Consumer Financial Protection Agency

Gen. Petraeus Goes to War, Mrs. Petraeus Loses to Car Salesman in Congress

Richard Eskow — Thu, 24 Jun 2010 13:57:44 -0400

This pretty much says it all: General Petraeus is going to Afghanistan at the President's request to lead the war effort there, but his wife Holly's struggle to defend our troops against the predatory lending practices of car dealers has been lost. Holly will become another military spouse who lost a battle with car dealers while a loved one serves overseas. Both Houses of Congress are apparently willing to "support the troops" only when it doesn't get in the way of doing favors for the guys raising money at those rubber-chicken campaign fundraisers back home.

Let's hope the General has better luck against Mullah Omar than his wife had against Tony Federico. Tony's the auto dealer we wrote about the other day - the one who says he always gets the best deals for his customers, but doesn't want anyone checking to see if that's true or not. In this Congress, the score is now Tony 1, Holly 0.

The House/Senate Committee approved a carve-out for auto dealers that exempts them from oversight by the Consumer Financial Protection Bureau. There are no good policy reasons for that. The argument that "car dealers had nothing to do with the economic crisis" doesn't wash. As Jeff Sovern observed in Politico, reform is designed to prevent the next crisis as much as it is to avoid a repeat of the last one. With nearly a trillion dollars a year written in auto loans each year, and with auto dealers having the same perverse incentives as mortgage brokers, it's a tragedy waiting to happen.

And it's a tragedy that is happening - every day, in communities all over the country. Holly Petraeus stepped in because she was one of many military family members who grew tired of seeing soldiers exploited by fast-talking bait and switch artists at a vulnerable and frightening time in their lives. When it push comes to shove, gladhanding contributors was more important to Congress than looking out for the interests of our soldiers ... and other ordinary citizens. The racially discriminatory patterns behind auto lending didn't disturb them, either, nor did the average of $647 added to the cost of each vehicle as a result of dealer markups. (More info here and here.)

Negotiators are working to undo a little of the damage done by this decision. As the AP reported yesterday, auto dealers will still be covered by Federal truth-in-lending laws, although the Fed will have to write a justification every time it tried to write rules that specifically deal with auto loans. And there's a plan to create a "fast track" for the Federal Trade Commission to write rules that address auto loans.

But these are band-aids on the gaping wound created by this sweetheart deal. Every lender but one will have to answer to the Consumer Financial Protection Bureau, leaving a messy and confusing two-tiered oversight system that's ripe for exploitation.

We promoted the CREDO/Campaign for America's Future fax campaign last week, saying " Send a fax. Call your Senator and Representative. If you do, we can have you in a nice financial reform package, complete with consumer protections against auto dealer rip offs." Apparently I was overselling - which may qualify me for a job at an auto dealership - but send the fax and make the call anyway. That will let them know you're unhappy, and that you want the FTC and the Federal Reserve to push for the strongest possible regulations. And let the Senators who voted to encourage Tony's giveaway (my Senator, Barbara Boxer, is one of them) know you want them to push for real oversight of these loans.

General Petraeus specializes in counterinsurgency, which is defined as "armed conflict against an insurgency by forces aligned with the recognized government of the territory in which the conflict takes place." Too bad he didn't share some of his techniques with his wife before she went to plead her case before Congress. In the battle between our troops and Tony Federico, the troops never really had a chance.

Traded-In: These "Used" Senators Sold Out the Troops For Auto Dealer Cash

Richard Eskow — Tue, 25 May 2010 10:43:44 -0400

If you have a yellow "Support Our Troops" sticker on your car - or even if you don't - you should know the name of the Senators who just traded in our troops, their families, and our military readiness for the easy cash offered by auto dealers. There's no rational policy reason for this exclusion: It's special interest politics, pure and simple. These Senators acted against the objections of military leaders and Gen. Petraeus' wife Holly. But they're not just voting to hurt soldiers: Every American who buys a car on credit is likely to suffer if this "instruction to Senate negotiators" prevails..

Call it "clunkers for cash." Auto dealers are generous with their campaign contributions, both individually and as a group. And they're usually community leaders, active and influential in local politics (and local campaign giving). The National Auto Dealers Association, the lobbying group for new and used car vendor, called the tune and these solons danced. Take a look at the Association's leadership and then ask yourselves: Would you buy a used Senator from these men?

You know why Americans place car salespeople at the very bottom of the list when asked to rate professions for honesty and ethics? Probably because they've bought a car. And they don't know the half of it. They may not have heard about about the "dealer add-in rate," for example, where dealers are allowed to add points on the interest rate and keep it for themselves (i.e. quoting you 10% interest when the bank's only charging 8%, and keeping the difference.) The Center For Responsible Lending estimates that these markups (which they rightfully call "kickbacks") cost consumers $20 billion a year and added $647 to the price of each vehicle (pdf)

They also may not know about the way dealers handle "gap insurance" for cars, which pays the difference between what your auto insurance covers and the remaining cost of your loan if a car is totaled. Dealers reportedly charge three times as much for this insurance as credit unions.

Then there's the awkward reality of racial discrimination: 54% of African Americans were charged these markups, vs. 31% of whites. This continues a long-standing discriminatory pattern: A six-year study of 300,000 Nissan loans performed in 1991-2000 showed that African Americans in 33 states consistently paid more for their loans, regardless of credit history.

Think about it: If they were acting honorably and fairly, why would auto dealers object to being treated like other lenders? If this resolution prevails, credit unions, community banks, and other responsible lenders will be at a disadvantage when competing with predatory auto dealers who don't have to play by the rules.

Twenty-one Democratic Senators sided with all of the Republicans to back a measure from GOP Sen. Sam Brownback to direct Senate negotiators to exclude auto dealers from the consumer financial protection group that will be created in financial reform. The measure is nonbinding because the bill has already passed, but it increases the momentum for protecting auto dealers from oversight, which the House bill already does.

