Chuck Schumer Has an Important Choice to Make on Regulatory Personnel

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Jacquelyn Martin/AP Photo

Senator Chuck Schumer on Capitol Hill, October 29, 2019

Senate Minority Leader Chuck Schumer is likely to recommend nominees to fill key financial regulatory agency slots earmarked for Democrats in the coming weeks. A vacancy is anticipated at the Securities and Exchange Commission (SEC), and no Democrats have yet been nominated to serve on the Federal Deposit Insurance Corporation (FDIC) during the Trump administration. Though Democrats don’t control these agencies, they are, through a mix of de jure and de facto practices, entitled to seats on their governing bodies.

For many key federal regulatory bodies that oversee corporate power—the Federal Trade Commission, the Federal Communications Commission, and in the cases before us the SEC and FDIC—several seats are by statute reserved for people not of the president’s party. In practice, the determination of who will fill these seats falls to the Senate leader of the party that is not the president’s—in this case, Schumer. These choices are typically then formalized through nomination by the president and, under most scenarios, eventual confirmation by the Senate.

The selection of so-called “minority party commissioners” is usually an under-the-radar affair decided in a back room, perhaps covered by industry-specific publications, but rarely seeping into the mainstream. This is a shame even in normal times, as these agencies wield extraordinary power over the shape of the American economy.

These commissioners would all serve terms lasting well beyond 2021, and they are removable only for cause. So as we approach the 2020 election, and a potential Democratic presidency in 2021, these choices take on unusual significance, as they will help define the bounds of what can be accomplished in the first term of a new administration. Multiple candidates have pledged to institute sweeping changes to the ways we regulate corporate power, and installed minority commissioners represent the path to getting that done.

If Schumer picks regulators who are anything less than structural reformers, he will also be picking a fight with progressive members of his own Senate caucus who could seek to block his choices. They would do so not just out of principle, but because he would be undercutting their potential presidency before primary voting is even under way.

AS MINORITY LEADER, Schumer constantly mediates between the wants of his party’s progressive base and its major donor class—with the latter including his many long-standing Wall Street allies, who live and work in his home state of New York and have been his most substantial benefactors throughout his own career. The major current and upcoming vacancies, at the SEC and FDIC, govern the finance industry. So Schumer is likely feeling the weight of these relationships as he approaches his decision. Reports have even emerged that many Wall Street donors, not known for reticence or compunction, have told Schumer they won’t support any Democrats for Senate, because certain Democratic candidates for the presidency are too extreme.

Despite these pressures, Schumer has thus far bested his immediate predecessor, Barack Obama, when it comes to choosing commissioners with records of serving the public interest and confronting undue corporate power. When President Obama was in charge of choosing who would fill agency leadership posts, his disappointing proclivity was too often to install corporatists.

For instance, Obama selected elite corporate defense lawyer Mary Jo White (whose current legal work includes defending the Sackler family) to lead his SEC, and sought to install corporate lawyer Keir Gumbs, whose legal practice entailed helping corporations mask political spending, to a Democratic SEC seat. White used her tenure to stymie implementation of Dodd-Frank reforms. Progressive senators and activists organized to successfully block Gumbs from ascending to the commission.

Schumer has not yet chosen anybody as egregiously out of step with the public interest as White or Gumbs. He has selected relative progressives—and even a hard-driving reformer or two—for the FTC and SEC slots he’s filled over the last few years. The current moment calls for a much higher standard than merely finding somebody who has not regularly defended malfeasant firms in court, or helped them undermine democracy.

To satisfy the progressive base and the progressives in his own caucus, which might include the person who will be sworn in as president in 2021, Schumer must identify regulators who understand that serious structural changes to our economy are necessary to address yawning inequality and economic precariousness begotten by increasingly extractive mega-corporations. These regulators must be ready to use key tools that are already within reach but rarely wielded, and also to earnestly implement any rules that must follow from passage of new legislation to constrain outsize corporate power. That means:

• Attacking the fundamental structures of Wall Street. While the inclusion of the Volcker Rule (banning proprietary trading by large banks) in Dodd-Frank was seen as a progressive win at the time, it followed the fetish for byzantine, technocratic solutions that dominated the Obama era. That’s in large part why it took more than half a decade to meaningfully implement and why it proved vulnerable to swift rollback by the Trump administration. The time is ripe for more formidable, lasting structural reforms, like the reinstitution of the direct Glass-Steagall firewall between investment and commercial banking.

• Being prepared to attack the concentration of too-big-to-fail banks. That starts by blocking large mergers, such as the SunTrust-BB&T merger, the biggest bank combination since the financial crisis, which is currently sailing past regulators on its way to becoming the country’s sixth-largest bank. Just playing defense is not enough; watchdogs need to address industry concentration through appropriate use of asset caps of the sort the Federal Reserve placed on Wells Fargo due to its repeated abuse of its customers.

• Being willing to stop the commingling of banking and commerce, through ending the exploitation of vehicles known as industrial loan companies. Using this 1980s-era loophole, commercial entities can offer investment products and loans with minimal federal supervision. Wall Street mega-banks need to be pushed out of commercial business allowing them to manipulate markets and hurt Main Street businesses. Facebook and other social media companies should similarly be prevented from creating cryptocurrencies.

• Demonstrating a commitment to protecting investors in the shark-infested waters of the securities markets. For years, politicians have hyped IPOs and gutted investor protections. But the floundering IPO from WeWork, and the hefty sums lost by investors on Uber, Lyft, and other recent IPOs, demonstrate that encouraging risky startups at the expense of investors just benefits executives and venture capitalists looking for exits and Wall Street banks looking for more fees. We need SEC commissioners committed to protecting ordinary investors by rolling back recent ill-advised deregulation, like the Jumpstart Our Business Startups (JOBS) Act and its contemporaries.

• Being intent on enforcing relevant laws. When Tesla CEO Elon Musk tweeted without basis in fact that he was going to take the company private—thus committing the kind of textbook securities fraud that will surely be a case study in law textbooks soon—even the SEC’s lone Democratic commissioner at the time voted for a toothless settlement. In egregious cases like this, the SEC must be willing to force CEOs to step down, and make criminal referrals when appropriate. It must also stop doling out waivers to companies that would otherwise lose certain privileges when found to have engaged in criminality. When confronting recidivist banks, regulators should seriously consider options like imposing the “death penalty”: the revocation of deposit insurance for actors that engage in unsafe and unsound practices. My organization argued that the FDIC should have done this to Wells in 2017.

We’re at the threshold of a possible future that would afford us the opportunity to reorient our society’s economy, and usher in a new era of shared prosperity. Schumer must take care not to shut the door on it as he selects regulators over the coming weeks. If he instead makes choices reflecting the corporatist and technocratic tendencies of the Obama era, progressives in the Senate must work to prevent their confirmation so that these seats remain vacant, leaving open the possibility that a future president will fill them with true structural reformers.