We generally avoid commenting on politics in these pages as it is usually beyond the scope and purpose of this publication. Increasingly, however, we are being asked for our thoughts about how the upcoming general election may impact regulation of the financial markets.
On Tuesday of this week, Republican presidential candidate Donald Trump defeated Ted Cruz in Indiana’s primary, prompting the latter to “suspend” his campaign. It is now a virtual certainty that Mr. Trump will become the Republican nominee. Although Democratic candidate Bernie Sanders won that party’s primary in Indiana, it is still equally likely that Hillary Clinton will prevail as the Democratic nominee for the presidential election in November. Accordingly, Mr. Trump and Ms. Clinton have begun to focus their comments on each other, rather than their intra-party rivals.
From the candidates’ comments thus far, it is clear that the campaign leading up to the general election will be heated and vitriolic. Political pundits have widely commented that the election will be a run off between what may be the least popular nominees that each of the two major parties ever has chosen for the presidency.
No matter what happens in the presidential election, there’s a reasonable chance that the Republican Party will remain in control of Congress. In that case, if Ms. Clinton defeats Mr. Trump in November, there will continue to be a split between control of the executive branch and legislative branch of the federal government along party lines for at least the next four years, and possibly eight. And if Mr. Trump, by his own admission a political outsider, prevails in November, it is still very much unclear whether he will be able to garner the initial and continued support of his fellow Republicans in Congress.
In either case, it would seem improbable that either the Dodd-Frank Act or any of the regulations adopted thereunder will be substantially repealed or amended in the foreseeable future. Therefore, the regulatory status quo with regard to the financial markets is likely to continue for the next four to five years or more. How this will impact the financial markets or the economy in general is unclear. Newton’s first law of motion suggests that an object at rest will stay at rest unless an external force is applied to it. To the extent that the laws of physics can be applied metaphorically to the legislative process, it does not appear likely that we will see substantial change in the regulation of the financial markets in the coming years.