Policy Expert: Trump’s Legislative Reform Not Likely Without ‘Massive Change In Personnel'
President Donald Trump and his administration have kept financial markets on their toes these past six months.
Since the real estate mogul took over the Oval Office in January, plans for tax and healthcare reform, financial regulatory changes and immigration reform have been widely discussed, but very little has been accomplished — and global government policy expert Julie Chon said that will likely not change during his presidency.
“I think the only way we’ll see anything change is if [President Trump] changes his core team and acknowledges that they don't have the right experience to do this,” said Chon, Atlantic Council senior fellow of Global Business and Economics Program in Washington, D.C. at Bisnow’s National Finance summit in New York last week.
Chon, who has worked with 30-plus international governments during her career to help establish financial stabilization and international debt capital markets access, was the afternoon keynote speaker at Bisnow's event.
Chon also served under Democratic Sen. Christopher Dodd, co-author of the controversial Dodd-Frank Act, to help craft legislation in the wake of the Great Recession.
“I think the prospect for [legislation reform is] really unlikely until a massive change in personnel takes place," she said.
Most commercial real estate players started the year confident in Trump's plan to institute business-friendly policies. Now, halfway through 2017 with little progress made in tax cuts, infrastructure spending and financial deregulation, some of that confidence has been replaced with trepidation regarding tax reform (particularly the elimination of the 1031 exchange program and the net interest deduction), trade and the continued probe into Trump’s Russian ties.
These concerns are one factor that has led investors to take a wait-and-see approach in their dealmaking, which has exacerbated the slowdown in U.S. deal volume and drop-off in pricing growth. The cooling off of the market has also been attributed to the long length of this cycle.
“The peak years for commercial real estate in this cycle are behind us,” NKF Director of Research in the Americas Bob Bach told Bisnow last month. "Sales and leasing activity will continue at a moderate pace but below the records set in recent years."
"I Believe This Administration Is Very Deficient"
When evaluating the new administration's impact on the market, Chon said she used the same measures to analyze Trump's team that she would any new head of state, whether a president of the U.S or France or a new prime minister of Japan, she said.
Chon analyzed the team’s track record for success, how it has executed similar legislative reform in the past, whether its strategy is clear and if the people hired have the experience and skill set to be successful.
“When I look at all of these measures that I’ve used to evaluate government policy all around the world, I believe that this administration is very deficient on all of the measures,” Chon said. “The president has very impressive people around him who have a track record of success in completely different areas of their lives. Unfortunately, there are not many people who have any experience whatsoever passing legislation or actually governing.”
Even those policies that Trump has complete power to reform by taking executive action and bypassing Congress remain in limbo, Chon said. The administration’s plan to remove government-sponsored enterprises Fannie Mae and Freddie Mac from government control has been delayed.
Treasury Secretary Steven Mnuchin, a former Goldman Sachs veteran, outlined a proposal to privatize the two mortgage behemoths following his nomination, saying it was on his top 10 to-do list. The two government-sponsored enterprises were taken into conservatorship following the Great Recession. The federal government bailed out the mortgage giants in 2008 for $187B, and they have remained under government control since, transferring all profits to the U.S. Treasury despite the fact that the companies are still traded over-the-counter.
“If you just want to compare to previous presidents — George W. Bush passed a $1.35 trillion tax cut proposal by June 2 of his first term,” Chon said. “Barack Obama by this time had passed a $1 trillion stimulus package, massive mortgage modification programs for homeowners, credit card reform and also sent to Congress thousands of pages of legislative text that eventually became the Dodd-Frank Act.”
The post-crisis Dodd-Frank Act requires banks to keep more money on their books when issuing a loan. The controversial law has been both praised and criticized for its strict regulations — some supporters claim the legislation provides additional transparency in the market, while critics say it is stifling the growth of small businesses and limiting risk-taking.
Trump has maintained he will deregulate Wall Street and House Republicans have passed a bill to begin reworking Dodd-Frank. The bill, named the Financial Choice Act, would erase and rework rules in the Obama-era law, allowing some financial institutions that meet certain capital and liquidity requirements to be exempt from some Dodd-Frank rules. The bill is expected to have a more difficult time getting through the Senate, and Chon is convinced Trump and the new administration will be unable to pass any sweeping legislation soon.
“Unfortunately I don’t see a realistic probability of any of these top-line issues moving forward during his presidency,” she said.