THE TICKER

The proposal that Sen. Bernie Sanders (I-Vt.) introduced Wednesday to break up the biggest banks won’t be speeding into law. But it should put Wall Street giants on notice that the calendar is shifting into a political season that will bring the industry more hostile attention.

The midterm elections in 33 days will also serve as the starting gun for the 2020 presidential contest, and Sanders’s bill provides an early signal that the debate around applying tougher regulation to financial interests last seen during the 2016 race is primed to resume. 

The bill would place a hard cap on the size of megabanks, forcing regulators to break up JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley in addition to insurance firms Prudential Financial and MetLife, according to my colleague Jeff Stein. The cap would prevent them from holding total assets worth more than 3 percent of the U.S. economy — $584 billion today.

Sanders touted the plan to Jeff as a way to head off another financial crisis by taking direct aim at “too big to fail” institutions. “We spent huge amounts of money bailing them out, and they are significantly larger now than they were back then,” Sanders said. “It’s time we return to that discussion, especially now for the 10th anniversary [of the crash].” (Here's a summary of the bill, officially the Too Big to Fail, Too Big to Exist Act.)

The industry dismisses the need for it, pointing to the capital reserves the firms in question have built up over the past decade to cushion them in the event of another crisis. “To have a large, strong economy that supports households and businesses big and small, you must have large, strong, global banks,” Financial Services Forum CEO Kevin Fromer said in a statement. Fromer — whose group represents the chief executives of Bank of America, Citigroup, Wells Fargo, Goldman Sachs, JPMorgan and others — said policymakers “must neither ignore the progress that has been made nor the essential role of large financial institutions in our economy.”

The bill has drawn support from the AFL-CIO and Public Citizen. But the question for those in the industry and beyond will be how many of Sanders’s colleagues endorse the proposal. Sen. Elizabeth Warren (D-Mass.) — another front-running candidate in what for now remains the shadow sweepstakes for the 2020 Democratic presidential nod, and one who likewise has carved out a role as a committed critic of the industry — has yet to offer a view.

Warren said last month she still believes the biggest banks need to be broken up. She has proposed a “21st Century Glass-Steagall Act” that would force commercial banks to spin off their riskier investment banking activities.

But ever since the 2016 campaign that saw both Sanders and Trump draft on anti-Wall Street anger, the debate in Washington has focused on easing restraints on the industry. And the big banks have been on offense, pressing regulators to trim their capital requirements and rewrite of the Volcker Rule. At a Senate Banking Committee hearing on Tuesday, Republicans leaned on federal banking regulators to pick up their pace. 

Thomas Hoenig, the recently departed vice chair of the Federal Deposit Insurance Corporation, said considering the atmosphere, Sanders’s plan is too ambitious.More from Jeff: “Hoenig pointed out that Republicans were joined by more than a dozen Democratic Senators in dismantling parts of Obama’s 2010 Dodd-Frank banking bill, an effort that many Republicans thought did not go far enough. ‘Several Democrats just voted to ease capital standards on two of the largest banks,’ Hoenig said. ‘So who is going to pass this law?’” 

At a minimum, Better Markets president Dennis Kelleher said, the Sanders proposal refocuses the conversation. He says policymakers should concentrate on “what banking activities actually support the real economy, jobs and growth, and only those should get financial backing from taxpayers… The majority of the activities at the biggest banks are unrelated to supporting the real economy. It’s mostly antisocial behavior that enriches a few thousand financiers at the expense of everybody else.” 

MARKET MOVERS

— Dow sets record high. The Wall Street Journal's Amrith Ramkumar and Donato Paolo Mancini: “The Dow Jones Industrial Average climbed to a fresh record Wednesday, boosted by shares of manufacturing and financial firms. Stocks have gotten a lift this week after the U.S. and Canada reached a compromise on trade policy, leading some investors to anticipate further trade deals ahead with China. Despite worries that tariffs could slow the global economy, steady U.S. growth and earnings figures have boosted stock indexes throughout the year.... The Dow industrials added 54 points, or 0.2%, to 26828 in a fifth consecutive session of gains. The S&P 500 climbed less than 0.1%. The tech-heavy Nasdaq Composite closed up 0.3% and, like the S&P 500, remains slightly below a recent record."

— More signs of strength: Services activity expands and hiring climbs. Reuters's Lucia Mutikani: “U.S. services sector activity raced to a 21-year high in September and companies boosted hiring, signs of enduring strength in the economy at the end of the third quarter... The Institute for Supply Management said its non-manufacturing activity index jumped 3.1 points to 61.6 last month, the highest reading since August 1997. A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of U.S. economic activity... Separately on Wednesday, the ADP National Employment Report showed private payrolls jumped by 230,000 jobs in September, the largest gain since February, after increasing 168,000 in August.”

