Financial author and former banker Nomi Prins speaking at the Foreign Correspondents' Club of Japan on November 17, 2016. Photo/FCCJ
Financial author and former banker Nomi Prins speaking at the Foreign Correspondents' Club of Japan on November 17, 2016. Photo/FCCJ

Nomi Prins worked on Wall Street at Goldman Sachs, Bear Stearns and Lehman Brothers, a career that set her in good stead for her next one as a prolific author on matters of money.

She has written six books, including It Takes a Pillage and All the Presidents’ Bankers and is working on Artisans of Money that will explore the rise of central bank power and influence in the global financial and economic hierarchy.

Prins has addressed meetings of the Federal Reserve, IMF and the World Bank, and was a member of Senator and presidential contender Bernie Sanders’ advisory committee on reform of the Federal Reserve.

Asia Times editor Peter Langan caught up with Prins in Tokyo last week to hear her thoughts on President Donald Trump, financial regulation, what she terms the shift in financial power from West to East, and other money matters. The Q&A has been edited for brevity.

AT: In this atmosphere of a supposed anti-elitism in the US, what’s the chance of a Trump administration appealing to his base by going after Wall Street bankers and also reinstating Glass-Steagall [Banking Act of 1933]?

Prins: It’s going to be difficult to use his political capital to go after Wall Street or the Wall Street CEOs or to actually reinstate Glass-Steagall and break those banks. I think it would require just so much effort and he doesn’t need to appeal to his base anymore because they already voted for him.

One of the things he did talk about doing, was deregulating or getting rid of some components of Dodd-Frank [Wall Street Reform and Consumer Protection Act], which I think if he does, it will not necessarily be big bank related, it will be to help the smaller, community banks in rural areas.

Those banks have the view that they had regulations put upon them by Dodd-Frank, in a way that wasn’t commensurate with the amount of regulations on the big banks; that they were disproportionately penalized.

There’s still anger against the banks in the population

Having said that, take a look at the Wells Fargo CEO John Stumpf. About a month or so before the election he was hauled up in front of Congress over the fake account scandal in the bank that subsequently led to the firing of 5,300 Wells Fargo staffers.

That was something conservatives and liberals were very upset about and it was one of the few stories that really broke the election cycle and raised again the question of accountability. John Stumpf ultimately stepped down, but the person replacing him is a long time Wells Fargo senior official who is now running the firm.

I think that there’s still anger against the banks in the population — Trump supporters and Bernie Sanders supporters. It’s just that Trump is not necessarily going to go after these people because they are his friends.

Hillary Clinton is the same. She talked about making Wall Street accountable to Main Street, but they were her friends, too. They’re no less Donald Trump’s friends.

There’s no way he’s putting Jamie Dimon for example, in jail just because Morgan Chase has paid billions of dollars in fines to settle crimes that have covered mortgages, foreign exchange, LIBOR rigging and all sorts of market manipulations. Trump asked him to be Treasury Secretary, so that’s an indication of what he won’t do as president.

AT: The same question on this talk of prosecuting Hillary Clinton. Is that again just talk?
(Editor’s note: Trump in a New York Times interview on Tuesday indicated he might back off his campaign pledge to pursue a prosecution of Hillary Clinton.)

Prins: I think what you are seeing with Trump is the sort of capitulation that is the pattern in new administrations throughout administrations in American history.

We saw it in his meeting with Obama at the White House and then Trump came out and said I’m not really going to get rid of Obamacare.

The talk on Hillary played well to an audience of people tuning into the debates, who were certainly not Hillary fans, to have him talk about putting her in jail or prosecuting her over the emails. But it was made to be more of a story by the press, blown out of proportion.

He campaigned as being anti-establishment, but he is very much now “the” establishment and there’s a circle of people who have been in the establishment.

Bill Clinton was part of the establishment and Hillary Clinton was part of the establishment. It doesn’t behove him in his own trajectory in history to go after one of the other establishment members. It’s much more likely he becomes public friends with the Clintons on various projects or something similar than actually prosecuting Hillary Clinton.

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AT: Moving to Japan and the BOJ’s inflation target of 2%, which has been elusive, putting it mildly. Do you see the infrastructure and other spending planned by Trump as generating an inflation trend, an inflation that could be exported?

Prins: I think any inflation that comes out of Trump’s policies is going to be subdued and going to be slow.

Where we have inflation is really in the cost of living for people in the United States, in terms of health care, in terms of education, in terms of day-to-day needs. So there has been inflation, it just hasn’t been the inflation of how it’s measured on a general economic basis.

Central banks throughout the world, including Bank of Japan, have been able to make money that costs nothing but if it’s not being put into infrastructure or the real economy, then it’s going to take a while for inflation, as inflation is measured, to rise.

What was happening in the US is that inflation hasn’t risen except in people’s pocketbooks. In Japan, inflation has actually risen in that people are paying more taxes, but it’s not being indicated in terms of how inflation is measured.

People’s pocketbooks

Instead, we see increasing debt because rates are so low and it’s being pushed out across the yield curve. So, this latest BOJ proposal or initiative of moving cheap rates out through the 10-year bond is really like saying we can finance whatever we want for a very long time without paying for it, without paying interest for it. I mean it’s really like perpetual bonds. Without paying for it, without interest on it, it was very hard to measure.

