Financial regulation

Trapped in Bank of America Hell

Mary Bottari — Thu, 16 Dec 2010 12:16:27 -0500

Are you one of the lucky ones? Have a good job, live in a nice neighborhood, enjoy your cozy home? Think foreclosure only impacts the reckless or the unemployed?

Think again.

George Mahoney worked and saved and built his cozy, colonial-style home in Lynnfield, Massachusetts, in 1981. There, he and his wife raised three lovely daughters. For many years, the Mahoneys paid down their relatively small mortgage with their local bank -- a division of Bank of America (BofA). In 2007, they took out a second mortgage to help a daughter start a small business. Two wage earners, a great credit record -- the loan was a breeze. That was when the trouble began.

About a year after getting the second mortgage, BofA started notifying George that his payments were late. Soon they jacked his credit card interest rates from 7 percent to 28 percent. Next, they ruined his credit record. His Sears card dropped from a $10,000 limit to a $500 dollar limit. Then one day in the fall of 2009, BofA initiated foreclosure on the house he had built and owned for 28 years.

The only problem? The Mahoneys had never missed a single payment on either their first or second mortgage.

Initially, George thought the problem would be easy to fix. He went down to his local branch to get help, but the local employees were rebuffed by corporate headquarters. So he started getting a receipt for each mortgage payment and faxing it to BofA headquarters. He also started the first of thousands of calls. Usually, BofA staff would readily concede that he was right. But even if they initiated a "fix" it never lasted more than 90 days, when the saga would start over again. In the last few years, he has received foreclosure notices twice -- most recently in October 2010.

"Banks shouldn't be allowed to ruin people's lives this way. My stress level for the past year and a half has been a 10 and my wife is a wreck," George explained. His wife Marianne confirms the toll the trial has taken on the family.

"The whole thing is a nightmare. The stress we live under is unbearable and it's embarrassing too. No one can help us, no one can do anything and it's ruined our credit. I have always been proud to have perfect credit," she adds, the strain evident in her voice.

After receiving a foreclosure notice in October, hiring a lawyer to send urgent letters to BofA, and even after repeated talks with top-level staff in the office of BofA President and CEO Brian Moynihan, the Mahoneys are still in jeopardy.

Bank of America Fraudclosure Central?

Recently released data from the Federal Reserve shows that BofA received almost one trillion dollars ($931 billion) in taxpayer assistance during the financial crisis. The Fed has also been investigating snowballing allegations of fraud in the foreclosure process, allegations that include false notarizations, false affidavits, accounting fraud, abusive fees, false practice of the law and more. Fed Board Governor Daniel Tarullo told Congress that the problems identified "raise significant reputation and legal risk for the major mortgage servicers... requiring immediate remedial action." But will it come in time to aid the Mahoneys?

The Mahoney's experience indicts endemic accounting problems at BofA. Payments are misapplied constantly and the default position is abusive foreclosure. The bank reports some 1.3 million customers behind on their payments, but can regulators trust any data coming out of BofA? How many of these people are trapped in the same hell as the Mahoneys?

In a lengthy interview with the New York Times this weekend, Brian Moynihan reviews his first year as BofA chief. "I feel proud of what we have done," he said. "You never want to have a customer feel that something isn't right." But given BofA's track record, Moynihan's cheerful "there is not a better job in the world!" tenor strikes a surreal note.

Help May Be on the Way

On Tuesday, Iowa Attorney General Tom Miller, leader of the 50-state task force on mortgage fraud, met with more than 100 people from 15 states. In the crowd were representatives from community, faith, and labor organizations, foreclosure victims and struggling homeowners from across the country.

Led by the feisty folks at PICO National Network, National People's Action and Iowa Citizens for Community Improvement, the participants presented Miller with hundreds of case files documenting foreclosure fraud, abuse and plain malfeasance.

The group burst into a spontaneous round of applause when Miller said in no uncertain terms: "We will put people in jail." Miller also said he supports a settlement with the big banks that requires significant principal reductions, loan modifications and compensation for victims -- key demands of the community groups.

As the holidays approach, too many Americans will be losing their homes because of hard times. An untold number will be losing their home due to the fraudulent behavior and stark indifference of the nation's largest bailed-out banks. Let's hope the Mahoneys are not among them.

The New Silent Majority

Richard Eskow — Thu, 09 Dec 2010 03:50:54 -0500

In 2008, Barack Obama said this: "I think Ronald Reagan changed the trajectory of America in a way that Richard Nixon did not ..." He might want to rethink that statement, especially now that he seems to be promoting policies that are opposed by large majorities of the voting public.

Obama needs to channel his inner Nixon, not his inner Reagan. It was Nixon, not Reagan, who tapped the power of the "silent majority" and changed politics for a generation to come. Today there's a New Silent Majority, and it looks very different from Nixon's. The polling results are undeniable: This Majority is looking for somebody to fight the big banks, protect Social Security, and tax the rich to fund government's vital role in society.

