The Return of the Regulators

During the first week and a half of the Biden administration, Americans have been treated to an unusual sight in Washington: regulators who believe in regulation. Donald Trump seemed to scour the earth for candidates who would produce the most liberal tears, appointing former lobbyists, financiers, ideologues and corporate titans.

President Joe Biden’s appointees and nominees, by contrast, do not adamantly oppose the mission of the agencies they aspire to lead. More than that: Some of his early choices are among the most aggressive financial and corporate regulators of recent years.

Key financial regulatory positions remain unfilled, and progressives oppose some leading candidates. Still, the left is experiencing a once-inconceivable feeling: It’s … not unhappy?

“In 2008, the progressive voter candidate turned out to be extremely disappointing. This cycle, the candidate of restoration has been pretty good for progressives,” said Jeff Hauser, a Washington activist and founder of the Revolving Door Project who specializes in the workings of the federal bureaucracy.

Biden, he said, has absorbed the lesson that “not enforcing the law is no less political than actually implementing the law.”

Personnel is policy, goes the cliché. But it’s only a start. Persuading Biden, an avowed lifelong moderate, to reverse decades of corporate-friendly stances, even among Democratic administrations, will require more than a few aggressive appointments.

For an early indication of how the Biden administration differs even from its Democratic predecessors, look to the Office of Information and Regulatory Affairs, an obscure but powerful federal entity nested within the Office of Management and Budget charged with vetting federal rules. It’s the regulators’ regulator.

One of President Barack Obama’s OIRA chiefs, his friend and former University of Chicago Law School colleague Cass Sunstein, championed the use of cost-benefit analyses for new regulations — each new rule had to be “worth” how much would be spent to establish it. That rankled progressives, who contended Sunstein effectively blocked regulations by overemphasizing their costs and undervaluing their benefits. (Sunstein disputed the characterization.) That, in turn, helped corporations, which used the office as an appeals court.

Then came the Trump administration, which campaigned on a promise to slash what it viewed as “job killing” edicts. Over the past four years, OIRA played a significant role in helping to carry out initiatives such as Trump’s executive order requiring agencies to eliminate two existing regulations for each one they created.

After becoming president, Biden moved quickly, overhauling OIRA and instructing it to rethink how it approaches cost-benefit analyses, earning accolades from progressives. Now the mandate is to evaluate rules in a way that “fully accounts for regulatory benefits that are difficult or impossible to quantify.” Such words are the stuff of drinking songs in the halls of the Securities and Exchange Commission and the Environmental Protection Agency.

The enforcers at the SEC will also be toasting Biden’s nomination of Gary Gensler, widely seen as an energetic financial overseer when he headed the Commodity Futures Trading Commission under Obama, to lead the once-storied securities agency.

Rohit Chopra, the president’s choice for the top job at the Consumer Financial Protection Bureau, sits on the Federal Trade Commission. At the intellectual vanguard of his party’s stances on consumer fraud and antitrust issues, he has called for serious punishment of companies like Facebook that he views as having abused their competitive position.

Even the new Treasury secretary, Janet Yellen, has generated tempered optimism. Although she did pull down millions in speaking fees from banks and other corporations, she is a late convert to the cause of aggressive financial regulation. As head of the San Francisco Fed more than a decade ago, she sided with Wells Fargo on a question of whether banks were stable enough to resume paying dividends after the financial crisis and bank bailouts. But by the end of her subsequent tenure as Federal Reserve chair, the Fed cracked down on Wells Fargo, leveling the harshest penalties against a big bank in generations.

This slate represents a noteworthy break from even the most recent Democratic administrations: In the view of advocates for a vigorous financial regulatory state, both Obama and President Bill Clinton operated from a defensive crouch, sheepish about active government and enamored of corporate self-regulation.

Clinton, governing at the height of worship of the former Federal Reserve Chair Alan Greenspan and his laissez-faire vision, had to please Wall Street and the bond market. He famously put his vice president in charge of “reinventing government,” an effort that celebrated reducing federal jobs and viewing corporations as the “customers” of the agencies.

Progressives have reevaluated his record, arguing that Wall Street deregulation, spurred by a Republican Congress, cheered by the Robert Rubin and Lawrence Summers wing of the Democratic Party and accelerated by the George W. Bush administration, helped create the mess Obama was forced to clean up.

Obama, whose policies were more moderate than his lofty campaign rhetoric, sought to reassure the establishment and reconcile with the Clinton wing. He oozed reasonableness, assuring bankers that he was all that stood between them and the pitchforks.

Treasury Secretary Timothy Geithner and the SEC chair, Mary Jo White, his marquee financial markets regulators, were veteran establishment figures. Geithner famously scoffed at the cries for “Old Testament” justice after the calamity of 2008. White’s career has swung between government jobs regulating big corporations and employment at a white-shoe law firm representing them. She frequently had to recuse herself from enforcement cases to avoid potential conflicts of interest.

Today, many liberals view the Obama administration as having broadly betrayed its promises in two ways. It failed both to help people get back on their feet quickly enough after the financial crisis and to hold the powerful accountable for causing it. A debate still rages about whether Obama could have gotten Congress to agree to more stimulus spending; his own advisers, like Rahm Emanuel and Summers, were pushing against going too big. And Obama’s housing policy did little to help desperate soon-to-be home losers. Unlike Biden, Obama did not speedily purge recalcitrant Bush holdovers like the housing regulator Edward DeMarco, who thwarted mortgage relief.

