Wall Street reform

Better Off? Hell Yes!

Leo Gerard — Tue, 11 Sep 2012 10:24:32 -0400

Damn right America is better off than it was four years ago.

Four years ago was September 2008. George W. Bush was president and Wall Street giant Lehman Brothers was collapsing. It was a time of fear. It was a time of panic about the future. Recalling that anxiety is unsettling. But it’s important for comparison sake.

Lehman filed for bankruptcy this week four years ago – Sept. 15, 2008. Global financial markets spun into a panic. Credit markets froze worldwide. The stock market plunged. GM and Chrysler fell into crisis. Foreclosures were spiking and housing prices plummeting. Main Street shops and factories couldn’t get ordinary loans essential to sustain routine business. Nearly half a million workers lost their jobs that month. It was the ninth consecutive month of massive job losses. The Bush administration had converted a vibrant economy and budget surplus it had inherited from former President Bill Clinton into the Great Recession and massive deficits. America was still mired in two wars, including one Bush started on false pretenses.

Now, in September 2012, global financial markets have stabilized. Credit is available to Main Street. GM and Chrysler are building cars and creating jobs. Unemployment is declining as the private sector has added jobs to the economy every month for the past 30. The value of housing is rising once again, creating wealth for the middle class. Now there’s a financial reform law to prevent another Wall Street bailout. There’s Obamacare to help families retain and secure health insurance. The war in Iraq is over and Osama bin Laden is dead. Is America better off than it was four years ago? Hell, yes it is!

September 2012 can’t be described as boom times. But it’s sure not the dread-filled days of September 2008. As former President Clinton so eloquently said last week in his convention speech, describing the Republican attitude toward President Obama:

“We left him a total mess. He hasn’t cleaned it up fast enough. So fire him and put us back in.”

Republicans want Americans to put them back in charge. Their presidential nominee, Mitt Romney, has promised to “restore” America, to return the country to the days before President Obama.

The Romney plan to “restore” America involves repealing, revoking and rejecting every advance President Obama has achieved, including health insurance reform and Wall Street regulation. As Andy Borowitz suggested, if Romney could, he’d revive Osama bin Laden and kill Detroit. Anything to take America back(wards).

Luckily, Romney wouldn’t be able to undo President Obama’s auto bailout – although he opposed it from day one, urging “Let Detroit Go Bankrupt.” He wrote:

“If General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye.”

Well, GM and Chrysler got bailouts, and both are doing fine, thank you, Mr. Romney. In fact, in January GM reclaimed for a few months the title of world’s largest car manufacturer. Both companies are repaying the government loans and 1.45 million people are working as a direct result of the bailout, according to the nonpartisan Center for Automotive Research.

Would America be better off without GM and Chrysler? No, it would not. That according to 1.45 million employed people.

Also luckily, Romney couldn’t undo President Obama’s stimulus. He’d like to, though. His campaign is repeating the false GOP meme that the money was wasted.

The non-partisan Congressional Budget Office estimates that the stimulus created or saved as many as 3.3 million jobs. Romney would have preferred no stimulus. He’d have abandoned those workers – your father-in-law, your kid, your neighbor – rendering them unable to pay their mortgages, unable to support their families, unable to imagine a future.

Would America be better off without the stimulus? No, it would not. That according to 3.3 million employed people.

A President Romney could, however, reverse the financial and health insurance reform measures. And he’s pledged to do that “on day one.” Without financial reform, Wall Street could resume, unfettered, the same risky betting that plunged the country into the Great Recession.

Without the health reform law, insurance companies would immediately cancel coverage for millions of young adults now on their parents’ plans and cut off untold millions of Americans with pre-existing conditions and those who have exceeded the now-banned lifetime caps. In addition, senior citizens would have to pay more for prescription drugs and preventative care.

Would America be better off without the financial and health insurance reforms? No, it would not. That according to Americans who would be sicker and poorer and at greater economic risk without the laws.