Somebody could transform politics with this new majority, just as Nixon did. Somebody probably will.

si·lent ma·jor·i·ty (noun): the ordinary people in a country, who are not active politically and who do not make their opinions known
- Longman Dictionary of Contemporary English

Only 4% of people polled by CBS News after November's election thought that Congress should focus on deficits, and only 2% thought Washington should make taxes its highest priority. Yet those two topics have dominated the debate ever since, all but crowding out the concerns of the majority. Politicians and the media obsessed over them and ignored the topic that 56% of the public considered its highest priority: jobs and the economy.

We've only heard serious talk about "job creation" in the last 24 hours -- and that's in the context of a tax deal! Before yesterday, any attempt to bring up the public's top priority was dismissed by Washington insiders as the irrelevant chatter of marginal extremists. "Stimulus" was a dirty word, not to be spoken in polite company. Now it's on everybody's lips - conveniently enough, just as it could be applied to extending tax cuts for the wealthy. That part of yesterday's deal was opposed by 64% of the American public.

Is it any surprise that over 70% of those polled by CBS were either "dissatisfied" or "angry" with the way Washington works? Neither Obama's base nor his fellow Democrats had a seat at the table when this deal was cut, and that's become a major news story. But seven out of ten voters weren't represented at that table, either. In the long run, that 's a much bigger story.

The New Majority

We won't go through all the numbers and charts again (most of them are here and here.) We'll just stick to the highlights, starting with this one: When asked how we should cut the deficit, the public would rather raise taxes on the wealthy than cut Social Security - by more than two to one.

That includes 71% of independents, 77% of Republicans--and 76% of Tea Party supporters. That's the populist face of the New Silent Majority.

And they really are silent, at least in Washington and on the airwaves. We've just endured a month-long propaganda blitz, led by hyperbolic presidential appointees, focusing on a topic that was the priority of less than one voter in twenty: the deficit. And journalists and politicos alike have been pushing the radical right-wing prescriptions of the Simpson/Bowles Commission, whose recommendations made 70% of those polled either "somewhat" or "very uncomfortable." Still, there was no stopping the deafening chant: We have to cut Social Security! We must reduce Medicare benefits! The deficit's our biggest crisis!

There wasn't even a whisper, it seemed, about the Silent Majority's cry for jobs and growth. Then, without even skipping a beat, it was announced that the trillion-dollar tax giveaway to the wealthiest Americans was being extended, adding hundreds of billions to the deficit that had been such a crisis the day before. And what was the sudden justification for this deficit-busting plan? Jobs and growth! Stimulus!

The American majority must be suffering from whiplash. It's not just the sudden reversal on the deficit. Now the story of the day is taxes - which was a top priority for only one voter in fifty.

What else does the "new silent majority" stand for, besides jobs, protecting Social Security, and taxes for the rich?

72% want the government to crack down on Wall Street more than it has.
81% want the government to do more to reduce poverty.
Eight out of ten oppose cutting Medicare.

Despite the widespread support for these views by members of both parties (bipartisanship at last!), the political and media landscapes are dominated by journalists and politicians who keep telling us these positions are "extremist" and politically unrealistic.

If this new majority could say anything at all to the nation, it might be "Hello? Is this thing on?"

Nixon's (still) the one

You'd think the president and his party would be all over this. Look what Nixon managed to do, almost by accident: He used the phrase "silent majority" in a 1969 speech about the War in Vietnam, and post-speech polling unexpectedly showed it was a huge hit with the public. Thousands of letters and telegrams flooded into the White House, spontaneous demonstrations broke out on Veteran's Day, and a poll showed a 12-point jump in his popularity, from 56% to 68% -- all for a president who had barely squeaked into office a year earlier with 43.3% of the vote (to Humphrey's 42.7% and George Wallace's 13.5%).

Using then-new polling techniques, Nixon was able to identify this majority, appeal to it, and use it to build an unbreakable core of support. While the 1970 Congressional results were disappointing for Republicans, he went on to win a landslide victory in 1972. Even after Watergate discredited him (and to some extent his party), the "silent majority" concept allowed the GOP to build a right-wing public consensus that was unbreakable for a generation. And Republicans didn't just win elections with their Silent Majority: They won huge victories for their political principles, making them the bedrock of public opinion for decades to come. They broke down the liberal consensus and replaced it with their own.

Reagan didn't transform American politics. Nixon did.

Blue Dogma

Historians will marvel someday at our current president's iron-willed refusal to fight for policies that are both widely popular and broadly considered by experts to be the best solutions: stimulus spending to achieve jobs and growth, more regulation to reign in reckless and greedy banking, and ironclad protections for core social benefit plans. They'll wonder why deficits were given higher priority than the bleeding wounds of a jobless economy, while the deficit-busting costs of military spending and an overly privatized health care system were considered off-limits.