— Treasury yields surge. WSJ's Akane Otani: “U.S. government bond yields soared to multiyear highs Wednesday after data showed the U.S. economy remained robust in September, triggering the latest retreat from safe debt. The yield on the benchmark 10-year U.S. Treasury note, used as a reference for everything from mortgages to student debt, jumped to 3.146%, according to Tradeweb, surpassing a high-water mark dating back to July 2011 and passing the 3.056% it settled at Tuesday. Longer-dated debt came under pressure too, as bond prices fall as yields rise. The yield on the 30-year U.S. Treasury bond recently stood at a four-year high of 3.301%, compared with 3.206% Tuesday.”

— Powell hurts the market when he talks. CNBC's Jeff Cox: “When Federal Reserve Chairman Jerome Powell starts talking, the market starts worrying. Since the central bank chief took over in February, his public remarks have cost the market dearly — specifically about a $1.5 trillion loss in market cap, according to a J.P. Morgan analysis. The bank's strategists specifically found that when Powell gives a news conference after a Federal Open Market Committee meeting, the S&P 500 typically drops 0.44 percentage point and has fallen each of the three times he has spoken to the media... Adding up the occasions when Powell has spoken publicly equaled the $1.5 trillion figure... 

"The possible reason for the decline, according to the analysis: Worry that Powell and the Fed by extension aren't understanding the current landscape. 'Specifically, the equity market likely implies that the Fed is underestimating various risks, and hence is increasing the implied probability of the Fed committing a policy error in the future,' Marko Kolanovic, global head of quantitative and derivatives strategy, wrote in the report. 'A higher probability of a policy error translates into lower equity prices on the news.'"

Powell is ignoring Trump's criticism. Or so he said in an on-stage interview at The Atlantic Festival in Washington on Wednesday, per The Atlantic's David Graham: "Powell remains stoic about the controversy—and a little bit wry. 'My focus is on controlling the controllable,' he said Wednesday... drawing knowing laughter from the crowd. 'We control what we do at the Fed.'" 

He also heaped more praise on the economy's strength: “There’s no reason to think this cycle can’t continue for quite some time, effectively indefinitely... Wages have been moving up, and that’s in keeping with the tight labor market and we do expect that to continue... We’re pretty close to full employment.”

From The Post's Heather Long: 

The National Retail Federation, the nation’s largest retail trade group, says it expects sales in November and December to rise between 4.3 percent and 4.8 percent to $717.45 billion to $720.89 billion as shoppers continue to be in a spending mood in a stronger economy.
Associated Press
TRUMP TRACKER

TRADE FLY-AROUND:

China is using a tiny chip to hack U.S. companies. Bloomberg Businessweek's new cover story details how Chinese spies reached into almost 30 American companies by compromising the U.S. tech supply chain. A security firm that Amazon Web Services hired to test servers from an outside vendor named Elemental "found a tiny microchip, not much bigger than a grain of rice, that wasn’t part of the boards’ original design. Amazon reported the discovery to U.S. authorities, sending a shudder through the intelligence community. Elemental’s servers could be found in Department of Defense data centers, the CIA’s drone operations, and the onboard networks of Navy warships...

"During the ensuing top-secret probe, which remains open more than three years later, investigators determined that the chips allowed the attackers to create a stealth doorway into any network that included the altered machines. Multiple people familiar with the matter say investigators found that the chips had been inserted at factories run by manufacturing subcontractors in China... China’s spies appear to have found a perfect conduit for what U.S. officials now describe as the most significant supply chain attack known to have been carried out against American companies. One official says investigators found that it eventually affected almost 30 companies, including a major bank, government contractors, and the world’s most valuable company, Apple Inc."

— Trump tries patching things up with Trudeau. Politico's Alexander Panetta: "After months of tension and insults in their trade war, [Trump] tried out a new role with Canada's Prime Minister Justin Trudeau: peacemaker. Several sources familiar with a Monday call between the two leaders described the president dominating the conversation with an almost uninterrupted burst of enthusiasm, speaking for the vast majority of a 15-minute call about how amazing, how perfect things would be now. 'It was extremely positive,' said one Canadian official. Other witnesses described the prime minister struggling to squeeze some words in, amid the president’s extended peace declaration. The themes of that big, beautiful call across the northern border have emerged in public view, with Trump suddenly describing the countries as a regional trading block, ready to take on the world together."

