| | | | |  | | By Victoria Guida and Sam Sutton | | Presented by |  | | | Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro.
| | Top officials will gather in New York today to discuss the resiliency of the market for U.S. government debt, as well as potential risks. What probably won’t be mentioned? The peaceful transfer of power. But Treasury Secretary Janet Yellen told MM in an interview Wednesday that the rule of law is one of the key underpinnings of the Treasury market, making democratic turmoil a potential financial stability risk. “It really is essential to our having a democratic system and a democratic government, and one of the tremendous strengths of our financial system is that it is based on strong institutions and rule of law,” she said of a smooth presidential transition. Your host writes about that and other financial stability thoughts from Yellen in a new “Capital Letter” column out this morning. That’s not the only way former President Donald Trump came up obliquely in our conversation before a speech Yellen is giving at the annual Treasury market conference hosted by the Federal Reserve Bank of New York. She also talked about the risk of regulatory rollbacks. In her speech, she will say that the Financial Stability Oversight Council, a panel of top regulators, has performed valuable work under her leadership. She will also say there is more work to do that the council and future regulators should not retreat from. “A resilient financial system is critical to a strong economy,” she will say in her speech, according to text MM saw in advance. “And strengthening it requires insisting on thoughtful regulation, including in the face of challenges from those who advocate to roll back policies and regulations.” As part of that point, she cited vulnerabilities in important markets underscored by the Covid pandemic. “In spite of the work that was done from Dodd-Frank and other things after the financial crisis to make our system more stable -- we saw that some of the risks that FSOC had actually identified but not dealt with really created the risk of a financial crisis when the pandemic hit,” she said. “We saw huge stresses develop in the Treasury market,” she said. “Questions were raised about the unwinding of leverage by some highly leveraged hedge funds. FSOC had undertaken work that related to liquidity mismatches in open-end bond funds, and we saw during the early stages of the pandemic, exactly those stresses materialized. And it required really unprecedented intervention by the Fed … to deal with these risks. So it's not as though the threats have gone away.” She believes they’ve made progress. MM also asked about the fact that no firms currently bear the FSOC designation of systemically important financial institution, which brings with it oversight by the Fed. She said that while this tool is still on the table, a lot of the risks they’ve been watching – such as those posed by money market funds -- are better addressed through other means. “These are risks that are probably not well dealt with by designation, but designation can be an important tool in the future, and I wouldn’t rule it out,” she said. IT’S THURSDAY — What financial stability risks are you watching? Let us know at vguida@politico.com and ssutton@politico.com.
| | | | A message from Synchrony: Small and mid-sized businesses, from auto shops to home contractors to veterinarians and more, rely on consumer financing to serve their customers and keep their businesses running. Credit continues to be a critical piece of the American economy. For 100 years, Synchrony has continued to connect tens of millions of people and thousands of businesses to fuel economic growth. Credit is key for businesses and the economy; learn more here. | | | | | Treasury markets conference featuring remarks from Fed Chair Jerome Powell, Fed Vice Chair for Supervision Michael Barr, Yellen, SEC Chair Gary Gensler, CFTC Chair Rostin Behnam, Treasury assistant secretary Josh Frost and others ... Semiannual Brookings Papers on Economic Activity conference ... Fed Governor Michelle Bowman speaks on economic outlook at 9:15 a.m. ... Fed Governor Lisa Cook speaks on artificial intelligence and the labor force at 10:30 a.m. and again at 6 p.m. Harris’s Econ Pitch — As we previewed yesterday, Kamala Harris’s speech in Pittsburgh on Wednesday leaned heavily into how her background has influenced a more “pragmatic” approach to economic policy. The campaign also dropped an 82-page policy book offering more detail on the “opportunity economy” agenda, which represents a combination of new proposals — like the expanded child tax credit and $25,000 down-payment assistance for first-time homebuyers — with an expansion of Biden-era projects like Treasury’s State Small Business Credit Initiative, which had been recapitalized under the American Rescue Plan. — Senate Finance Chair Ron Wyden (D-Ore.) is preparing to deliver a tax package reflecting Harris’s agenda on “day one” of her presidency if she’s elected, Benjamin Guggenheim reports. — And yes, there was a nod to crypto. In her speech, Harris said she would like to invest in blockchain, artificial intelligence, quantum computing and other emerging technologies. The policy book says she would “encourage innovative technologies like AI and digital assets while protecting our consumers and investors.” — More news from the speech: Harris also committed to reforming the nation’s burdensome permitting process and called for the creation of a national reserve for critical minerals, Catherine Morehouse and James Bikales report. Starmer’s econ pitch — UK Prime Minister Keir Starmer is scheduled to meet with Blackstone Inc. President Jon Gray, JPMorgan Asset Management Chief Executive Officer Mary Callahan Erdoes and Bank of America CEO Brian Moynihan later today in a bid to drum up investment in the UK, according to Bloomberg’s Alex Morales. What the Trump campaign is reading — From POLITICO’s Ry Rivard: “A looming dockworkers strike threatens to shut down East Coast ports and snarl the national economy just before the election. Crippling the economy is not just a byproduct of a dockworkers strike — it’s the point, according to the crucial leader of the union threatening the disruption.” — And even though Joe Biden has cast himself as the most pro-union president in history, International Longshoremen’s Association President Harold Daggett — who has unilateral authority to call the strike — has been critical of the administration’s labor record.