Romney also promises to restore America to the Bush days of special deals for the rich and up the ante by giving the 1 percent additional tax reductions. Bush didn’t pay for his tax cuts, resulting in massive deficits, and Romney hasn’t specified how he would either.

Would the country be better off if the rich paid even less in taxes? No, it would not. That according to the 99 percent and President Obama. He pledges to end the Bush tax cuts for those making over a quarter million and begin paying down the nation’s debts.

President Obama plans to take the country forward, to create a better tomorrow.

As former President Clinton walked onto the convention floor last week, the Fleetwood Mac song “Don’t Stop” played in the background. This is the refrain:

“Don't stop, thinking about tomorrow,
Don't stop, it'll soon be here,
It'll be, better than before,
Yesterday's gone, yesterday's gone.”

Yesterday’s gone. Thank goodness because America is much better off than it was four years ago. Don’t stop thinking about tomorrow.

The 99% Seek a Just Economy, Not Just an Economy

Leo Gerard — Mon, 24 Oct 2011 11:05:03 -0400

Republicans jammed together a mess of old, failed and vague schemes and called it a jobs bill. Sen. John McCain conceded the reason for the rehash: “Part of it is in response to the president saying we don’t have a proposal.”

They still don’t. This despite the fact that they promised voters during their campaign to take control of the U.S. House one year ago that they’d create jobs. That they’d focus on jobs. That nothing was more important to them than jobs.

Now, what they’ve offered instead of actual jobs is a polyglot of GOP talking points. It’s certainly no vision to move the country forward. It’s a plot to set the country back – to repeal the health care law that will soon help provide coverage for the nearly 50 million Americans without insurance, to rescind the Wall Street reform law designed to prevent another financial sector-caused meltdown, and to thwart regulations, like those that stopped distribution of listeria-infected cantaloupe that killed 25.

GOP Sen. Rob Portman of Ohio called the Republican polyglot a “pro-growth proposal to create the environment for jobs.” It is, in fact, a pro-business proposal to permit corporations to destroy the environment for humans.

It is another GOP ploy to appease, accommodate and absolve corporations. It is another GOP ruse to firmly establish in America an economy designed for, dedicated to and directed by corporations rather than a just economy controlled by and beneficial to the 99 percent.

Republicans offered up their “Jobs Through Growth Act” mishmash after the GOP minority in the Senate wielded the filibuster again to block a vote on President Obama’s $447 billion American Jobs Act, a measure that even Republican economists determined would create 1.9 million jobs and reduce the nation’s aching 9.1 percent unemployment by as much as 1 percent.

The Republican measure, by contrast, could hurt the economy, according to Gus Faucher, director of macroeconomics at Moody’s Analytics, an independent firm whose chief economist advised the McCain presidential campaign. Here is what Faucher said:

“Should we look at regulations and make sure they make sense from a cost benefit standpoint? Certainly. Should we reduce the budget deficit over the long run? Certainly. But in the short term, demand is weak, businesses aren’t hiring, and consumers aren’t spending. That’s the cause of the current weakness, and Republican Senate proposals aren’t going to address that in the short term. In fact, they could be harmful in the short run if the focus is on cutting spending.”

Of all the Republican proposals, the most insidious, the most dangerous, the absolutely most outrageous is their demand to roll back Wall Street reform, to repeal the Dodd-Frank Act that was passed in an attempt to prevent recurrence of the 2008 financial collapse that destroyed the U.S. economy and caused the highest levels of foreclosures, unemployment and misery among the 99 percent since the Great Depression.

Go back, the Republicans are saying. Go back to 2007 when Wall Street financiers sold worthless mortgage-backed securities to unsuspecting investors, contending with a straight face that these were assets. Go back to 2008 when these firms made hundreds of millions betting those securities would fail. Go back to 2009 when the banksters, bailed out by taxpayers, awarded billions in bonuses to the executives who’d gotten the firms and the U.S. economy into so much trouble. Go back to early 2010, the Republicans are saying, before Obama signed the Dodd-Frank reform act, and allow Wall Street to do it all over again. Reprise unfettered, irresponsible Wall Street, the Republicans demand.