Biden has entered office with a shift in political power. He needs to placate progressives and the Warren-Sanders wing, while many centrist elites of both parties — after four years of seeing Trump up close — have realized they have no common cause with the right. Early on, his appointments reflect a decade of dashed illusions among the Democratic governing coalition, about its turn away from New Deal Keynesianism, its embrace of a neoliberal project to make government “more efficient” (read: smaller), about the beneficence of the internet and Big Tech, the stability of the financial system, the gig economy, about the Republican Party itself.

The president faces many dire challenges, but in one way, he has it easier than Obama did. He aspires to give people money (yes, it’s popular) to fight the ravages of a silent, faceless killer. Obama had to confront an enemy from inside the house: human bankers whose reckless behavior and frauds caved in the global financial system, products of the same elite schools and rarefied social milieus as Obama’s inner circle.

In his inaugural speech, Biden mentioned six crises: COVID-19, climate change, inequality, racism, America’s standing in the world and the assault on truth and democracy. But he did not mention, or even perhaps grasp, another: the crisis of elite impunity.

Gensler and Chopra have shown they understand it. When Gensler took his position as chairman of the Commodity Futures Trading Commission in the Obama administration, observers were skeptical — he had, after all, been a partner at Goldman Sachs. But he turned out to fit one model of what makes a good regulator: the industry refugee, capable of deftly explaining financial regulatory overhaul and dismantling falling-sky claims from the banks for lawmakers.

One observer recalls seeing Gensler at a hearing on what would become the Dodd-Frank Wall Street Reform and Consumer Protection Act, sitting behind Blanche Lincoln, a Democratic senator from Arkansas, counseling her on regulatory details much like a staff member — not the chairman of an agency — typically would. He wasn’t fooled by Wall Street’s attempt to circumvent the new rules on derivatives, the financial sidebets that exacerbated the 2008 crisis. With relatively few employees and only a small budget at his disposal, he worked to strengthen the rules.

Gensler grasped that speed matters. “Much of Wall Street’s game is to drag things out so that it doesn’t go into effect or isn’t in effect for very long” before a new administration comes in, said Graham Steele, a former Capitol Hill aide who is the director of the Corporations and Society Initiative at the Stanford Graduate School of Business.

Chopra also has industry-refugee status. He worked at McKinsey, the global management consulting firm, but escaped its clutches to join the Consumer Financial Protection Bureau. There, he carved out a reputation for tormenting predatory student loan companies and for-profit colleges. During the Trump administration, he found common ground with Republicans skeptical of corporate power, particularly that of the tech behemoths. He has also unleashed withering dissents of weak enforcement actions and has been unafraid to go it alone.

It’s too early to know how far Biden will go. Financial regulation is unlikely to be a White House priority, with the administration’s regulatory focus more on the environment and civil rights. Moreover, regulation won’t work without tight enforcement, which means criminal charges when necessary even — especially — for the most powerful malefactors of great wealth.

White-collar criminal enforcement earned its place on the endangered species list during the Obama-Biden administration, which prosecuted only one top banker in the wake of the global financial crisis. The threat to the rule of law — that the powerful have impunity — had been building for years. The white-collar prosecution crisis went beyond the aftermath of 2008 and Wall Street to encompass all of corporate America.

If anything, I underestimated the problem during my time reporting on the crisis. The Trump ascendancy revealed that a Hobbesian state of nature existed for whole swaths of the economy: campaign finance, political lobbying, taxation and commercial real estate. A world in which white-collar misdeeds, tax evasion, bribery and securities fraud were adequately policed would have rendered “President Donald Trump” an impossibility.

If Biden genuinely seeks to begin piercing this shroud of elite protection, he’ll need a consensus among enforcers that this merits prioritizing. His early prosecutorial appointments, however, do not show signs of worshipping a harsh Old Testament god. The main task for Merrick Garland, the nominee for attorney general, will be the restoration of the Department of Justice, after Bill Barr brought the columns down. Garland merely has to display independence and fealty to equal justice under the law and it will be an improvement.

But his appointment says little about where white-collar enforcement will go. Will the Biden Justice Department take on corporations and white-collar criminals? Will it investigate wrongdoing from Trump administration officials, or seek unity by trying to flush the past four years of corruption down the memory hole? Key appointments to come — such as the head of the criminal division at the Justice Department, as well as U.S. attorney appointments in key offices like the Southern District of New York — will tell us more.

One sign that worries advocates of a stronger crackdown on the anti-competition threat to our economy: He’s reportedly backing a corporate lawyer who worked for Facebook to head the Justice Department’s antitrust division. Other nominees have caused consternation among those who favor strong financial regulation, including various appointees from the powerful money manager BlackRock. And progressives appear poised to lose a fight over who will head the Office of the Comptroller of the Currency, which regulates the nation’s biggest banks.

After four years of unwinding regulations under Trump, it won’t take much to feel as if the government is snapping back into action under Biden. But in truth, it will take much more than that — in staffing, philosophy and funding — to rebuild the regulatory state.

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.