susannah Jacob is a reporter and former speechwriter for President Barack Obama. Her work has appeared in The Atlantic, The Washington Post and The New York Times. She studied history at The University of Texas at Austin, where she was editor of her college newspaper, The Daily Texan.