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With Sanders gaining, wonks look to soothe market’s fears of a progressive president

By Max Adams
25 Feb 2020

Bernie Sanders claimed victory in the Nevada Democratic primary election to emerge as the clear party frontrunner last weekend. Financial policy experts speaking on Monday at the SFVegas conference in Las Vegas addressed a crowd nervous over the prospect of a progressive left US president unsympathetic to Wall Street.

The talk, moderated by Politico’s Katy O’Donnell, homed in on the most likely path the White House could embark on in the event that Sanders or another Democrat wins against president Donald Trump in November.  

“What can be done if we do get a progressive president,” said Jaret Seiberg, managing director at Cowen Washington Research Group, opening the discussion. “Even with a senate majority, you can’t always get the most radical things done. We still have Obamacare even though Trump made it a priority to get rid of it.”

The real threat would not necessarily come from the executive, but from the regulators that he or she would put in place.

“Our focus is really on the regulators... and that to us is the biggest threat. Capital rules, liquidity requirements, those things have a big impact on profitability and on what products can be offered,” Seiberg added.

Isaac Boltansky, director of policy research at Compass Point, urged the audience to look at where policies under Trump have swung the furthest from the previous administration, namely on the energy and environmental fronts. That, he said, is likely to be where a Democratic president would implement the most progressive policies.

“As it turns out, politicians on the campaign trail promise things they don’t intend to follow through on. A lot of these promises simply can’t make their way through the next Congress,” Boltansky said.

For items on the agenda relevant to the securitization market specifically, the speakers noted that reform of the government sponsored enterprises would be thrown into question, with the possibility that GSE reform “dies on the vine”, according to Reed Auerbach, global head of the structured finance transaction group at Morgan Lewis. Auerbach added that a sweep by Democrats in November would likely result in an extension of the QM-patch, currently set to expire in 2021, with little movement on the GSE reform issue otherwise.

One area to watch closely though will be student loan forgiveness, a pillar of both Sanders’ and Elizabeth Warren’s campaigns. Their proposals differ in scope, but it is an area with far reaching ramifications for student loan ABS, and a campaign promise that will likely be at least in part delivered on if either candidate wins the election.

“Candidate Warren said she could do this by executive order. Any action like that would have a dramatic effect on prepayment speeds in [student loan] ABS,” Auerbach said. “I don’t think that student loan forgiveness is something any candidate can walk away from easily because it has been so highlighted in the campaign.”

Boltansky added later that student loan debt was an area on which the populist right and the progressive left agree.

As for the possibility of a second Trump term, the speakers told the audience to expect more of the same, which means both a friendlier regulatory environment as well as heightened macroeconomic risks.

“You get a continuation on the trade front, trade war as policy, and then questions of monetary policy,” Seiberg said, adding that the end of Federal Reserve chair Jerome Powell’s tenure in February 2022, and the choice of his successor, will be the biggest development for financial markets following the election.

By Max Adams
25 Feb 2020