So how could it inflate the economy beyond people’s pocketbooks, people’s taxes, people’s individual costs, which again is not measured in standard inflation targets. So there has been a disconnect this entire period between how inflation is measured and how it actually impacts individual people.

AT: So is there an argument for changing how inflation is measured?

Prins: There’s a people’s argument for changing how inflation is measured because individuals not in the top echelon of society are faced with real inflation in their real lives.

That was one of the reasons why Trump and also Bernie Sanders were able to catalyze so much of the population across conservative and liberal ideology.

These people feel that their wages aren’t keeping up with the things that they need to buy. That’s why they’re taking on more debt. That’s why they’re feeling less stable. That’s why there’s more anxiety. That inflation in real life should be measured as part of an actual inflation index. Because what the Fed has done or the Bank of Japan has done is simply altered the availability of money.

People can’t even save money and receive interest on their money in the United States or in Japan

The increase in debt that looks to be zero cost to the government in terms of what they do with that debt, such as stabilizing the financial system in the United States, misses the point that the policy is hurting people.

People can’t even save money and receive interest on their money in the United States or in Japan. Savings rates are meaningless. People on the ground can’t account for what is actual inflation, because what they are getting paid for their money is nothing, but what they are paying for has risen.

So nobody is accounting for this at the central bank government level. So, yes, you should change that so that you actually understand what your people are going through. That would be the right thing to do, but that’s not really in the cards for these countries, it behoves them to ignore that. And so, every so often you get a Brexit, you get a Trump. You get the result of the fact that you are ignoring how people actually live.

AT: Coming back to banks. What are your views on investment banking and whether the industry should be restructured?

Prins: Well, the banks have become bigger since the crisis. Glass-Steagall was repealed in 1999. We then had a whole lot of corruption scandals in three areas of industry — the banks, in energy, and in telecoms in the early part of 2000.

The banks were basically helping the energy and telecom sectors hide a lot of things and we had the Enron scandal and the WorldCom scandal. Then the banks went into subprime and other types of credit products. Credit derivatives and then CDOs and all the things that culminated to create the subprime crisis.

Sellable securities

That was just a move into alternative asset classes that were less transparent, but very sellable securities. That’s what happened and they still have the ability to do that with whatever the next choice is for a securitized product.

The reality is they’re all larger than they were before the crisis. They still have a hold on a significant portion of deposits and of assets throughout the country. They still hold a higher percentage of derivatives and traded securities in the same institutions. They’re more complex than they were before. The difference now is that they’re doing all of it on zero percent money.

If anything they’re actually in a more precarious position than they were before the crisis. Glass-Steagall would reduce that risk as it would require the banks to do more for individuals, more for society.

Instead, they can use that money as a betting chip on the table of any kind of speculation in derivatives or structural securities. Until we change that, it’s always going to pose a risk to the US financial system and by extension the global financial system because all these banks are to an extent interdependent.

AT: You talked about this shift of money to the east, could you elaborate a little more on the implications for the US, China and Japan?

Prins: One factor is the larger growth in economies and populations in the east, particularly in China, but also BRICS countries and other Asian states. In the wake of the financial crisis, we saw zero interest rates coordination throughout the world between the ECB, other central banks in Europe and the Bank of Japan.

During that period, the People’s Bank of China was very vocal about the risk this would incur, in terms of potential bubbles, in terms of it just being a reckless type of policy, not having an exit plan to the policy and so forth.

Currency relationships

As a result, inside the Fed they started to talk about China as being a currency manipulator and that played well in Congress and Washington through a couple of different election periods.

Meantime, China was trying to figure out a way to both utilize its economy, but also create more independence in trade relationships, regional relationships, and in its currency relationships. And also getting itself inserted into the IMF’s special drawing rights basket, which it managed to have done, effective October 2015.

All of that was kind of a play to not be beholden to the risk that the United States posed upon the world, and that China had no jurisdiction over and had no control over beyond the fact that it bought US Treasury bonds.

Beyond that, though, they wanted to be more independent, and that independence manifested, again in terms of its currency, pushing to be in the IMF’s SDR. You also see that in China’s relationship and side agreements with Russia, its primary relationship within the BRICS community, and the development of the BRICS bank, as an opposition to the more European, US focused institutions like the IMF, and the World Bank.

That wasn’t an accident, that was negotiation

It’s been involved in a lot of initiatives, politically, as well as monetarily and financially in the wake of the financial crisis.

There’s more of an importance for China to have signed agreements outside of the US, and not be as connected to the volatility of the banking and monetary system that’s connected to the dollar, and that’s just going to continue.

So it all started in the wake of the financial crisis and now with Trump talking about isolationist tendencies, whether they manifest or not, that’s a further catalyst for that same shift and to have more solid side arrangements outside the US, which by definition, strengthens currency and trade and the interchange between economies in Asia.

Even the inclusion into the SDR of the yuan came in just below the dollar and then the euro — it’s the third largest currency in terms of being considered a reserve currency now in the SDR. It beats the Japanese yen, and it beats the British pound.

That wasn’t an accident, that was negotiation, that was a repositioning, that was a relationship between what was going on in China, what was going on with respect to the IMF, and how it was a power-play away from the US dollar, and away from the centricity of the US dollar. That’s a political standpoint of more of what’s to come.