Most of all, they'll wonder why a month of deficit frenzy was capped by more of the same tax cuts that helped create those deficits in the first place.

And yet President Obama doesn't just fail to fight for the New Silent Majority and its positions. He gets visibly angry when he's asked about it. The president known for keeping his cool loses it whenever the subject comes up. Why?

Part of the answer may lie in this line in an article by Matt Bai: "Privately, Mr. Obama has described himself, at times, as essentially a Blue Dog Democrat." I've differed with Bai over his own statements about postpartisanship, but he's a first-class reporter and I'm pretty confident his report is accurate.

Obama's description of himself as a "Blue Dog" feels like a marker for something deeper, a theme that runs through his life and work. Bai summarizes that theme very well. But the president, along with sympathizers like Bai and centrist advocacy groups like Third Way, seems to be falling victim to an illusion. Writes Bai: "The body of Mr. Obama's writing and experiences before he became a presidential candidate would suggest that he is instinctively pragmatic, typical of an emerging generation that sees all political dogma -- be it '60s liberalism or '80s conservatism -- as anachronistic."

That seems to be the essence of some self-image for the president, as well as many of his sympathizers and advisors. But it's a misperception. It's not "pragmatic" to reject positions that are popular with the public are most likely to improve the economy. There's something deeper going on. For the "postpartisans" I've met, and from the postpartisan manifestoes I've read, there seem to be several key elements to their worldview:

A strong belief that the best results are achieved by developing consensus among powerful people
A profound attraction to the process of consensus-building
A disdain for partisan debate, based on an emotional distaste for conflict that's coupled with a belief that "wiser heads" can come to a meeting of the minds
A strongly held belief that compromise is morally superior to confrontation
Self-esteem that's based on the belief that this style of leadership is inherently superior

Underlying all this seems to lie a deep need to reject the politics of past generations, regardless of whether the politics in question are right or wrong for the moment, in order to be seen as part of "an emerging generation that sees all political dogma as anachronistic."

dog·ma (noun). something held as an established opinion ... a point of view or tenet put forth as authoritative without adequate grounds.
- Merriam-Webster Dictionary

Why does the president get so angry at "the left" that he insists on attacking it even when it hurts his own interests? Why does he reject opinions held by the great majority, including most Republicans, with disdainful terms like "sanctimonious"?

Remember, Nixon shattered the Democratic Party by linking them to "hippies." Most Americans hated longhaired demonstrators, and Nixon used that hatred to crush liberalism. But being associated with these despised, scruffy peaceniks didn't just defeat the Democrats: It traumatized them. They were painted a fuzzy-haired members of a pointy-headed elite, and it took them generations to get over the shock.

Apparently some of them still aren't over it.

Oldies

When Bill Clinton shook the hippie curse and gave Democrats their cojones back, it made sense. He backpedaled on some core Democratic positions and adopted the posture that a technocratic, bipartisan approach was the best way to solve our problems. Back then, there seemed to be a nonpolitical consensus on what was needed: Less regulation, less government, and more reliance on the "creativity" of the private sector (especially banking).

How'd that work out for you? Like we were saying, it made sense ... back then.

Bashing "the left" was a smart political strategy for Democrats when longhairs were chanting for peace in the streets (RIP, John Lennon). Maybe that's why bloggers describe this kind of left-bashing as "hippie punching." But the hippies are gone. Everybody else has moved on. Nobody's thinking about "hippies" anymore, or even about anything called "the left." They're just wondering how to pay their bills and survive their old age in a world they're increasingly likely to see as Obama's creation.

And they will see it as Obama's creation. That may or may not be fair, but think about it: How many Republicans were on TV last night pitching this deal?

Meanwhile, the New Silent Majority remains silent and unrepresented in the halls of Washington. It's as if some people are too busy fighting with the phantoms of "the left" to see that times have changed. The hippie wars are over. Who's "anachronistic" now?

The North Star

What do you do when the nation's leadership see bartering with Washington power brokers not merely as a political necessity, but as a superior way of being? Voters have seen the end result of this "way," and they don't like it. People are waiting for the president to remold the Washington consensus into something that serves their interests. If compromise does that, they want compromise. If it takes a bar fight, then they want a bar fight.

But the "postpartisans" have elevated compromise from a tactic into a moral principle. That can leave them paralyzed when compromise becomes impossible, as it has now. Fortunately, there may be a way out. And the president touched on it last night, with a passing phrase that was striking and evocative. Where, a reporter asked, is your "line in the sand"?

"My job," he answered, "is to make sure that we have a North Star out there. What is helping the American people live out their lives? What is giving them more opportunity? What is growing the economy? What is making us more competitive? And at any given juncture, there are going to be times where my preferred option, what I am absolutely positive is right, I can't get done. And so then my question is, does it make sense for me to tack a little bit this way or tack a little bit that way, because I'm keeping my eye on the long term and the long fight."

The North Star is a lovely image that evokes something important. It suggests that every political tactic must be illuminated by core set of values and goals, a set of beliefs that make up a glittering pole around which all action revolves. Stars like that have guided political debate for centuries. Some people even have a name for that kind of compass: they call it a "dogma."

If the president can let go of his attachment to his postpartisan self-image and embrace the policies most Americans want and need, they can be his North Star. But to do that he'll need to get over his reflexive distaste for the "old dogma" of the "left," because that old dogma also happens to be the new political reality.

Or, as seems more likely right now, he could keep fighting the battles of the past. His own ideology may be too centrist (that is, conservative) for the times. Or he may not have the temperament for the battles he'd have to fight. If that's true, the New Silent Majority will look elsewhere. The Right hijacked part of it this year, and it's ready to do it on an even bigger scale next time.

Whatever happens, 2012 is coming and The New Silent Majority is looking for its leader. And just in case you hadn't noticed, the auditions have already started.

________________________________________________________

UPDATE: The link in the last paragraph, to the PAC of a leading American politician, came under cyberattack late last night by supporters of Julian Assange. It therefore may or may not work when you click on it.

(There's good reference material on Nixon and the "Silent Majority" in Nevin, M. D. , 2007-04-12 "The Making of the Silent Majority: Nixon, Polling, and Constituency Building" Paper presented at the annual meeting of the Midwest Political Science Association, Palmer House Hotel, Chicago, IL Online . 2010-01-24 from http://www.allacademic.com/meta/p196625_index.html)

This post was produced as part of the Curbing Wall Street project and the Strengthen Social Security campaign.

Will Weak Reforms Bring On Another Crisis?

Zach Carter — Tue, 16 Mar 2010 13:57:06 -0400

Senate Banking Committee Chairman Christopher Dodd, D-Conn., unveiled his latest financial reform proposal on Monday, and the stakes for the new legislation couldn’t be higher. After consumer groups raised a major ruckus, Dodd has dropped one of his most egregious concessions to the bank lobby—cutting enforcement authority from the proposed Consumer Financial Protection Agency (CFPA). That’s good news: Without a major regulatory overhaul, the U.S. economy’s destructive boom and bust cycle will start all over again.

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We’ve been down this road before. The Enron fiasco should have served as a wake-up call for policymakers, but instead, the weak federal response to Enron’s major fraud helped pave the way for the current economic slump.

What does Enron have to do with the crisis?

As Megan Carpentier emphasizes for The Washington Independent, one of the key “reforms” Congress enacted in the Enron aftermath was a law requiring every CEO to sign-off on their company’s accounting statements—but it has accomplished almost nothing.

Enron collapsed due to accounting fraud. Its executives weren’t stupid or careless—they made their money by engaging in deliberate and coordinated acts of illegal deception. But CEOs of companies like Enron had always been able to deny that they knew about the shenanigans that were playing out in their accounting departments. By forcing CEOs to sign off on their accounting statements, Congress was attempting to “deny them plausible deniability,” as Carpentier puts it.

But accounting fraud has plagued the U.S. economy, even after the Enron scandal. It also plays a major role in the Wall Street crisis. A recent court report from Lehman Brothers’ bankruptcy examiner reveals that the company arranged a series of complicated transactions to hide $50 billion in debt, making Lehman appear healthier than it was. By hiding this debt, Lehman was able to make bigger bets on the mortgage market. The defense issued by Lehman CEO Richard Fuld? He apparently didn’t know the accounting hijinks were happening

An epidemic of fraud

Most U.S. policymakers are still having a hard time coming to grips with the fact that our financial system is rife with fraud at almost every level. Writing for AlterNet, Joe Costello reports on a recent Roosevelt Institute conference featuring several major economic luminaries. Costello argues that some of Wall Street’s biggest problems were driven by run-of-the-mill fraud. And a key vehicle for this fraud, Costello notes, was the derivatives market—the same market that allowed Enron to perpetrate its own frauds. Many of the scams aren’t even particularly new or creative. They’re simply the same cons that helped usher in the Great Depression.

“If we’re going to get our economy up and running again, the first thing we’re going to have to do is end the fraud,” Costello writes.

Protecting Whistleblowers

But astonishingly, even after the worst financial crisis in history, bigwig bankers have been able to avoid fraud charges and investigations. Even when the Justice Department went after Swiss banking Giant UBS for a massive tax evasion scheme, they let the company’s U.S. executives off the hook and instead jailed the very whistleblower who told the government about the fraud.

The whistleblower, Bradley Birkenfeld, is by no means innocent of wrongdoing—he even smuggled diamonds in a toothpaste container for a wealthy UBS client. But as Corbin Hiarr notes for Mother Jones, jailing the man who blows the whistle sends exactly the wrong message to anybody in Big Finance who recognizes a problem. Not only will your employer come at you with everything it has, but the government you aid will actually send you to prison. The fraudsters you finger get to retire to the Caymans.

This is part of the reason that successful financial reform is not just what the rules are, but who gets to enforce them. There were many reasonable rules against predatory lending that bank regulators at the Federal Reserve and the Office of the Comptroller of the Currency (OCC) could have used to thwart the financial crisis early on, but neither agency was interested in doing so. They were more concerned with short-term banking profits, and up until 2007, sketchy accounting was allowing banks to book big gains on the subprime market.

Why we need a CFPA

That’s why all the way back in June of 2009, President Barack Obama proposed establishing a CFPA focused exclusively on defending consumers against banks. With no concerns for bank profitability, CFPA regulators could go after unfair practices and fraud because they were wrong, regardless of what they did for bank balance sheets.

The proposal was watered down significantly in the House, as Kai Wright notes for The Nation, and just a week ago it appeared that Dodd was ready to completely torpedo the new regulator in an effort to craft bipartisan support for a so-called “reform” bill.

He’s backed off since then, but without strong enforcement authority, nothing is gained—the same corrupt regulators will simply continue to look the other way. But Dodd would still house the new agency at the Federal Reserve. Dodd insists the Fed would have no authority over the CPFA, but if that were the case, why would he introduce the provision at all?

“Reform in name alone will be useless to both consumers and politicians,” writes Wright.

Strong financial reform is overwhelmingly popular. While it’s good to see Dodd backing away from some of the gifts he’d previously proposed to bank lobbyists, progressives must keep the pressure high to ensure that financial reform is strengthened as it moves through the Senate.

It’s easy for a corrupt lawmaker to vote against a weak bill: He can always plead that the bill wasn’t good enough and be right. But serious, popular reform is not so easy to oppose. If Dodd and the Democratic leadership make the politicians backed by the bank lobby—that’s literally every Republican, plus a handful of conservative Democrats—stand up and vote against a good bill, many of them will have to choose between their lobbyist friends and their political future.

This is a project of The Media Consortium, a network of leading independent media outlets. This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium.

Exemptions and Arbitrage

Susan Ozawa — Sat, 13 Mar 2010 10:05:27 -0500

A central property of financial capitalism is that price discrepancies will be exploited for profit. This is called arbitrage. It’s an old concept but one that several of our elected representatives seem not to understand. If we create loopholes and exemptions in our regulatory framework, they will be exploited and the speculation and problematic practices lending to systemic instability of our financial system and a tremendous amount of inequity and predation will continue.

Several loopholes in our proposed financial regulation bills need to be addressed. Some may make it into Dodd’s proposal out of the Senate Banking Committee draft and some only Europeans seems to understand.

Let’s start chronologically.

First, there were the automobile dealers who were exempted from the House Financial Service Committee’s proposal to regulate lenders. There was no compelling reason to do so except a strong automobile industry lobby.

Then, the airlines and “users for commercial purposes” were exempted from rules on derivatives. The reason for the exemption was key, however, specific acceptable practices should be written into rules under which all activity is governed, but whole entities should not be exempt from regulation. In this case, hedging should be allowed but must be monitored transparently by an effective regulator.

In the House version of the bill, banks with less than $10 billion of assets and credit unions with less than $1.5 billion of assets would be exempt from regulation by the Consumer Financial Protection Agency (CFPA). Again, while there are good reasons to have lenience on community banks and credit unions that did not practice predation or contribute to systemic financial instability, the problem is that, going forward, new institutions will be created to fall into this category and will become a breeding grounds for pernicious activity. Again the activity should be the focus of the regulation, not the categorization of the entity that may or may not be engaging in it.

In the Senate version of the bill, a particular point of contention was the exemption of payday lenders, rent-to-own companies and companies processing remittance transactions from regulation. This was championed by Corker while Schumer was particularly vocal against it. However, it’s unclear if Dodd’s cowboy version drafted without bipartisan consensus will retain this provision. See the latest on this exemption here.

It is also probable that in this version the Fed will retain supervision over banks with more than $100 billion in assets as a systemic risk regulator. While consumer and investor advocacy groups have been pushing back on the Fed controlling systemic risk regulation to begin with, it is also clear that not only large firms are systemically significant as evidenced by the Savings and Loan crisis in which a number of small institutions failed simultaneously.

However, while our elected officials may not understand the importance of comprehensive coverage of the regulatory umbrella, or they have been swayed by lobbyists and campaign contributors to pretend they don’t understand, it appears Geithner is quite clear on it. And instead of fighting for full inclusion of all parts of the financial system under a regulatory umbrella, he is pushing for the opposite. He stressed in his missive to the European Commission on March 1st that US entities should be exempt from rules being drafted regulating private equity, hedge funds and alternative investment funds, entailing rules on remuneration, limits on borrowing, the disclosure of sensitive information and regulation of depository institutions. Clearly, what Treasury has outlined and expected to turn into legislation will be less robust than proposals coming from Europe including calls to ban all naked credit default swaps if not banning them outright altogether. Thus, we are pursuing international loopholes for our underregulated entities as well. This is problematic for diplomatic relations but also is bad PR for Treasury's view of our draft bills. It appears we know we are winning the race-to-bottom and we are willing to defend that internationally.

This strategy to capture market share via exemptions leaves open a playground for profitable, speculative, however unproductive, risk-taking activity to occur. You can bet that if these entities are not covered by strong regulators now including an independent CFPA, they will be the subprime mortgage brokers and asset-backed securities structurers of tomorrow.

Let's keep up the fight till the bitter end. More here.

Is the Senate Bungling Its Wall Street Crackdown?

Isaiah J. Poole — Wed, 24 Feb 2010 10:19:28 -0500

Ungodly: Bonuses At Goldman Sachs, Bankruptcies On Main Street

Isaiah J. Poole — Mon, 16 Nov 2009 18:08:35 -0500

Hundreds of taxpayers converged in front of the Washington headquarters of Goldman Sachs with a basic demand for its CEO: Before you issue multibillion-dollar bonuses to your executives, help clean up the mess you and other Wall Street titans made on Main Street.

The protest organizers—National People’s Action and the Service Employees International Union—delivered a letter addressed to Blankfein calling for Goldman Sachs to direct a significant portion of the company's estimated $23 billion-dollar bonus pool to a fund to prevent home foreclosures.

They singled out as a key villain Goldman Sachs CEO Lloyd Blankfein, who drew fire for among other things being quoted in The London Times as saying he's "doing God's work."

The demonstration took place as Congress prepared to work on several important financial reform initiatives. The Senate Banking Committee will be marking up a bill that promises to reform regulation of financial markets, and the House Financial Services Committee will be working on legislation (HR 3904) designed to protect consumers from excessive overdraft fees on their checking accounts.

Expect financial industry lobbyists to be working overtime. Already, according to a Public Citizen report released November 16, the financial services industry has spent $15 million in campaign contributions to members of the House and Senate banking committees and a total of $42 million to all members of Congress. Public Citizen's president Robert Weissman calls that an investment of millions "in the very lawmakers who will decide the new rules of the road." It will take a lot of people power to overcome that flood of cash.

Who Will Rein in Wall Street?

OurFuture.org Staff — Wed, 14 Oct 2009 17:43:50 -0400

A Recipe For Another Financial Debacle

Robert Borosage — Tue, 13 Oct 2009 11:54:09 -0400

As the House Financial Services Committee begins markup on Wednesday of key financial reform legislation, the stakes are clear. Without strong regulation of the banks and the shadow banking system, large banks will feel free to gamble with the assumption that taxpayers will cover their losses. This is a recipe for another financial debacle.

Yet, even as the committee begins its work, the banking lobby has worked the backrooms to weaken the reforms proposed by the administration.

The central administration proposal—the creation of a new Consumer Financial Protection Agency to protect consumers from financial frauds and rip-offs—has already been critically compromised. No longer are financial institutions required to offer consumers simple and plain basic mortgages and other loans. The enforcement of the Community Reinvestment Act has been stripped from the CFPA. And even worse, the oversight authority of the new agency is placed in a council of the very same regulators that failed consumers completely in the run-up to the financial collapse. Rewarding their failure is simply indefensible.

The committee also seems intent on weakening rather than strengthening the current inadequate laws relating to derivatives, the exotic financial instruments that Warren Buffett termed “weapons of financial mass destruction.” This is simply abandoning the public interest to serve the private interests of the banks.

When Senate Majority Whip Richard Durbin declared that the “banks own the place,” he clearly wasn’t kidding. But legislators should beware. The banking lobby got its way when few were looking and even fewer could understand the arcane battles over deregulation. Those days are gone. Americans have lost literally trillions of dollars in savings and assets due the irresponsibility of a financial industry that turned itself into a casino, taking bets without even the prudence that a Las Vegas bookie exercises. Then they demanded hundreds of billions of taxpayers’ dollars to bail them out or they would bring down the entire global economy.

Americans are livid and paying attention. Voters will hold accountable legislators who undermine the reforms we need in order to serve their Wall Street contributors.

The Campaign for America’s Future will join with dozens of other organizations to insure that the backroom deals are brought into the light of day. Those standing in the way of reform will discover voters are not likely to forgive or forget.

Choosing One's Battles

Susan Ozawa — Tue, 04 Aug 2009 11:40:05 -0400

Isn’t it funny how the Obama administration outlined very rough principles for congress to designing the energy bill and health care reform while for financial regulation congress received an explicit outline of the entire structure down to the letter? Now Treasury Secretary Timothy Geithner is rounding up the heads of the regulatory agencies and strong arming them to sign on, peppering his warnings with expletives in frustration that they have opinions on the matter that differ from the administration’s.

There’s an argument to be made that these two different strategies to push these sets of policy changes should have been reversed; the administration should have provided more guidance on energy and health care, taking a stake in cap-and-trade and a public option, while sound and precise principles for financial regulation could have been outlined very generally. The result of the hands-off approach with the energy bill was that cap and trade ended up significantly weakened in terms of emissions targets and in creating a market-based system for permits that would not crowd out private participation incentivitized by governmental subsidies. Using that same strategy, health care reform via the public option appears to be in complete jeopardy and if anyone needed to be shaken vigorously by the Democratic leadership it’s the faction of the Democratic party itself that has undermined the President’s mandated platform. Still, placation and autonomy were espoused as the administration’s chosen modus operandi. But frankly, of all three pieces of legislation, financial reform has the least white papers in circulation outlining specific ways to move forward. Most that are written are penned by the financial community, so focusing on health care and stepping back from financial reform would have given think-tanks and academia some time to respond. Further, legislators could use some time to educate themselves and their constituents on the options before simply signing onto what’s been handed to them.

Knowing how important grassroots advocacy is, Treasury has already mapped out a field strategy plan for the recess and handed out talking points to congressional members to generate support for the administration’s financial reform plan. But a publicity campaign to seek the public’s support of a platform before any thoughtful dialog takes place between constituents, Congress members and regulators would seem to circumvent the democratic process and common sense. Afterall, it’s not as if Obama’s presidential platform was grounded on allowing standardized derivatives and giving the Fed discretion over systemically significant institutions in the same way his platform involved moving away from energy dependence and creating a 21st century health care system for all. More to the point, what’s wrong with healthy democratic engagement? If some of our most respected regulators and congressional committee chairs have reservations about pieces of the Obama financial reform plan like the Federal Reserve becoming emboldened without any checks and balances, why not work on designing ways to address the Fed’s past failures and consider placing financial regulation within an entity within congressional jurisdiction if the Fed is to remain independent? The administration has compromised repeatedly over key points in spirit and letter on the recovery act, cap and trade and health care so why are dissidents with good points and expertise being scolded now over financial reform? It’s a bad strategy and bad PR. Did I mention it being undemocratic? It would also seem to reveal what the administration’s priorities really are and forces us question why that's the case.

It’s not too late to step back on financial reform, at the very least to wait for some findings to be released by the investigative panel on the financial crisis to motivate the changes the administration is advancing. But the soft power course on cap and trade and health care, cannot be reversed. Still, the administration could put all its muscle instead into grassroots campaigning for a public option during the recess if it was sincere about its platform promises.

Three Myths About The Consumer Financial Protection Agency

OurFuture.org Staff — Tue, 21 Jul 2009 09:14:09 -0400

Elizabeth Warren is chair of the Congressional Oversight Panel and the Leo Gottlieb Professor of Law at Harvard University. This article originally appeared in The Baseline Scenario.

I’ve written a lot about the creation of a new Consumer Financial Protection Agency (CFPA), starting with an article I wrote in the Democracy Journal in the summer of 2007. My writing has helped me work through the idea and has advanced a conversation about what kind of changes in financial products would be most effective. A couple of weeks ago, I testified before the House Financial Services Committee about why I think a new consumer agency is so important, and I’ve argued the case many times.

Today, though, I’d like to post specifically about some of the push-back that has developed on this issue. In particular, I’d like to focus on three big myths – myths designed to protect the same status quo that triggered the economic crisis.

MYTH #1: A Consumer Financial Protection Agency Will Limit Consumer Choice and Hinder Innovation

At a recent hearing on the CFPA, Rep. Brad Miller challenged an industry representative to identify one consumer who chose double-cycle billing to be included within the terms and conditions of his or her credit card contract. It was a great moment. If the status quo is about choice, then explain why half of those with subprime mortgages chose high-risk, high-cost loans when they qualified for prime mortgages. If the status quo is about choice, then explain why Citibank declared itself consumer friendly, dropped universal default, then quietly picked it up again the following year because they said consumers couldn’t tell whether they had the term or not.

The truth, of course, is that no consumer “chooses” to accept the tricks and traps buried within the legalese of financial products. Rather, consumers must choose among various products with one feature in common: dozens of pages of incomprehensible fine print.

The CFPA will not limit consumer choice. Instead, it will focus on putting consumers in a position to make choices for themselves by streamlining regulations, making disclosures smarter, and making financial products easier to understand and compare. The Agency will promote plain vanilla contracts—short, easy to read mortgages and credit card agreements. The key principle behind the new agency is that disclosure that runs on for pages is not real disclosure—it’s just a way to hide more tricks. Real disclosure means that a lender has to be able to explain what it is selling so that the customer can read it and understand it. Once consumers can understand the risk and costs of various products – and can compare those products quickly and cheaply – the market will innovate around their preferences.