My Senator, Barbara Boxer, voted in favor of the measure - and her office is going to hear from me about it. So did Sen. Majority Leader Harry Reid, who defied his own President and the Departments of Defense and Treasury. Coincidentally, I received a fundraising email from Sen. Boxer today, asking me to donate money to Sen. Reid's reelection campaign. The title of the email is "Leadership." Barbara Boxer and Harry Reid will have to do better than this in the "leadership" department.

Reid's vote indicated that, when it came to pleasing auto dealers, the Senate's "manager was in a good mood." It probably didn't hurt that Sen. Reid received $16,845 in campaign contributions from auto dealers during the 2004-2009 period, plus another $5,000 from the auto dealers association so far this year. That may not seem like a lot, but auto dealers raise a lot of third-party cash for politicians too. And hey - they may not offer many bargains, but they know how to find one. For her part, Sen. Boxer's only received $4,000 as of last report, but she's up for re-election this year and there's still plenty of time. (2004-2009 contribution info is here; auto dealer association information is here.)

The Brownback resolution is the handiwork of the auto dealers' lobbying group - whose acronym, NADA, happens to be Spanish for 'nothing." The nihilistic ring seems appropriate for a group that would cavalierly ignore the pleadings of military leaders and a General's wife. Holly Petraeus' objections to the auto dealer exemption were widely reported in Stars and Stripes and elsewhere. She has said of all predatory military lenders (a group which includes many auto dealers): "I feel strongly that our service members earn that paycheck, that's not very large, in the most dangerous way possible, and for somebody to pick their pocket is disgraceful."

The Pentagon explained to these Senators why ""soldiers who are distracted by financial issues at home are not fully focused on fighting the enemy, thereby decreasing mission readiness." They didn't care. Researchers explained the abuse and deception that occurs when car dealers lend money. They ignored it. Studies proved that African Americans receive discriminatory treatment from these lenders. They backed them anyway.

Here are the Senators who voted for this resolution, along with their contributions from auto dealers in the years 2004-2009. (There was plenty of money given out before and after those dates, too; and the political clout dealers have in local politics produces a lot more cash than is visible in these numbers).

There are names I respect on this list, and probably some that you do too. All the more reason to take action. Feel free to contact them and let them know what you think of their decision to support auto dealers over soldiers, military families, and you:

Alexander (R-TN) - $47,150
Barrasso (R-WY) - $12,186
Bayh (D-IN) - $15,450
Begich (D-AK) - N/A
Bennett (R-UT) - $15,997
Bond (R-MO) - $13,550
Boxer (D-CA) - $4,000
Brown (R-MA) - $300
Brownback (R-KS) - $14,786
Bunning (R-KY) - $15,500
Burr (R-NC) - $56,541
Cardin (D-MD) - $25,900
Cochran (R-MS) - $8,000
Collins (R-ME) - $21,232
Conrad (D-ND) - $11,000
Corker (R-TN) - $115,900
Cornyn (R-TX) - $133,341
Crapo (R-ID) - $11,000
DeMint (R-SC) - $71,500
Ensign (R-NV) - $18,900
Enzi (R-WY) - $11,000
Graham (R-SC) - $21,950
Grassley (R-IA) - $10,750
Gregg (R-NH) - $7,450
Hagan (D-NC) - $7,100
Hatch (R-UT) - $27,600
Hutchison (R-TX) - $64,993
Inhofe (R-OK) - $20,750
Johanns (R-NE) - N/A
Kerry (D-MA) - $85,334
Klobuchar (D-MN) - $1,500
Kohl (D-WI) - N/A
Kyl (R-AZ) - $101,050
Landrieu (D-LA) - $9,750
Lautenberg (D-NJ) - $2,800
LeMieux (R-FL) - N/A
Lieberman (ID-CT) - $33,000
Lugar (R-IN) - $7,875
McCain (R-AZ) - $622,459
McConnell (R-KY) - $24,700
Menendez (D-NJ) - $17,750
Mikulski (D-MD) - $11,500
Murkowski (R-AK) - $16,100
Murray (D-WA) - $7,500
Nelson (D-FL) - $40,600
Nelson (D-NE) - $11,350
Pryor (D-AR) - $24,350
Reid (D-NV) - $16,845
Risch (R-ID) - $11,000
Roberts (R-KS) - $13,150
Rockefeller (D-WV) - $4,000
Sessions (R-AL) - $27,750
Shaheen (D-NH) - $2,900
Shelby (R-AL) - $2,400
Snowe (R-ME) - $7,700
Specter (D-PA) - $29,950
Thune (R-SD) - $106,898
Vitter (R-LA) - $59,023
Voinovich (R-OH) - $19,650
Wyden (D-OR) - $29,000

Usurious Payday Loans: Myths, Flawed Studies, and Solutions

Richard Eskow — Wed, 12 May 2010 12:44:34 -0400

The trade association for payday lenders objected to what they called my "name calling" in their blog yesterday ... then called me a "pig."Why? Because I quoted Aristotle and told a story about Jesus. Well, to be fair, I did suggest their industry might be "evil" according to traditional definitions of the term. But that doesn't explain the payday defender who called me "Doofus Major du Jour."

There are some more civil arguments being used to defend payday lenders, however, and many commenters repeated them in the Huffington Post and in the DailyKos. These arguments are myths. They're being repeated by reasonable, well-intentioned people who have been misled by a wealthy lobby and its flacks.

Here's the truth, for all those well-meaning payday defenders out there: Payday loans weren't created to help underserved populations, but to exploit helpless people. Payday lenders are deeply connected to traditional banks, who freeze out certain customers so they can be preyed on by usurers. And that study you keep citing? It was paid for by industry money and used industry data, and a number of other studies refute it. But there's good news: Congress can fix the problem now.

