President Donald Trump sent a jolt into the financial world this week by saying in an interview that breaking up the big banks is something that he's "looking at right now."
And you thought passing a workable health-insurance bill was going to be hard!
Let's not beat around the bush about this one: It ain't gonna happen. Even if President Trump had massive bipartisan support and bigger majorities to work with in Congress, the actual act of forcing the major U.S. banks to break up would be a long shot. But what this does seem to be is yet another bold promise from President Trump when he'll be happy with something much more modest.
The reason any effort to break up the banks for real is doomed is because Washington's most enduring bipartisan "achievement" has been its favoritism for large financial institutions. There's a lengthy list of historical evidence for this that can take years to learn. But if you didn't already know this, remember that in 2008, both John McCain and Barack Obama both took a time out from their presidential campaigns to rush back to Washington to vote for the big bank TARP bailouts backed by then-President Bush and Treasury Secretary Hank Paulson. That about said it all.
Sure, some politicians on both sides of the aisle over the years have given some lip service to weakening the banks. And some, like Democrat Senator Elizabeth Warren, might actually want to do it. But time and again, even the "fixes" proposed in Washington tend to make matters worse.
The granddaddy of those failed fixes was the law that Democrats like Warren championed and still support: the Dodd-Frank Wall Street Reform and Consumer Protection Act. It was sold to us as a set of rules that would hold the banks more accountable and less likely to gamble with their huge stake in the U.S. economy. In short, it was supposed to put an end to "too big to fail."
The results were the opposite. The big banks are bigger, the smaller banks are smaller, and the hurdle this situation presents for our economy is more pronounced than ever. A 2015 Harvard University study concluded as much as it noted the increased consolidation in banking post Dodd-Frank and the shrinking market share for smaller and community banks. Getting a small business or agricultural loan is decidedly harder now and that stings job creation and GDP on a number of levels.
Now, President Trump says he's considering reversing all that. What he probably really is hoping to do is get the big banks to make more of those small business and farm loans and have Congress relax enough rules to make that happen. That's a good goal to have, but it sounds a lot less exciting than "I'm going to break up the banks!"
But in case you haven't figured this out yet, this is President Trump's M.O. And so far, that kind of bluster has won him a presidential election and actually reduced his disapproval rating since Election Day. By the way, the big banks and their investors surely know this already; financial stocks actually rose on the news.
Are Trump's "over-promise and under-deliver" tactics impressive? No. Are they smart politics? Maybe. But if you're satisfied enough with small positive steps here and there, this strategy works just fine.
Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.
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