Banking Reform

How Good Is the Financial Regulation Bill?

OurFuture.org Staff — Fri, 21 May 2010 16:28:44 -0400

The Financial Crisis Inquiry Commission: Meaningful or Milquetoast?

Les Leopold — Mon, 11 Jan 2010 12:20:05 -0500

Every once in a long while a commission can change America. The 1954 Army-McCarthy hearings destroyed Senator Joe McCarthy by revealing his out-right viciousness and insincerity through the new media of television. The Watergate hearings helped to bring down a president. And the Pecora hearings in 1933 uncovered Wall Street scam after scam that enriched the bankers who crashed the financial system. Those hearings led to the financial reforms and regulations that protected us from another Great Depression, until they were eliminated to our detriment over the past thirty years.

The Financial Crisis Inquiry Commission also wants to make history. It has yet to pick up a name, but perhaps we’ll be soon calling it the Angelides Commission, after its chairman, Phil Angelides, the former California State Treasurer. Angelides set the bar high during a recent interview cited by Frank Rich in the New York Times

[Phil Angelides] wants to examine the financial sector’s “greed, stupidity, hubris and outright corruption” — from traders on the ground to the board room. “It’s important that we deliver new information,” he said. “We can’t just rehash what we’ve known to date.” He understands that if he fails to make news or to tell the story in a way that is comprehensible and compelling enough to arouse Americans to demand action, Wall Street and Washington will both keep moving on, unchallenged and unchastened.

That’s the kind of language used by Ferdinand Pecora, the lead investigator for the 1933 commission, to humiliate the bankers who were stealing from the American people. But Angelides finds himself in a more difficult spot. First of all, he has to contend with more Republicans on his committee who may side with the bankers. After the 1933 Democratic landslide, Pecora and the Democrats were in complete control. Second, Pecora had the full backing of FDR who wanted to slam Wall Street. It’s unclear, to say the least, how much backing Angelides will get from the Obama administration.

But, Angiledes has one thing going for him: the American people are plenty angry just like they were in 1933. The public knows it’s been ripped off. It can’t comprehend how it’s possible for Wall Street bankers to be earning record amounts after so recently crashing the US economy and getting trillions of dollars of bailouts. This Wednesday the heads of Goldman Sachs, JP Morgan, Morgan Stanley and Bank of America will have a chance to explain why they are about to waltz off with gigantic compensation packages while more than 28 million Americans are without jobs or forced into involuntary part-time work.

One more major difference between now and 1933 are paid flacks, handlers and lobbyists who will attempt to inoculate the bankers from harm. You can expect these Wall Street CEOs to come into the hearings with carefully prepared statements that will slant reality their way and avoid all controversy. After hours and hours of prepping, they will respond to sharp questions more like voice-mail options, as the Angelides seeks to push the right buttons. The goal is to get Angelides to hang up. It will take enormous skill to get anything that resembles unrehearsed responses.

Phil Angelides, in fact, has to be better than Ferdinand Pecora. He will have to rip through layer after layer of hype, spin and half truths without the help of unrehearsed witnesses, a resurgent Democratic party or of the President of the United States.

Bob Borosage asked me to live blog to you during these hearings. He picked the right guy because I'm a junkie for this kind of theater. Also, he's under the illusion that I know something about finance because I've written a book about the crash. In any event, throughout the hearings, I’ll be providing you the play by play as it happens. Let’s hope there’s something to report other than PR releases.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It Chelsea Green Publishing, June 2009.

Financial 'Reform' Preserves Too-Big Banks, Too Much Speculation

Isaiah J. Poole — Sun, 13 Dec 2009 13:59:44 -0500

New Lie On Bank Reform

Dave Johnson — Fri, 11 Dec 2009 14:30:37 -0500

Opponents of financial reform, after huddling with banking lobbyists, are now circulating a story that the reform bills are nothing more than more bailouts for the big banks. In fact the bills do the opposite, and have a mechanism for shutting banks down instead of bailing them out in the future.

But the bank lobbyists and their paid-for allies in the Congress understand that the public just hates the bailouts, so they are trying to direct that hatred to try to kill a bill that would ... prevent bailouts. Here's how it works: If focus groups showed that the public overwhelmingly loathed green cheese, the reform opponents would be circulating a story that a bill to regulate green cheese actually forces everyone to eat it. Until the public catches on that this is how lobbyists and their allies work, this is how the game will be played.

From yesterday's story, House Democrats Defend Effort to Rein In Wall Street,

Republicans, trying to emphasize an issue that strikes a chord with conservatives, said the creation of a new $150 billion fund to dissolve failing businesses would mean a continuation of the bailouts that have sparked public anger.

The fund is for use dissolving banks, not bailing them out. It helps get rid of the idea of too-big-to-fail. But the bank lobbyists don't want their too-big-to-fail perks to go away, so they want to kill this bill. To do this they spread lies, tell the public the bills do the opposite of what they do, grease the palms of corrupt legislators, and generally degrade the idea that we have a democracy and rule of law.

Why are these huge, corrupt financial corporations allowed to lobby using taxpayer bailout dollars? And why do we have a system that allows corporations to get anywhere near the rulemaking process for regulating corporations? Obviously the big corporations will change the rules to give themselves further advantage, and then use that advantage to further change the rules, giving themselves even further advantage - rinse and repeat forever.

This is one more example of certain members of Congress hiring themselves out for a corporate marketing campaign, like when they ran that coordinated "drill baby drill" campaign with the oil companies. (Read a great joke at the link.)

As I wrote above, this will continue as long as it works for them. But once the public catches on that this crowd will say anything - really anything - to trick people into letting them get away with their low-wage, everything-to-the-top economic schemes maybe nonsense like this won't work anymore.

New Democrats' Morally Hazardous Ploy

Isaiah J. Poole — Thu, 10 Dec 2009 12:00:31 -0500

A chart buried in the Congressional Oversight Panel report released Tuesday explains one of the reasons why a compromise on a financial regulatory reform bill struck by the White House, the House Democratic leadership and a group of conservative Democrats is so wrong-headed and potentially dangerous.

The compromise, as reported by Politico and The Hill, would weaken the ability of states to rein in financial institutions, standing in the gap when federal regulators are failing to adequately protect the interests of consumers. Why would a group of Democrats fight to keep states out of the banking regulation business? Here's a clue:

The top four banks—Citibank, Bank of America, Chase and Wells Fargo—have grown dramatically larger in the past two years and now control roughly one-third of all bank deposits. They, along with their competitors, also happen to have spent at least $37 million this year lobbying members of Congress to vote against the financial reform bill that is on the House floor today. That legislation would not only create a federal Consumer Financial Protection Agency, but it would also have in its original form given states the ability to go above and beyond federal law when necessary to protect consumers from the predatory practices of financial institutions.

Rep. Melissa Bean, D-Ill., who has assumed the role of Wall Street's favorite Democrat in recent weeks, led a group of so-called "New Democrats" in blocking debate on the financial reform bill, hoping to get state preemption totally stripped from the bill. The behemoth banking institutions hate answering to state regulators, preferring the cozy relationships they've had with the Wall Street-rooted financial agencies in Washington. Two of of the top four banks in the above chart, Chase and Bank of America, are among Bean's biggest political contributors.

According to news reports, Bean got much of what she wanted. Financial Services Committee Chairman Rep. Barney Frank told The Hill newspaper that the amendment they won the right to place on the floor is "neither no preemption or total preemption. It's somewhere in the middle."

"Somewhere in the middle," however, may not be good enough for rogue financial institutions who can use their size and market power in ways that harm millions of consumers and endanger the economy—especially when a state attorney general may be better equipped than a regulator in Washington to spot a problem and respond.

Americans for Financial Reform sent a letter to members of Congress on Tuesday that stressed that federal regulation should be a floor, not a ceiling, for financial industry regulation. That letter also urged a no vote to an amendment by another conservative Democrat, Walt Minnick of Idaho, that would take the Consumer Financial Protection Agency language out of the bill.

The vote on that amendment, though likely to be defeated, is one to watch. Few votes will better define which lawmakers stand with ordinary Americans and which ones stand with the Wall Street traffickers of moral hazards than the vote on the Minnick amendment.

Wall Street's Favorite Democrat Aims To Weaken Bank Regulation

Mike Elk — Tue, 08 Dec 2009 11:11:11 -0500

Here she goes again: Wall Street's favorite Democrat, Rep. Melissa Bean, D-Ill., is once again shilling for the banks.

As I wrote back in October, Bean misrepresented the views of financial watchdog Elizabeth Warren in arguing that states should not be able to set tough laws against the banking industry.

Now Bean is offering an amendment to the bill that would authorize the creation of a Consumer Financial Protection Agency and institute other key reforms that would weaken the ability of states to regulate banks. Lauren Sanders, managing attorney, National Consumer Law Center, explains to me in an email:

The amendment gives the [Office of the Comptroller of the Currency] and [the Office of Thrift Supervision] expansive new powers to preempt state consumer protection laws, far beyond what they currently have. The amendment also makes every CFPA rule and every federal consumer protection statute that the CFPA will administer a ceiling as to banks, even in many areas of state law that are not currently preempted, including Equal Credit Opportunity Act; Fair Debt Collection Practices Act; Fair Credit Reporting Act, Real Estate Settlement Procedures Act, and Graham Leach Bliley Act’s financial privacy rules

In layman's terms, Bean's amendment guts the current regulatory framework in which states play the role of the local cops on the beat. It's like moving all of the country's fire departments to Washington. We need regulators out on the front line who can respond quickly to problems before someone's house is burned down by a liar's loan or an entire economy is burned by risky investments.

As Melissa Bean's own attorney general Lisa Madigan of Illinois has argued, not allowing states to impose tough regulations on the banks was one of the reasons for the financial crisis:

Federal laws have frequently stymied state reform efforts. These laws preempted states from regulating certain risky loan terms and features. It was precisely these types of features that led to widespread abuses in the mortgage lending market. State attorney generals saw the abuses of prepayment penalties, which often locked burrowers into unaffordable sub-prime mortgages. Yet federal preemption barred the states from enacting tougher laws to address these abuses, even as applied to those entities we regulate.

We need states to be cops on the beat watching the banks. So why in the world is Bean trying to disarm the police so necessary for protecting Main Street from Wall Street?

It's because the three-term Illinois congresswoman and leader in the New Democrat Coalition has pocketed almost $2.2 million since she's been in Congress from the banking and financial services interests she oversees as a member of the House Financial Services Committee, according to the Center for Responsive Politics, including $338,125 so far this year.

Wall Street Democrats like Bean are currently flooding the House floor with amendments favorable to Wall Street to the House financial reform bill.

We shouldn't stand for Democrats doing the work of Wall Street when they are supposed to be doing the work of the American people. We need to get our cops back on the beat protecting Main Street from Wall Street.

Labor Exec Shows How To Demolish Banking Industry Facade

Isaiah J. Poole — Tue, 17 Nov 2009 14:35:22 -0500

The banking lobby, as corporate lobbies are wont to do, can build a wonderful Potemkin village of consumer delights, where a defanged government beholden to business interests smiles as unfettered CEOs and marketers rack up their profits and where only the buyer need beware.

Wall Street Reform Matters

Hear AFL-CIO policy director Damon Silvers explain why financial reform is important and his assessment of his debate with American Bankers Association president Edward Yingling.

This particular village, however, is as flimsy as it is fake, as Damon Silvers, the policy director at the AFL-CIO, demonstrated in a face-off with the banking industry's chief lobbyist, American Bankers Association president Edward Yingling sponsored by the Aspen Institute.

It started to crumble early. The first question from moderator Walter isaacson was to Yingling about what sort of financial reform he believed the nation needed; he responded by saying "there is a lot of agreement on the core principles" of financial reform. Nice facade. But there were at least two core principles on which there was profound disagreement: the need for an independent consumer financial protection agency and the restoration of the wall that until the 1990s separated consumer banking from insurance, stock trading and high-risk financial ventures.

That wall, created by the Glass-Steagall Act that became law during the Depression, opened the way for the creation of the vertically integrated financial behemoths that became "too big to fail" during last year's Wall Street meltdown. Yingling insisted that "there is no causal connection between the repeal of Glass-Steagall and this" meltdown.

Silvers countered that Glass-Steagall does matter because without it the banking sector was able to get entwined with the subprime mortgage world, drawn in by the temptation to be involved in high-risk, high-reward financial activities with an implicit government guarantee that if the bets went bad, the government would cover many of the losses.

For decades, Wall Street operated profitably under a set of rules that protected consumers with bank deposits (through federal deposit insurance) but did not protect shareholders and bondholders. That, of course, changed when the Bush administration stepped in to prevent the collapse of Bear Stearns in March 2008, and continued with the bailouts of the major money-center banks and the insurance and derivatives trader AIG.

There has never been a public interest in bailing out the shareholders," Silvers said. "We need to not do that again."

The disagreement over "core principles" was even more stark on the issue of consumer protection, and it is at this point when Yingling went almost hysterically over the top. When he said that already small banks with only a handful of employees have to deal with about 2,000 pages of federal regulations, and proceeded to do the old divide the number of employees by the number of federal-regulation pages, Isaacson interrupted, essentially asking, "What does size have to do with it?"

Yingling's fundamental point was that if you have a consumer watchdog overseeing the banks, banks would end up being with an untenable stack of burdensome demands and contradictory mandates. An audience member who said he was involved in the creation of the Consumer Product Safety Commission said that agency has proven to be an effective guardian of consumer safety without hindering the private sector's ability to profit from safe products that succeed in the marketplace. But Yingling argued that "The [Consumer Financial Protection Agency] is the most powerful agency ever proposed. It can do anything it wants." If it were regulating toasters instead of financial products, he said, the agency could design a toaster, force banks to display that toaster in its front window while its own branded toasters were forced to languish in a back stockroom with warning labels saying they were inferior to the government toaster. He later added that a consumer agency could order banks to adopt practices that would expose the institutions to fraud.