A population in need? One common argument is that payday loans serve a group of people that can't get needed loans any other way. Shouldn't people be free to enter into contracts with one another, even if the terms seem outrageous to others? There are two problems with this argument. First, as a commenter pointed out, it can also be used to justify moral wrongs like slavery, too - although slavery wasn't a perfect analogy. A better one would be "indentured servitude," where poor people would trade away their freedom for a period of years in return for a cash loan. Civilized countries decided that these agreements, although they were legal and enforceable contracts, were immoral and must be stopped.

This argument also ignores a critical fact: Big banks -- the same parties who have denied people more legitimate sources of credit -- are deeply embedded in the payday loan industry. Wells Fargo has funded more than one-third of all storefront lenders, Bank of America's a major shareholder in payday lender QC Holdings, and banks have been working with payday lenders to evade usury laws.

Banks force people into a financial squeeze where they have no other credit options - by denying them traditional loans and credit cards - then profit from rapacious payday lenders who charge them rates that can approach 400% to 800% in annual interest. Payday loans don't help an "underserved population" - they're part of an exploitative, interconnected system.

In other words, the "payday loan" problem is a problem with the entire banking industry.

People also have argued that it's not fair to quote annual interest rates. They sound high, but these loans only last for two weeks so nobody's really paying that kind of interest. Wrong: Payday loans target lower-income people and charge so much in interest that they're forced to "roll over" these loans again and again. An Indiana study showed that the average borrower took out more than ten loans per year, for example.(1) As cited by Kelly J. Noyes, a number of state studies show that rollovers are frequent. The Center for Responsible Lending found that 91% of loans were given to people who had borrowed five times or more during the course of a year. And Sen. Joe Lieberman's staff found that the typical lower-income borrower did not have enough money to pay back their payday loan without going into debt at the end of the two-week period.(2) That cycle is what nonprofit financial organization CouleeCap accurately describes as "Paycheck Poverty, " and their paper on the topic cites this widely-available statistic: There are one hundred times more payday loan operations today (as of 2007) than there were in the early 1990s.

Here's the significance of that figure: An industry that essentially didn't exist in 1990 had grown to 12-14,000 outlets by 2001 (Consumer Federation of America/PIRG) and continued to grow even before the latest downturn. Again: This is not an example of people serving an unmet need. It is a bank-fueled response to a bank-manufactured crisis.

Somebody is no doubt saying, "Hold on a second there, Mr. Piggy Doofus Major Du Jour. What about the Elliehausen study?" That would be the study that purported to find that payday loans serve a fairly typical population - not exploited minorities and low-income communities - and that was so widely reported and celebrated in certain parts of the press and industry sources. In a typical boast, "Personal Money Store" wrote that it "chastens critics" of the industry.

The flawed study

We were told that this study exonerated the payday loan industry. Here's what we weren't told: We weren't told that the study was funded by the payday loan industry. We weren't told that the data used in the study was provided by the payday loan industry. And we weren't told that its author, professor and Federal Reserve economist Gregory Elliehausen, had been the payday industry's go-to guy for studies of this kind for years.

No doubt Prof. Elliehausen is a dedicated scholar and good person. But there's a reason the industry chose him for this study. His 2001 paper on the topic drew similar conclusions, contradicting numerous other studies. So did 2006 NFI working paper on this topic . "NFI" is the "Networks Financial Institute" at Indiana University, whose advisory council includes the head of Patriot Investments and the retired CEO of Monroe Guaranty, and whose partners include the Indiana Bankers Association. Not a consumer representative in the bunch.

In other words, the industry knew what it was getting ideologically when it chose Elliehausen. But, needless to say, the paper could still be a sound piece of research. Is it? A careful reading of the paper raises more questions that it answers. First, the data was pulled from member companies of the Community Financial Services Association of America (the "pig" folks), which partially funded the study.

Both the funding and the data source represent a conflict that should have been noted in press accounts of its findings. In addition, CFSA companies don't necessarily include the most predatory lenders (maybe they'll be glad I gave them that concession), especially the ones that operate in ghettoes and other minority communities.

Given the above, Prof. Elliehausen's demographic conclusions (especially about race) should be viewed with great skepticism - especially in the face of numerous other studies which found that payday lenders prey on minorities and other lower-income groups.(3) When a study is an outlier - when its findings contradict those of multiple other studies - that should always raise questions.

This dubiously-selected population was then surveyed by telephone, a method which would have excluded some lower-income loan recipients. (See, for example, "Coverage Bias in Traditional Telephone Surveys of Low-Income and Young Adults.") Prof. Elliehausen's decision to then build a "psychological model" based on these surveys raises even more questions.

Another possible methodological flaw: "This paper uses all consumers and consumers who revolve credit card balances as benchmarks" (Elliehausen, p. 25). But many payday borrowers only "revolve" their loans because of the extraordinarily high interest rates involved. And the assumption that "consumers often use bank credit card debt in the way they might have used unsecured personal loans" is open to debate.

Most tellingly, Elliehausen points out that "participation (in his survey) was voluntary and not random." That can create a "selection bias" that casts doubt on the findings, especially on a topic which involves both public shame and fear of strangers asking questions on the phone (especially in lower-income communities).

I wonder how many people who quote the Elliehausen study have ever actually read it?

Solutions

Fortunately, solutions to the payday loan problem are close at hand. First, the confusion and misinformation surrounding the payday loan industry shows how badly we need a Consumer Financial Protection Agency - ideally one that's distinct from the Federal Reserve and its economist-advisors (including Prof. Elliehausen). Only an independent CFPA can sift through the misinformation to protect consumers. Secondly, it underscores the need for the Senate to pass the Whitehouse/Marquette Amendment which restore the states' ability to set interest rates for lending within their own states. It's not an anti-usury law itself, it just gives states back the right to set interest rates for their citizens. (It would be interesting to see how "states' rights" advocates vote on this amendment.)

Sarah Palin should be a big supporter of these changes, too. After all, she said she thought that "US law should be based on the God of the Bible" -- and we know what He thought about usury.

As for that industry blog that called me a "pig," he also said I was "seeking left-leaning applause." Hmm ... a left-leaning pig? Reminds me of "Animal Farm," which is appropriate for Orwellian statements like "the payday industry helps families."

NOTES:

(1) Indiana Department of Financial Institutions. (n.d.) Summary of payday lender examination, 7/1/99-9/30/99. Indianapolis, IN.
(2) See Noyes; also, Drysdale and Keest, The Two-Tiered Consumer Financial Services Marketplace: The Fringe Banking System and Its Challenge to Current Thinking About the Role of Usury Laws in Today's Society
(3) See, for example, Race Matters: The Concentration of Payday Lenders in African-American Neighborhoods in North Carolina.

Consumer Protection: Progressive Momentum and Forbidden Love

Richard Eskow — Thu, 06 May 2010 14:21:35 -0400

Harry Reid got it right when he said that the GOP is "making love to Wall Street" - and when politicians and bankers "make love" it's the public that gets screwed. Sen. Shelby's so-called "consumer protection amendment" failed, as expected.(!) But what happens next? Progressives have captured the public mood and are changing the dynamic in Washington. It's time to capitalize on the momentum and press for the best reform possible.

Progressives, take a bow. Then keep on fighting.

Pity those poor bankers and politicians: The candles are lit, the wine has been poured, and Barry White is crooning in the background. But circumstances are making it difficult to consummate the relationship this time. In Sen. Reid's words, Republicans "are having difficulty determining how they're going to continue" their torrid affair with their banker/lovers. Here's their problem: While the tune may still be "Never Gonna Give You Up," the lyrics don't work anymore. The ideology of deregulation and false free markets doesn't create a tingle now that events have completely discredited it. That's why bank lobbyists and their political hirelings have been forced to resort to phony measures like the Shelby "consumer protection" amendment. When ideology fails, the only thing left is deception.

How bad and phony was the Shelby amendment? It was a Potemkin policy, a measure which claims to protect consumers but actually does the exact opposite. Here's what the AARP said about it in its letter of opposition: "The consumer protection agency will not be independent ... (it provides) inadequate resources ... oversight and enforcement is extremely limited ... and, the bill does not give states the authority to take action where necessary." As Sen. Dodd more succinctly put it, "It's like they want to create a police department that's only allowed to enforce laws against littering," adding: "It's like a stimulus package for scam artists."

The President also came out forcefully against Shelby's amendment. In a statement released today, he said that it "will gut consumer protections and is worse than the status quo. I will not allow amendments like this one written by Wall Street's lobbyists to pass for reform." The statement went on to say that it would "significantly weaken consumer protection oversight, includes dangerous carve outs for payday lenders, debt collectors, and other financial services operations, and hurts the ability of community and local banks to compete by creating an unlevel playing field with their non-bank competitors."

The President and Congressional Democrats deserve praise for standing up to the bank lobby and calling out this Shelby amendment for what it is: a Wall Street sting operation. But they're not acting in a vacuum. A free-form coalition of committed reformers has created enormous pressure to provide more than superficial change. Activists outside government and progressive leaders on the Hill have joined forces with impressive results. The New York Times, for example, details the success that progressives in the Senate have had in changing the narrative on reform (although, as Yves Smith points out, their use of the now rarely-used term "liberal" in place of "progressive" seems to have a taunting or deprecating quality).

There are tectonic forces at work in the political debate here, and the politicians that recognize them won't just have the satisfaction of offering better policies. They'll also be amply rewarded at the ballot box, according to the polls. Raw Story cites an intriguing Pew Research finding (also noted by Smith) that Americans have more positive feelings about the term "progressive" than they do about "capitalism." (They also have more positive feelings about "civil liberties" and "civil rights," as well as the more right-wing idea of "states rights" - which suggests Congress should stay away from pre-empting states' ability to provide consumers with financial protection.)

What happens next? The President's statement said that "the bill before the Senate ... includes the strongest consumer protections ever" - but it's not clear exactly how strong those protections will be. The current draft legislation places the consumer protection function within the Federal Reserve, and not as the stand-alone agency originally proposed. Democrats ... and like-minded Republicans ... should push for an independent Consumer Financial Protection Agency, and not the more diluted version agreed upon in negotiations. Sen. Jack Reed's amendment is effective on this score and should be brought to a floor vote soon, to capitalize on the momentum gained by the (presumed) defeat of Shelby's faux reform.

A few short weeks ago it looked like an independent Consumer Financial Protection Agency could become the "public option" of financial reform -- proposed by Democrats only to be traded away with a wink and a nod. Progressives in the Senate and elsewhere deserve enormous credit for changing the narrative and the public's mood. It's working. They should keep up the pressure, press the advantage, and keep pushing for the most effective reforms possible - in consumer protection and all other areas of this bill.

____________________________

(1) This post has been updated to reflect the defeat of the Shelby Amendment, which was anticipated at the time it was originally written.

'The Hill' Goes to Bat for Payday Lenders

Zach Carter — Tue, 20 Apr 2010 13:50:36 -0400

The Hill published a truly outrageous op-ed yesterday by a payday lending front group, and the publication didn't bother to tell readers it was providing a platform for a predatory hatchet-woman.

The post is here. It's an open assault on the very idea of consumer protection regulation in finance, but before I go after the substance of the argument, I want to talk about who is making the argument. The post's author is a woman named Gerri Guzman, who heads an organization called the Consumer Rights Coalition, which boasts of having 115,000 concerned members who want to ensure access to "all forms of credit."

Neither Guzman nor The Hill disclose the source of the CRC's funding. The CRC is a fake consumer group funded by the financial industry. Guzman acknowledged this in a March 16, 2010 hearing before the Arizona State Senate, which can be seen here.

The key exchange is between Guzman and State Sen. Paula Aboud, and it begins 2 hours and 43 minutes into the hearing. Here's a transcript of the segment:

Aboud: Gerri, Who supports your organization?

Guzman: . . . I went to the financial services industry, I'm currently diversifying some of our funding . . .

Aboud: Who does your corporate sponsorship?

Guzman: Our corporate sponsorship? A lot of the payday loan industry . . .

If The Hill wants to publish payday lender propaganda, they have that right under the First Amendment. But responsible journalists should at least tell their readers when they are providing a platform for predatory hacks. Instead, The Hill lets the CRC present itself as a consumer group akin to the Consumer Federation of America, a group that actually represents consumers and favors establishing a strong Consumer Financial Protection Agency.

Now onto Guzman's disingenuous argument. Guzman asserts that establishing a "massive, new federal agency" to oversee consumer abuses in the financial world will inevitably reduce the availability of credit to consumers. Since many consumers depend on credit to get by, Guzman says this is bad. Guzman also says that the credit card reform bill Congress passed last year has been bad, because it's restricted access to credit and made it more expensive.

These are truly horrible things to say.

In a sense, the CFPA will contract credit--predatory and deceptive credit will not be available. But let's be clear: the CFPA will not have any scary, radical new powers--it will have exactly the same consumer protection powers that are currently shared by five federal banking regulators. The problem with the existing regulatory regime is that those regulators don't enforce their consumer protection rules, because they often conflict with bank profitability. Banks can make a lot of money gouging consumers, so today's regulators generally look the other way. Since the CFPA won't have to worry about bank profitability, it will do a better job enforcing consumer protection laws.

Guzman is saying that she doesn't believe in any consumer protection regulation whatsoever, but disguising that argument in a rant against bureaucracy. Guzman is saying it was a good idea for regulators to ignore the subprime mortgage crisis, that it was a good idea to let banks gouge people with undisclosed credit card fees, that it is fair to slap consumers with hundreds of dollars in overdraft fees without notification, and that it is fair for payday lenders to charge interest rates into the triple-digits. She is advocating for the right of big banks to steal from you without consequences. That is shameful.

The exception to all of this is bank regulation stuff is the payday lending industry, which is currently not subject to any consumer protection regulation whatsoever. It may very well be the case that some forms of payday lending are actually useful. But surely everyone can agree that not all forms of it are helpful, and that many forms are outrageously deceptive and predatory. There is no disputing that these loans have done enormous damage to communities around the country. Why should we allow credit cards and mortgages to be subject to baseline consumer protection regulations, but exempt payday loans?

As for Guzman's comments on the credit card act: There is no evidence that the credit card reform raised interest rates. Banks are jacking up interest rates to boost profits, just because they can. The credit card law banned banks from raising interest rates on balances consumers had already accrued. If you charged debt at a 10 percent interest rate, banks were barred from pushing that interest rate to 30 percent after the fact. That's basic market fairness--allowing companies to take more of your money after you've agreed to pay for something is crazy. In other industries, it would be called theft or extortion.

The Hill did not return a call for comment.

What Would You Ask Tim Geithner If You Had the Chance?

Richard Eskow — Wed, 24 Mar 2010 23:46:31 -0400

Treasury Secretary Tim Geithner delivered a populist stemwinder of a speech the other day, bringing his rhetorical A-game with comments like these: "Listen less to those whose judgments brought us this crisis. Listen less to those who told us all they were the masters of noble financial innovation and sophisticated risk management ... Instead, listen to the families and businesses still suffering from this crisis. Listen to those who borrowed responsibly but today can't get a loan or can't refinance their mortgage. Listen to those who lost their jobs and their healthcare and their pension savings. Listen to them."

Great talk - and to the right-wing American Enterprise Institute, no less. They call that "going where the sinners are." And Deputy Treasury Secretary Neal Wolin did the same thing with the U. S. Chamber of Commerce, confronting them directly and calling them dishonest and "backward." Maybe Treasury officials thrive in captivity.

Whatever the reasons, the Geithner Treasury Department has suddenly come out swinging. They're pugilists in pinstripes now. But while the rhetoric's encouraging, Geithner's record is cloudy at best. He's been criticized for being too cozy with leading bankers, both at Treasury and in his old role at the Federal Reserve Bank of New york. He's resisted those in the Administration pushing for stronger reforms. He has yet to weigh on clearly on new revelations about the failure of Lehman Brothers and his own role in it. His Congressional testimony yesterday on Fannie Mae and Freddie Mac could best be described as "vehemently noncommital," as he called for an end to those institutions' "ambiguity" while being ambiguous about the best course of action.

Tim Geithner, we hardly know ye.

And if we don't know the Treasury Secretary, we can't fully understand the Administration's financial policy. If the White House is going to succeed in leading the reform effort Tim Geithner needs to do two things: He needs to let the public (and Congress) know where the Administration stands on some key issues, fleshing out the populist talk with policy detail. And he needs to address questions about his past performance, as uncomfortable as that may be. If he doesn't, you can bet that the opponents of real reform will - now, and even more forcefully in November.

We have two sets of questions for the Secretary. Today's address policy and oversight, and the questions on New York and Lehman will come shortly. But we could use your help. We've listed seven topics, but that barely begins to cover it. What would you add, or change? What other areas should be explored? With that, here is Round One of "Ask the Treasury Secretary."

_________________________________________

1. Do you agree with Alan Greenspan, who now says that "if they're too big to fail, they're too big"?

If so, why did you appear to soft-pedal needed reforms like the original "Volcker rule" even as the Administration was introducing them? Do you regret those actions? Does your new rhetoric indicate that you've learned since then? Or is the change only rhetorical?

2. Do you support the Brown Amendment on "too big to fail"?

In line with Mr. Greenspan's concerns and in the spirit of the Volcker Rules, Sen. Sherrod Brown has introduced an amendment (pdf) that would prevent any bank holding company from holding non-deposit liabilities that total more than three percent of the Gross Domestic Product. (It would also give Republican critics of the Dodd draft bill the opportunity to vote for the kind of restrictions they say that they want.)

Three percent is a very large number. Do you agree in principle with this kind of prohibition on institutions becoming too large? If not, please clarify your opinion on "too big to fail" - should it be reduced slowly through some other means, gently discouraged, or permitted but taxed to pay for any future insolvencies?

3. Do you support reducing the amount people owe on their houses, if they owe more than their house is worth and can't afford it?

Bank of America has just announced that it will reduce the principal owed on some mortgages, if people have missed two months or more of payments and the house is now worth 20% or more less than it was when the loan was issued.

Do you support the idea of principal reductions? There are reports that the Treasury Department is looking into doing something similar. If so, what's the delay? Are you concerned that these programs create bad incentives? Do you support the concept but believe eligibility should be determined differently?

Or is the problem not being treated with enough urgency?

4. Do we pay our bank examiners enough?

The Wall Street Journal's Dennis Berman visited the Federal Reserve Bank of Philadelphia and reported that bank examiners there earned $40,000 to $140,000. Their jobs require enormous financial sophistication, and they're going up against bankers with seven-figure salaries and enormous resources at their disposal.

Are our front-line regulators compensated well enough for what they do? And are they given the tools they need to do their jobs? That includes staff, information technology, investigators ... all of it.

To sum up: What are we doing to ensure that our "financial first responders" are adequately compensated and equipped for their enormous responsibilities?

5. Do you agree with critics of the Dodd proposal who say his consumer protection "bureau" wouldn't have protected us from the last financial crisis?

One avenue of criticism is summarized well here: That Dodd's proposed "bureau," whose decisions would be subject to veto by an Oversight Council, would not have been able to prevent unorthodox mortgage products from being introduced had it tried in 2005.

Are you willing to state that the Dodd proposal does not provide adequate consumer protection, and is the Administration willing to expend political capital on the Hill to get something stronger?

6. Should JPMorganChase be allowed to get a $1.4 billion tax break after taking TARP funds?

JPMorganChase is trying to use a loophole to avoi paying $1.4 billion in taxes, using a tax break that allowed companies to write off their losses on five years of income, rather than two. The law specifically excludes companies like Chase that took TARP funds. But Chase bought Washington Mutual and wants to use its exclusion. They bought Washington Mutual for $1.9 billion, and now they want $1.4 billion in tax breaks.

Do you support or oppose this tax break for an institution that received TARP funds?

7. When do you expect to have a proposal on Fannie Mae and Freddie Mac?

Your opponents are making hay with the Administration's delay in rolling out a new plan. The policy vacuum creates an opening for some dangerous rhetoric about taking the government out of the mortgage business entirely,. Yet your only announcement in yesterday's testimony was that you plan to issue a "request for comment" on April 15.

This is painfully reminiscent of the endless rounds of dialog that preceded health reform, dragging the process out and making the reform process even more difficult than it had to be. We understand that it's a complex issue. We also understand that you don't want to panic the markets. But the Administration has been in place for over a year. Even the head of the Federal Housing Commission has had to concede that "We are at the point right now where no one trusts the American housing finance system."

When can we expect your proposal on the reorganization of Fannie and Freddie?
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Secretary Geithner's time at the New York Fed will be the subject of our next "Ask the Treasury Secretary." In the meantime, let's "crowdsource" this project a little more. What would you ask the Treasury Secretary if you had the chance?

Waterloo Sunset: Financial Obstructionism Could Be GOP Political Suicide

Richard Eskow — Mon, 22 Mar 2010 16:09:10 -0400

Sen. Jim DeMint famously predicted that health reform would be Obama's "Waterloo(1)," saying: "If we're able to stop Obama on this ... it will break him." It looks like Jim DeMint's crowd might be using the same obstructionist strategy toward financial reform.

Here's a word of advice for the opposition party: If you blockade financial reform and cozy up too publicly to the big banks, it could be your Waterloo.

Reuters reports that Republicans plan to introduce roughly 300 amendments to Sen. Dodd's draft financial reform. One amendment would eliminate a fund to cover bailouts, increasing the likelihood of future AIG-type rescues on the taxpayer dime. Another would eliminate proposed rules for regulating derivatives, to be replaced by an unnamed strategy to be named at a future date. Others would weaken the already watered-down oversight council to monitor systemic risk. And the sheer volume of amendments seems designed to delay or cripple the reform process, not amend it.

The bottom line is this: It's been two years since the financial meltdown and Congress hasn't acted. A bill is being readied for floor debate - an inadequate bill, but still something - and the Republican strategy seems to be delay and obstruction. One hundred amendments are being introduced by one Senator alone, Dodd's GOP counterpart Richard Shelby. (Of course, not all amendments are bad; this bill could use a few to strengthen its weak points.)

How will this play with voters? Banks are still publicly despised, according to a recent ABC News poll. 77% say they haven't done enough to "make amends" for their role in the crisis. 55% of people say they are "somewhat" or "very" angry at the banks for their behavior, and 79% are angry about bank bonuses. While these numbers are down somewhat from a year ago, 62% of Americans want more reform (including 62% of independents and 51% of Republicans), according to another ABC News poll. A Pew study showed that 68% of those polled had a negative view of banks and financial institutions and 59% wanted stricter regulations.

Even the Tea Parties have a strong anti-bank, populist element. How would the Tea Party crowd (much less the public at large) react, for example, if they heard Rep. John Boehner's pep talk to "an enthusiastic crowd of bankers" at the American Bankers Association?

Boehner's remark about "little punk staffers" at that meeting got a lot of play in the blogosphere, but another comment may be more important: "If the Senate is able to produce a bill, I think it's just as likely that we'll be talking about the same issue a year from now as we are right now ... I don't know how they ever come to an agreement on some kind of a bill they can bring back to both houses and pass," Boehner was all but promising delay, only a few minutes after the Bankers Association President had said "every day that passes gives more leverage to (reform opponent) Shelby."

Politicians of both parties flirt with Wall Street, but Boehner's gone further. He's "sexting" it - and out in public, where everyone can see.

Boehner's cynical promise to bankers - we'll stall as long as we can - came on the heels of his sales pitch to JPMorganChase head Jamie Dimon, in which he promised that the GOP would provide a better return on Wall Street's campaign contribution dollar. He and Shelby seem determined to make good on that promise. Will there be a price to pay at the polls?

The answer depends in part on how well supporters of financial reform make their case. They've waited too long to wage a full-throated campaign, partially because they were distracted by health reform. In the Senate, Chris Dodd seems poised to replay the political blunders that dragged out the health debate. His watered-down "compromises" - made despite no GOP support in return - is now the basis for even moredilution of urgently needed reform.

On the plus side, President Obama spoke clearly and forcefully on financial reform in Saturday's State of the Union message. He's weighing in early on this Senate debate, rather than waiting through long, damaging months of debate as he did with health reform.

The President was wise to attack reform opponents like Boehner for cozying up to Wall Street. But it was disquieting to hear him say that "Senator Chris Dodd and his committee have offered a strong foundation for reform, " adding inaccurately that Dodd's bill was "in line with the reform bill passed by the House." He needs to clearly and publicly identify the weaknesses in Dodd's bill, then work to have them strengthened.

Reports today suggest that the Republicans may wait until the bill reaches the Senate floor before introducing their amendments. Congress Daily (behind a firewall) reports that efforts will continue on a compromise markeup before then, and Sen. Bob Corker sounds optimistic about cutting a deal (although, just to be sure, he's introduced 98 amendments of his own).

It would be a mistake for reform backers to cave or compromise too quickly. Core issues like the CFPA and the Volcker shouldn't be treated like the public option, given lip service and then dropped without a fight. The fundamental elements of reform also give reform supporters a story they can tell at election time.

The GOP is playing with fire. It could pay a heavy price in November if its Senators act as the banking industry's enforcers. Republicans may not believe that these expressions of concern for their well-being are sincere - and maybe they're not. But the reality's the same either way: Getting in bed with Wall Street could be a recipe for electoral disaster.

UPDATE: The bill has passed out of Committee, and a statement from the President today included these words: " ...(I) will continue to fight to strengthen the bill and against attempts to undermine the independence of this (CFPA) agency. I will also oppose efforts to add loopholes that could harm consumers or investors, or that allow institutions to avoid oversight that is critical for financial stability. I urge those in the Senate who support these efforts to resist pressure from those who would preserve the status quo ..."
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(1) DeMint was referring to Napoleon's career-ending defeat, of course, and not to "Waterloo Sunset," the Kinks song which Robert Christgau only slightly overpraised when he called it "the most beautiful song in the English language."

Financial Reform Deserves a Great Bureaucracy (and There Are Great Bureaucracies)

Richard Eskow — Fri, 19 Mar 2010 12:32:23 -0400

Recently we wrote that Sen. Chris Dodd's draft financial reform bill would create a "cumbersome bureaucracy." That wasn't an endorsement of a conservative talking point: The operative word was "cumbersome." The Right likes to use the word "bureaucracy" as an epithet, but the primary definition of bureaucracy is "a body of nonelective government officials." So what's the biggest bureaucracy in the world? The Pentagon.

Conservatives agree that we need a smart, efficient, well-run military "bureaucracy" to provide for the nation's defense, even though they wouldn't use that word. Shouldn't we demand the same kind of lean, mean efficiency from our "first line of defense" against financial disaster?

There are other well-designed bureaucracies in the US besides the Pentagon. The Environmental Protection Agency has a direct mandate to protect human health by promoting a safe environment. The Food and Drug Administration is clearly tasked to ensure that the substances sold and consumed in our country meet basic standards for health and safety. Everybody understands the mission and objectives of the Pentagon and the regulatory oversight responsibilities of the EPA and FDA.

Why, then, does the Dodd bill preserve so many of the complexities and confusions in the current financial regulatory system, and then add the vagaries of a committee or "oversight council" on top of that? One of the main features of the Dodd bill is that it divides oversight responsibilities depending on the size of the institution involved: large banks and thrift holding companies (over $50 billion) would go to the Federal Reserve. The FDIC would regulate smaller banks, as well as state banks and thrifts. And the OCC (Office of the Comptroller of the Currency) would "regulate national banks and thrifts of all sizes and the holding companies of national banks and federal thrifts with assets below $50 billion," according to Sen. Dodd's summary of the bill.

If you think this would invite confusion and infighting, you're right. Even Sen. Dodd realizes that, which is why his bill offers elaborate procedures for resolving inter-agency disputes through council deliberations.

Can you imagine running the Pentagon this way? It wouldn't make sense to have one military to defend us against large nations and another for smaller ones, with a deliberative body to step in to resolve disputes between them. Sure, we have the Joint Chiefs of Staff, but their role is strictly advisory. The military reports to a single leader, the Secretary of Defense, who reports in turn to the President. That's good bureaucratic design.

Then there's the issue of the proposed Consumer Financial Protection Agency. By downgrading the President's proposed "agency" to a "bureau" within the Federal Reserve, Sen. Dodd is sending the clear message that protecting consumers is less important than insuring Wall Street's financial health. What's more, he's giving the consumer protection function to an agency with a clear record of failure in this area.