| | Crisis averted — The Senate cleared a stopgap bill to fund the government through most of December, setting the stage for a major fight just before the holidays, Jennifer Scholtes reports. Biden is expected to quickly sign the measure. Testing the Waters — Rep. Maxine Waters is fine-tuning a sweeping policy agenda for her second round as House Financial Services chair should Democrats win the House next year, Eleanor Mueller reports. In her first interview on her committee plans since Harris became her party's nominee, the California Democrat this week laid out top goals like affordable housing — a longtime priority for the progressive powerhouse — and minority lending. She also said she wants to draft her own overhaul of crypto regulation ("crypto is the future"), ease certain rules around investing ("I want people who are educated to be able to take their chances"), and work with Republicans to tackle concerns about banks cutting off disfavored businesses ("I don't believe that an American citizen should have their bank accounts closed down, and nobody tells them why"). Waters, a fierce political foil to Trump, said she has yet to talk policy with Harris. But she pointed out that there are clear parallels between their approaches. “I can tell you this: I don’t know if Kamala has put real meaning to the ‘opportunity economy,’ but it sounds good,” Waters said. “And I think we can define that.” What the Harris campaign is reading — Senate Finance’s Wyden published a letter on Wednesday detailing the initial findings of his investigation into Affinity Partners, the $3 billion private equity firm led by Trump’s son-in-law Jared Kushner. While the firm has collected about $157 million in fees from major foreign investors, it has invested its committed capital at a glacial pace — though real estate deals involving the Albanian and Serbian governments are in the works. It’s also yet to deliver any cash returns. — The firm’s warchest includes $2 billion from the Saudi Arabian government’s Public Investment Fund. Other investors include the sovereign wealth funds of Qatar and the United Arab Emirates, as well as the Taiwanese billionaire Terry Gou. And while Wyden thanked Affinity for its cooperation, he said “there is also a sixth mystery foreign investor Affinity has declined to identify.” — The information has “heightened my concerns that investments in funds managed by Affinity create unprecedented conflicts of interest, and that Affinity’s investors may not be motivated by commercial considerations, but rather the opportunity to funnel foreign government money to members of President Trump’s family,” Wyden wrote. — “Partisan politics aside, Affinity Partners is an S.E.C.-registered investment firm that has always acted appropriately and any suggestion to the contrary is false,” Chad Mizelle, Affinity Partners’s chief legal officer, said in a statement to The New York Times. “We are fortunate to have the support of some of the world’s most sophisticated investors and work hard on their behalf every day.” First in MM: Romney weighs in on CTC — Sen. Mitt Romney formally introduced his child tax credit proposal for the first time Wednesday as an opening salvo in next year’s tax talks, Eleanor reports. The Utah Republican first announced the policy’s contours in 2022. Wednesday's bill text makes some changes to that framework, including pushing its effective date to 2026 and keeping the IRS as the agency with jurisdiction. “When the Tax Cuts and Jobs Act of 2017 expires next year, the Child Tax Credit will be cut in half — leaving federal family policies inadequate, unpredictable, and scattered across the tax code,” Romney said.
| | | Kugler on the economy — Fed Gov. Adriana Kugler on Wednesday said she expects consumer spending – which represents the bulk of economic activity — to “grow at a somewhat more moderate pace” as the labor market cools, credit card balances rise and loan delinquencies climb.
| | | | A message from Synchrony:   | | | | | Mark Cuban wants to police Wall Street — The billionaire has already reached the pinnacles of investing, professional basketball and reality TV. Now, Mark Cuban is making no secret of his interest in coming to Washington — namely, to take over the SEC, Declan Harty reports. “Head of the SEC,” Cuban said Wednesday when asked by Fox News’ Neil Cavuto whether he’d entertain joining Harris’s cabinet as Treasury or Commerce secretary. “That’s the job I would take.” Cuban has a long — and not very rosy — history with the SEC. Since the Wall Street regulator sued him for insider trading — charges the “Shark Tank” investor was later cleared of — Cuban has become one of the agency’s most famous critics. He has regularly blasted the SEC over its in-house courts, the “gag rule” and, most recently, the regulator’s crackdown on the $2 trillion crypto market. First in MM: AI Risks — Former FDIC Official and Georgia State University assistant professor Todd Phillips has published a new paper via the Roosevelt Institute on the risks that artificial intelligence can pose to consumers, financial institutions and the financial system writ large. While the technology could boost productivity, it could also send the financial system “swinging from crisis to crisis.” His recommendations include the regulation of AI tools used by financial institutions or third parties, as well as the establishment of legal liability of AI agents.
| | | Tonantzin Carmona is now special assistant to the president for economic policy. She most recently was senior adviser in the Inflation Reduction Act Program Office at Treasury. — Daniel Lippman
| | | | A message from Synchrony: Access to credit creates a positive ripple effect for the U.S. economy. Small and mid-sized businesses, from auto shops to home contractors to dentists and veterinarians and more, rely on consumer financing to better serve their customers. Credit helps consumers manage their spend and pay over time, leading to higher customer satisfaction and loyalty.
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