Nonsense, Silvers said. For one thing, "if the government can design a product that's better than the product that you're designing, I don't have a problem with that."

More to the point, Silvers said that the financial service industry sells very complicated products in a market dominated by a handful of players. Government does and should regulate more intensively based on the complexity and danger of the product being sold and the power of the institution vis-à-vis the consumer. Complex mortgages and other types of consumer financial products constitute "the classic situation where you want to have very heavy duties imposed on the institution," Silvers said.

There is one core principle on which Silvers and Yingling did have some agreement: There does need to be a way to replace the too-big-to-fail monster with a system in which a financial institution of the scale of a Citigroup of Bank of America—or a Bear Stearns—can be shuttered in a process similar to the process undergone by more than 120 smaller banks so far this year, with shareholders and bondholders suffering the loss.

The question, as Silvers noted, is whether Congress is even ready to move on aspects of financial reform where a Damon Silvers and an Ed Yingling can find common ground, "given the intertwined nature of financial institutions and political power."

"I am an optimist," Silvers insisted. But more than a few people in the audience, knowing the millions of dollars the banking industry has thrown into lobbying and campaign contributions in order to protect as much of the status quo as they can, were shaking their heads.

A New Player in the Banking Reform Fight: Citizens

Mike Elk — Thu, 11 Jun 2009 11:21:56 -0400

The fact that regular citizens have been largely excluded from the debate over financial regulation on Capitol Hill was underscored most vividly when Sen. Richard Durbin, D-Ill, said last month that "frankly the banks own the place."

But this week a coalition of citizens groups have taken the offensive, organizing to demand a seat at the table in making a bank system that works for all of us, not just corporate profiteers. As part of that effort, a group of organizations including Campaign for America's Future, National Community Reinvestment Coalition, and A New Way Forward met on Capitol Hill today to discuss a growing citizen's movement to bring the voice of working families to the debate over banking system reform.

Simon Johnson, former chief economist of the International Monetary Fund, argued at the event, at the Rayburn House Office Building, that financial reform is important not just to rebuilding our economy, but to fixing our democracy. As banks grow bigger through deals and mergers, they increase their ability to corrupt the political process through campaign contributions and lobbyists. The more banks grow, the more money they have available to use this influence lawmakers to write rules in their favor and prey on ordinary Americans through predatory lending and other practices. Most recently, we have seen a particularly gross example of this: grossest major banks using our taxpayer money via the bailout to lobby against very popular legislation that would allow judges in bankruptcy cases to readjust homeowner mortgages at current market rates.

Johnson argued that the sense of crisis that has driven a populist push to break up so -called "too-big-to-fail" banks this spring In the wake of the bailout and outrage over AIG bonuses scandals has diminished as the media drums up the myth that the economy is recovering. However, the financial crisis remains very real for ordinary Americans: Unemployment is on the verge of reaching nearly 10 percent and foreclosures are increasing as laid-off workers are unable to pay their mortgages.

Financial reform is one that we as a progressive movement need to begin dramatically organizing around, Johnson said. He estimated will be an approximately five-year-long fight. Similar fights over breaking up trusts in the early 1900's and regulating Wall Street during the New Deal took equally as long and required a great deal of public pressure to achieve real reform. The fight won't be easy, it will be long, it will require serious organizing done by citizens taking to the street to be heard in order to create a Wall Street that works for Main Street.

In this vein, the National Community Reinvestment Coalition and A New Way Forward are sponsoring over 100 events today throughout the country, from rallies to town hall meetings with elected officials to community organizing meetings. In Chicago, workers of United Electrical Workers from Moline, Ill. , whose factory Quad City Die Casting is being liquidated by Wells Fargo, are marching today threatening to occupy their factory, following the lead of workers who occupied and successfully reopened Republic Windows and Doors in Chicago back in December. As John Taylor, CEO of the National Community Reinvestment Coalition said, "In the era of 'too big to fail,' the public must be too loud to be ignored. Today's actions, in communities across America, loudly say that enough is enough—it's time to return integrity and trust to the financial system."

The fight over financial reform is important not just in reforming the financial system, but showing the progressive movement's ability to defeat special interests. At today's event, Mike Lux, author of the Progressive Revolution and honorary co-chair of a New Way Forward, argued In order for the Obama administration to be successful, it must be able to take on these big lobbies. Every time the administration succeeds in defeating one major lobby, it will make passing subsequent reforms easier. Lux argued that when you have early success against special interests, as FDR did in his first 100 days, it weakens the choke-hold that special interests often have on lawmakers.and makes passing subsequent reforms easier.

The fight over banking reform is a crucial battle in the progressive movement's drive to put people power back into the political process. Now is the time to get involved. Visit A New Way Forward and the National Community Reinvestment Coalition to see how you can get involved in events happening across the country.