Daniel Carpenter, a Professor of Government at Harvard University, has written a great deal about the modern pharmaceutical industry. While anyone with a bathtub and some chemicals could be a drug manufacturer a century ago, Carpenter points out that drug companies were willing to invest far more in research and development to bring good drugs to the market once FDA regulations drove out bad drugs and useless drugs. Good regulations support product innovation.

MYTH #2: The CFPA Will Add Another Layer of Regulation and Increase Regulatory Burdens

Current regulations in the consumer financial area are layered on like pancakes—see a problem and fry up a regulation, but don’t integrate it with the earlier regulation. Today, seven different federal agencies have some form of regulations dealing with consumer credit. The result is a complicated, fragmented, expensive, and ineffective system. With consolidated and coherent authority, the CFPA can harmonize and streamline the regulatory system—while making it more effective.

But the real regulatory break-through for the CFPA would be the promotion of “plain vanilla” contracts that would likely meet the needs of about 95% of consumers. These contracts would have a regulatory safe harbor. By using an off-the-shelf template for a plain vanilla contracts and filling in the blanks for interest rates, penalty rates and a few other key terms, a financial institution can legally satisfy all its federal regulatory requirements—no need to do more.

Of course, some banks would want to offer more complicated products. For many, they could file-and-use, so long as they met the same regulatory standards of adequately disclosing risks and explaining costs—briefly enough and clearly enough for people to understand them.

A streamlined new regulatory regime would have a serious impact on the credit industry. Today’s complicated disclosure system favors big lenders that can hire a legion of lawyers to navigate the rules—and spread the costs among millions of customers. Those complex rules fall much harder on a smaller institution that must navigate the same regulatory twists and turns, but with far smaller administrative staffs. Plain vanilla contracts will be particularly beneficial for community banks and credit unions that will be able to divert fewer resources toward regulatory compliance and more toward customer service and innovation.

MYTH #3: Prudential and Consumer Regulation Cannot Be Separated

Make no mistake: This is a fancy claim for the status quo. If the CFPA can be left with the current bank regulators, then it can be smothered in the crib. For decades, the Federal Reserve and the bank regulators (the OCC and the OTS) have had the legal authority to protect consumers. They have brought us to this crisis by consistently refusing to exercise that authority.

The agencies’ well-documented failures – discussed in detail by Travis Plunkett and Ed Mierzwinski here and by Professor Patricia McCoy here — are largely the result of two structural flaws. The first is that financial institutions can now choose their own regulators. By changing from a bank charter to a thrift charter, for example, a financial institution can change from one regulator to another. The regulators’ budget comes in large part from the institutions they regulate. If a big financial institution leaves one regulator, the agency will face a budget shortfall and the agency will likely shrink. Knowing this, financial institutions can shop around for the regulator that provides the most lax oversight, and regulators can compete by offering to regulate less. Regulatory arbitrage triggered a race to the bottom among prudential regulators and blocked any hope of real consumer protection.

The second structural reason that prudential regulators failed to exercise their authority to protect consumers is a cultural one: consumer protection staff at existing agencies find themselves at the bottom of the pecking order because these agencies are designed to focus on other matters. At the Federal Reserve, senior officers and staff wake up every morning thinking about monetary policy. At the OCC and OTS, agency heads wake up thinking about capital adequacy requirements and safety and soundness. Consumer protection issues are—at best—an afterthought. The CFPA would create a home in Washington for people who wake up each morning thinking about whether American families are playing on a level field when they buy financial products. By bringing economic experts who care about consumer financial issues under one roof, CFPA can develop as a smart agency that develops real expertise.

A single consumer agency would also be able to make sure that the same products face the same regulations. Today, mortgages are regulated differently depending on whether they are issued by a bank, a nationally-chartered thrift, a nationally-chartered credit union, and so on. Imagine for a moment if toasters or toys had different safety standards depending on who manufactured them. Or, even worse, imagine if some manufacturers could bypass safety standards almost in entirety – as is now the case for non-depository financial institutions. It is time for one Agency to regulate financial products in a consistent manner across the board.

In 2001, Canada created an independent agency much like the proposed CFPA. I recently spoke with some Canadian economists, and they not only said the system works, they also expressed bewilderment about the idea that prudential and consumer regulation would be combined. As one said, they “have different ways of thinking about the world.”

At the end of the day, industry lobbyists try hard to invent myths and make things sound confusing to intimidate the public and to keep policymakers from acting. But this issue is simple: keeping safety and soundness and consumer protection together has not ensured safety and soundness, has not protected consumers, has not fostered choice and innovation, and has not minimized regulatory burden. In fact, the current regulatory structure that combines consumer protection with other bank oversight responsibilities has led to the kind of bad regulatory oversight that has led us to this crisis. The CFPA would put someone in Washington—someone with real power—who cares about customers. That’s good for families, good for market competition, and good for our economy.