Trump's leeway in negotiations had limits. WSJ's Greg Ip: “The new deal shows the limits to Mr. Trump’s ‘America First’ agenda and an underlying resilience to the existing order. The reason: The resistance Mr. Trump encountered from Congress, business, his own advisers and U.S. trading partners circumscribed his leverage and may again in the future... The new U.S.-Mexico-Canada Agreement looks a lot like the old Nafta. Mexico’s only significant concession was on autos and parts: rules requiring more production in North America, higher wages for workers, and potential tariffs if its exports to the U.S. exceed 2.6 million vehicles.”

— Steel workers wait to see tariffs' effects. The Washington Post's Jeff Stein: “As he has pressed his steel tariffs, Trump has declared that the industry is ‘being rebuilt overnight.’ But the question facing the rank and file is whether the controversial policy — which has raised the price of inputs for many American companies and alienated allies — will translate into higher wages and better benefits. ... The initial anticipation of the tariffs, followed by their actual imposition, led the price of the metal to soar. Now, facing less foreign competition, domestic steel companies’ profits are ballooning. And, crediting Trump, the companies are making plans to open up new steel plants and hire more workers. ... Yet the trickle-down effects are far harder to predict. Steel companies, while supportive of the tariffs, have experienced wild gyrations in their business in recent years and can’t be certain the lucrative new protections will stick around. So even in this time of sudden prosperity, some analysts say, they must be disciplined with worker pay and benefits.”

Trump is actively working to undermine the trade organization.
Quartz

MELTDOWN WATCH:

POCKET CHANGE

Morgan Stanley fights to keep race-discrimination case from going to trial. Business Insider's Michael Selby-Green: "John Lockette, a 64-year old former Morgan Stanley wealth manager who is suing the brokerage over race discrimination, is fighting for his day in court. Lockette, who claimed in a complaint filed in February that he was fired in retaliation for raising concerns about race discrimination at the bank, is in an ongoing legal battle for the right to have his suit heard in a US federal court rather than through a process called mandatory arbitration, whereby complaints are heard in a private forum...  But Lockette might not have the right to have the complaint heard in court, thanks to a 2015 email. Morgan Stanley updated its employee arbitration contracts to ban racial-discrimination claims and class actions that year by sending out blanket emails to over 20,000 employees, including Lockette,records show. Employees who didn't opt-out of the new terms and conditions in the email, or just didn't read it, were automatically enrolled in the new arbitration agreement."

— Lawsuit against Tesla to proceed. Reuters's Tom Hals: “A federal judge has ruled that Tesla must defend itself at a trial over allegations it knew foreign workers at its California assembly plant were threatened with deportation if they reported an injury and worked long shifts that violated forced labor laws. U.S. District Judge Lucy Koh, in San Jose, California, dismissed most of the seven claims against Tesla on Monday, but allowed two claims to survive, paving the way for the plaintiffs to seek documents and witnesses to build their case. . . . Tesla said it investigated the allegations and broke ties with a subcontractor, ISM Vuzem, that it said did not live up to its expectations. 'We’ve also since improved our supplier contracts and policies to better stop bad behavior,' it said in a statement.”

— Employees leave without warning. The Associated Press's Joyce M. Rosenberg: “While most people do give notice if they intend to leave, ghosting is becoming more common. Small business owners and human resources professionals say it happens with staffers of any age and tenure, but is more likely among younger employees whose dependence on texts and chats can make them less experienced with tough conversations. Many deal with uncomfortable situations by just cutting off communication. HR pros recommend that rather than dismiss ghosting as the result of bad manners or awkwardness, owners improve communication and deal with any problems that made workers quit . . . The ghosting cases follow a trend toward no-shows at job interviews that began when companies resumed hiring after the Great Recession. Jodi Chavez, president of the recruiting firm Randstad Professionals, says some candidates felt that hiring managers were cavalier during the recession, not responding to resume submissions, emails and calls. They’re now acting the same way.”

As companies compete for workers in the tightest labor market in years, they’re rolling out new education benefits like college coaching and student loan repayments to recruit employees.
The Wall Street Journal
CHART TOPPER

— From The Post's Andrew Van Dam: “Employers are courting less-educated workers — finally — but they aren’t offering pay increases.”

 

DAYBOOK

Today

Coming soon

THE FUNNIES

— From The Post's Tom Toles: “The picture of Trump’s finances isn’t getting any prettier.”

BULL SESSION

Initiative 77: Why the D.C. Council overturned voters’ wishes.

Presidential alert interrupts José Andrés:

Kanye West wants people to leave Elon Musk alone: