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The financial system of the United States has always been prone to instability and crises. Now, however, under the new Trump administration, which is pushing for major cuts in regulation, including in the cryptocurrency sector in which the Trump family has a major financial stake, the financial system has become more vulnerable than ever, posing serious risks to the wider economy. Of course, this matters very little to Donald Trump, his family, and his billionaire friends. For Trump, the actual meaning of “America First” is “self-enrichment.”

In the interview that follows, progressive economist Gerald Epstein, a leading expert in finance and banking, talks about the changing nature of the U.S. finance system under Trump 2.0. He argues that Trump is turning the entire financial system into “a Wild West of unregulated institutions and markets,” thus potentially setting the stage for a financial crisis of unprecedented proportions. Epstein is professor of economics and co-director of the Political Economy Research Institute at the University of Massachusetts Amherst and the author of Busting the Bankers’ Club: Finance for the Rest of Us.

The interview that follows has been lightly edited for clarity and length.

C.J. Polychroniou: The U.S. financial landscape is always evolving, but not necessarily in a desirable direction. Financial technology (fintech), artificial intelligence (AI), the shadow banking system, and deregulation are raising concerns about financial instability and even warnings of another financial crisis. Indeed, just recently, even The Economist — a champion of free markets, deregulation, and financialization — ran an article titled, “American finance, always unique, is now uniquely dangerous.” Can you briefly address the evolving nature of the U.S. financial system since the 2007-08 financial crisis and whether concerns about an increase in financial stability risks are valid?

Gerald Epstein: The Great Financial Crisis (GFC) of 2007-2009 hurt millions of Americans and was costly to countless others elsewhere. Americans lost their jobs, their homes, and saw public services — such as resources for schools, health care, and subsidized child care — experience major cuts. As I show in Busting the Bankers’ Club: Finance for the Rest of Us, the roots of the GFC stem from radical financial deregulation by both Democratic and Republican administrations, and also joined by European governments, that permitted megabanks and their top personnel to take on huge risks and win large payoffs. And when the markets collapsed, they were bailed out by central banks and governments without penalty to themselves or their banks. More specifically, bankers and other operatives in the financial system, such as credit rating agencies, were able to profit from massive conflicts of interest; huge and often hidden levels of debt (leverage); deliberately overly complex and opaque financial products that their customers, and often themselves, did not understand; large-scale fraud and corruption that went largely unpunished; and, in the end, massive government bailouts that saved them and their institutions but came at the expense of the taxpayers and the overall economy, as the work of the late James Crotty has shown.

The financial reform laws, in the United States known as Dodd-Frank, were hard-fought but ended up with only moderate improvements in the financial regulations. These reforms promised to make banking less risky by reducing leverage and by increasing bank capital and liquidity; they also promised to make banking activities less opaque by increasing regulatory monitoring of the largest banks. But the effectiveness of these rules eroded over time. This erosion occurred partly because, under Trump 1.0, they were rolled back and weakened in some important respects. And the rules became less effective because the financial markets innovated around them. These changes were well described in the Economist article and included increasing the size of the less regulated areas, increasing the roles of private credit, including asset management firms like BlackRock, hedge funds, and private equity funds, thereby increasing the financial footprint of relatively unregulated credit institutions.

Of course, none of this was inevitable. Had there been governments serious about regulating finance in the U.S. and in Europe, they could have strengthened their restrictions, but they had no such interest in doing so. On the contrary, when there was a banking crisis in 2022 (Silicon Valley Bank, Signature Bank, USB, etc.), the Federal Reserve and the U.S. Treasury bailed out all of their depositors and some of their debt holders and shareholders. This gave a clear sense to these markets that they could keep growing.

All of these trends have now gotten much, much worse because of the actions of Trump 2.0. The Trump administration and the Republican Congress with the help of the Supreme Court and some Democrats are trying to take down almost the entire edifice of financial regulation, including trying to eliminate the Consumer Financial Protection Bureau, place finance-friendly regulators in all the key regulatory agencies, and mostly commit themselves to a free-for-all approach to regulation. The result is increasingly one of conflicts of interest, artificially created complexity and opaqueness, allowing large increases in debt (leverage) throughout the system and massive increases in the potential for fraud and corruption.

In other words, they are turning the entire financial system into a “shadow” financial system, that is a system that is largely unmonitored and unregulated, a system of “private credit,” a Wild West of unregulated institutions and markets.

The private credit market has exploded in recent years, challenging the process of traditional lending. Does the growth of private credit in itself pose a risk to financial system stability?

As Lenore Palladino and Harrison Karlewicz among others have shown, there has been a massive growth of “private credit” as a share of the total financial market assets in recent years. As they point out, private funds have approximately tripled in size in the last decade to $26 trillion in gross assets (compared to the $23 trillion in the U.S. commercial banking industry). These funds include pension funds and insurance company assets which are now increasingly managed by private credit firms such as asset management firms with relatively less regulatory oversight. But as I suggested, even the megabanks themselves are finding many ways to avoid much oversight in this new era of deregulation.

Even though The Economist issue you lead with points to some of these dangers, their warnings are almost always balanced off by suggesting that these financial “innovations” offer benefits to the clients and to the overall economy. But in fact, in most cases, there is little evidence for these benefits. Highly managed asset portfolios do worse than index funds that simply purchase a share of the whole (or a segment of) the financial markets; and one does not need private credit institutions to make these standard investments. More complex investments tend to have higher fees, less liquidity, more risk.

Trump and congressional Republicans, with the help of a number of key Democrats, are pushing legislation to make cryptocurrencies occupy a central position in the U.S. financial system. What problems will this create for the economy?

The poster child for the even more extreme risks coming down the road is the gigantic push being made now by Donald Trump, his family and a whole phalanx of billionaires, Republican politicians, and some Democrats. They want to place cryptocurrencies and assets at the center of the financial system and make tech capitalists such as Elon Musk and Trump himself the kingpins of the financial system. They also aim to transform tech firms into money and credit creators that will be able to print money — like the Federal Reserve and the banks — but will have virtually none of the regulation. In this way, these tech billionaires and Trump family members will be able to privatize the U.S. dollar and the U.S. financial system with virtually no oversight. The key legislative initiatives here are the so-called GENIUS Act, which was just passed by the Senate, and the CLARITY Act, which is set to go to the House of Representatives.

Senate passage of the GENIUS Act on June 18, with 18 Democrats voting for it, illustrates the massive spending by cryptocurrency companies and lobbyists, first in primary elections to defeat anti-crypto Democrats, and then in the November election to elect pro-crypto Republicans and Democrats. We can expect them to spend even more in the 2026 election to push out sensible crypto-questioning Democrats.

Overall, Trump’s reckless policies are plunging the U.S economy into chaos and are negatively impacting global economies. Could they trigger a financial crisis?

Yes. These policies, and especially the cryptocurrency push, are very dangerous. And that was a point made implicitly by the Economist article. But there is an important point that is missed here: Even short of a financial crisis, these highly speculative, risky, exploitative, and fraud-ridden financial markets hurt workers, families, and communities on a daily basis. As Juan Montecino and I showed in our article, “Overcharged: The High Cost of High Finance,” this kind of financial system fails to provide the financial services that workers, small businesses, households, and communities need. Yes, there are the multitrillion-dollar costs of financial crises caused by such financial systems, but there is the huge cost of misallocation of human and financial resources in a speculative, wasteful, destructive, financial economy.

What can be done to prevent the implementation of the reckless finance reform policies undertaken by the Trump administration?

We have to defeat Trumpism, the leading edge of this crony financialized capitalism, as well as the neoliberal Democratic opportunists who support and benefit from these policies.

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