New Lawsuit: The Trump Administration’s Dangerous Financial Deregulation

Amid increasing stock market volatility as the coronavirus outbreak spreads, American Oversight on Tuesday sued the Treasury Department for records detailing Trump administration actions that weakened certain financial regulations. The lawsuit seeks Treasury officials’ communications regarding leveraged loans — a type of loan extended to companies that already have considerable amounts of debt or poor credit history.

On Monday, following the largest drop in the Dow Jones Industrial Index since the 2008 financial crisis, Slate reported on the threat leveraged loans pose to the economy: 

But lurking underneath those issues are potential landmines in the debt markets. Risky energy companies have borrowed an enormous amount of money in recent years by issuing junk bonds to investors looking for high returns at a time of low interest rates. Many people have worried what would happen if those companies started to go bankrupt and default on their debt. Now, we might be about to find out; high-yield bond prices are falling rapidly, signaling that investors are suddenly very afraid of what’s coming.

In April 2019, the Washington Post reported on efforts to deregulate leveraged loans early in the Trump administration and the president’s perceived political interest in the deregulatory approach: “[F]reeing banks to make more of these loans…helped achieve President Trump’s goal of growing the economy faster in the first half of his term.” The Post noted that most senior administration officials and congressional aides interviewed for the story “conceded they had no idea what would happen to the economy” if there were a spike in defaults on leveraged loans.

“The president’s mismanagement of this crisis threatens our security, economy, and public health,” said Austin Evers, executive director at American Oversight. “The public has a right to know if the president’s reflexive anti-regulation position set the stage for this economic fallout.” 

Tuesday’s lawsuit specifically seeks to enforce two Freedom of Information Act requests filed by American Oversight in October 2019 to the Treasury Department and the Office of Comptroller of the Currency (OCC) seeking communications officials had with key individuals in Congress, various trade associations, and financial institutions such as Goldman Sachs, J.P. Morgan, and Bank of America.

American Oversight has also launched an investigation into the Trump administration’s response to the coronavirus, including into whether mismanagement of the outbreak has put lives at risk and whether the White House has attempted to prioritize the president’s own political interests over the health of the public.