Financial reformers need to look at effective bureaucratic design in order to figure out what works. The EPA and FDA both function well because their roles are clear and distinct. The EPA protects our health by keeping our outside environment safe. The FDA protects our health by ensuring the safety of the food and drugs we put inside ourselves. The two functions require different expertise, different organizations, and different priorities. It wouldn't work well if one agency was merely a "bureau" inside the other, with its budget dependent on the other and its decisions subject to veto by a ruling committee.

Sure, you hear talk about "downsizing government." But look at the people who say that: They've been protected from military threats by the Pentagon, protected from environmental disease by the EPA, and maybe even had their lives saved with drugs tested by the FDA. And yet all they want to talk about is "getting rid of bureaucracy."

The problem with the Dodd bill isn't that it's bureaucratic. The problem is that its proposals don't go far enough and aren't well designed. We need a financial oversight process with clear lines of authority and the ability to intervene swiftly and cleanly when bank behavior puts the country in danger.

In fact, what this country needs is another great bureaucracy.

Too Big to Succeed: Dodd's Proposal Creates a Cumbersome Bureaucracy

Richard Eskow — Wed, 17 Mar 2010 22:38:12 -0400

When President Obama asked a group of senior executives for suggestions on streamlining government, it's unlikely that any of them suggested layers of new bureaucracy, vague marching orders, or management by committee. Yet Sen. Dodd's 'compromise' financial reform proposal does all these things.

The likely result? Banks and other financial institutions will still be tightly-run, aggressive organizations that can develop and sell complicated and risky new products in a heartbeat. But the agencies tasked with their oversight will be complicated and slow, encumbered by hard-to-follow rules and divided lines of authority. Guess who comes out ahead in that scenario?

Banks shouldn't be too big to fail, and bureaucracies shouldn't be too big to succeed.

As the New York Times notes in its headline, the Dodd bill "adds layers of oversight" to the reform process. Here's an example: Once upon a time (it seems so long ago now), it seemed as if our leaders understood that "too big to fail" meant "too big to exist." But there's no more talk of breaking up the big banks or subjecting them to the supervision of a "super regulator." Instead, oversight for them is given to a "Financial Stability Oversight Council" with nine members.

That's right. Instead of dismantling these threats to the world financial system, they'll be watched ... by a committee.

Financial institutions of different sizes would be regulated by different agencies under the Dodd bill, which doesn't make any sense. While large banks pose the greatest risk, smaller ones can provide warning signs for the economy. And we run the risk of having different sets of rules for the same kind of corporations, even as they offer the same kinds of products to the same kinds of consumers.

And, speaking of consumers, the agency dedicated to their protection is now downgraded to a "bureau" and subordinated within the Federal Reserve. How much lower is this thing going to go before the talking's through? Will it become an "office," or maybe a "department"? Maybe "a guy or gal with a laptop and a part-time assistant"? It's not a hopeful sign. The decisions of the newly-renamed "bureau" are subject to a veto by the Financial Stability Oversight Board. It will have very little real enforcement power over abusive corporations who know they can "work the refs" if there's a real problem.

And how effectively will these agencies coordinate with one another? The Dodd bill doesn't inspire confidence. Pages 51 and 52, for example, contain this language: "The Council shall resolve a dispute among 2 or more member agencies ... (if) the Council determines that the disputing agencies cannot, after a demonstrated good faith effort, resolve the dispute without the intervention of the Council; and any of the member agencies involved in the dispute-- provides all other disputants prior notice of the intent to request dispute resolution by the Council; and requests in writing, not earlier than 18 days after providing the notice described in subparagraph (A), that the Council resolve the dispute." Etc. etc.

That's not exactly the design for a lean-and-mean fighting machine.

The Federal Reserve, so notoriously asleep at the switch as the last crisis brewed, will now be the regulator of choice for Goldman Sachs and other large financial companies. It's unclear whether it'll be required by law to stop these institutions from risky gambling with their own accounts, either. Its empowered to study the so-called "Volcker rule," but there's some serious betting going on that says it'll never come to pass. With confidence-building statements like this one, that may be a safe bet:

Mark Warner, a Democratic senator from Virginia, yesterday told the Financial Times: "I don't necessarily think (the rule) needs to be a mandate."

To be fair, the Dodd bill's byzantine structure is a slight improvement from today. As Steven Pearlstein notes, it reduces the number of Federal oversight agencies from four down to three. But Pearlstein's been channeling his inner "Mitch McConnell," with all the chagrin that would bring a reasonable person, by thinking the Senate should "scrap this sucker and start over."

Remember, we have a situation where banks and insurance companies created a number of new products over a short period of time. The bankers may be -- you'll pardon the expression -- dicks, but they're entrepreneurial and energetic dicks. They're likely to run rings around this new bureaucracy, with its vague rules and its governance-by-committee.

Consider this instantly-infamous quote regarding Lehman's $50 billion debacle from one of its former executives: ""When I read this, I giggle a little bit. Because $50 billion is a shitload of money, but in the grand scheme of things, $50 billion is a drop in the ocean."

Like I was saying: dicks.

In situations like Lehman's, new tools like "Repo 105" were used to hide the real financial state of the company from investors, regulators, and the public. Loans were disguised as purchases of Lehman assets. "Repo 105" allowed the company to temporarily "sell" its assets to ~~lenders~~ "buyers," so that it looked both smaller and financially healthier than it really was. Is this bill's cumbersome management structure really the way to go after creative tricksters like Lehman and its ~~co-conspirators~~ "business partners"?

We need a new, leaner approach to financial reform - one that combines the clear authority of a banking "super regulator" with the protection an independent Consumer Financial Protection Agency can provide to American households. Instead, this bill provides an administrative structure so complicated that it's almost impossible to map it on paper. Who's going to draw the org chart for our new regulatory system: M. C. Escher?

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.

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