In his vaunted capacity as Fed Governor, Daniel Tarullo has spent the last seven years overseeing the most comprehensive financial regulatory effort since the Great Depression. Now, a reality TV star is barreling into DC promising to “dismantle” the Dodd-Frank reforms that helped Tarullo clean up the banking system.
You can imagine Tarullo's frustration.
Steve Mnuchin, the Goldman alum and movie producer who Trump recently named to lead the Treasury Department, has softened the tone on Dodd-Frank a bit, but still advocates an effort to “strip back parts of Dodd-Frank.”
Tarullo, unsurprisingly, is a bit peeved. From Reuters:
"It is critical that we not forget our still quite recent history," Tarullo told a meeting of financial market researchers in Washington, referring to the 2008 housing bust that pushed global financial markets to near-collapse.
Some financial rules may be due a review, he said, "but in considering these and other changes, we will not weaken the essential elements of the existing regime that guard against another financial crisis."
Though he conceded that some measures might be cramping bankers' style more than they should, Tarullo called our current juncture “a good moment to caution against backsliding on the considerable progress that has been made.”
Tarullo didn't name Trump or Mnuchin – in fact, he was likely referring to a House Republican bill – but it's worth considering the divergent experiences of “the most powerful man in banking” and his potential new colleague at Treasury.
In the midst of the financial crisis, Tarullo published a book arguing that international capital requirements weren't enough to keep the financial system from imploding. Soon after his appointment in 2009, he immediately began mano-e-mano meetings with bank executives seeking a lifeline.
Around the same time, Mnuchin was teaming up with George Soros, John Paulson and others to snatch up the troubled bank OneWest from the FDIC – at the fire-sale price of $1.5 billion. Returning the subprime mortgage machine to profitability involved some of the most unseemly practices from the crisis era, including alleged robo-signing and foreclosures numbering in the tens of thousands.
But Mnuchin and his team succeeded. In 2015 they sold the bank to CIT Group, effectively doubling the return on their investment.
Tarullo emerged from the crisis with the thousand-yard stare. Mnuchin came out with blood dripping from his mouth, hungry for more. It should be fun to watch them spar in Washington.