For Republicans, it’s all about enforcing freedom for the few – allowing corporations and millionaires to do whatever they want. No matter what that means to the freedoms of the 99 percent. The GOP demand for repeal of health care reform is another example of that. Already, this law has expanded health coverage for a million young adults because it allows them to remain on their parents’ plan until age 26. It has also helped 1.2 million senior citizens afford their prescription drugs by beginning to close the “donut hole” during which they must pay.

Still, Republicans want to get rid of that law. They want to regress to those free-for-all days when health insurance corporations could make unlimited profits from illness, deny coverage to those with chronic illnesses and terminate coverage when policy holders got sick. They want those young adults dropped. They want senior citizens to pay more for their prescriptions again. For Republicans, it’s all about enforcing freedom for the few – allowing health insurance corporations to do whatever they want. No matter what that means to the freedoms of the 99 percent.

The Republican rebuke of any attempt to control the 1 percent is highlighted in their “jobs bill” by its call for a regulation moratorium. No new rules! The country is in the midst of the deadliest outbreak of foodborne illness in 25 years. Twenty-five people are dead. A total of 125 people in 26 states have been sickened by listeria-poisoned cantaloupe from Jensen Farms in Holly, Colo. One sickened woman suffered a miscarriage. The U.S. Food and Drug Administration (FDA) says more illnesses and deaths may occur over the next several weeks.

If the Republicans got their way, the FDA would be unable to write new regulations to prevent another such incident. It’s fine with the GOP that Jensen had hired its own inspector, a firm that certified the Jensen packing plant fine and dandy just before listeria-tainted cantaloupes killed 25 and just before the FDA found numerous, obvious violations.

That’s because the Republican precept is: an economy just for the 1 percent.

OK, Sen. Shelby: Let's Tell the Truth About Jobs and Regulations

Richard Eskow — Mon, 26 Sep 2011 23:01:06 -0400

The Republicans have opened another front in their neverending war against regulations, those tools that help government protect us from greedy corporations. Leading the charge once again is Sen. Richard Shelby, the willing servant of Wall Street who weakened the regulations in Dodd/Frank during negotiations with Sen. Dodd ... and then refused to vote for it anyway.

After that little bit of procedural treachery, Sen. Shelby attacked the Consumer Financial Protection Bureau (Protect consumers? How dare they?) with outright falsehoods about the extent of that organization's power.

Now Shelby's fighting urgently-needed regulations by proposing something called the "Financial Regulatory Responsibility Act." It would, according to the Senator, "determine the economic impacts of proposed rulemakings, including their effects on growth and net job creation."

Sen. Shelby added: "My colleagues and I are simply proposing that each financial regulator determine whether the economic cost of a new regulation exceeds its economic benefit. If it does, then the regulation should not be implemented."

Here's where you're probably expecting a hostile comment about the Senator's proposal. Forget it. I think it's a great idea ... one one condition: The bill should be revised so that every politician who proposes de-regulating an industry, and every regulator who fails to use their powers properly, must be held to the same standard. They must first "determine the economic impact of the proposed deregulation, including its effects on growth and net job creation."

How have the deregulators performed so far? Let's look at the record:

The Republicans, aided by business-friendly Democrats, deregulated Wall Street in the nineties. Their actions in overturning Glass-Steagall and removing other protections led directly to the financial collapse of 2008. How did that affect growth and jobs?

* 20 million jobs lost worldwide
* 8 million jobs lost in the United States
* $100,000 in lost asset value for the typical American household

The GOP's right to emphasize jobs. They're our most urgent priority right now, thanks to the crisis caused by deregulation. (They're also a key topic in next week's Take Back the American Dream conference.)

But the Republicans who are now fighting to overturn Dodd/Frank should be required to honestly estimate the cost in jobs and growth if they're successful in their efforts. Republicans and Democrats who are resisting the breakup of too-big-to-fail banks or the full enactment of the Volcker rule should also be required to estimate the potential costs of their actions.

And the financial sector isn't the only industry they've been deregulating. How have they done in energy, for example? Lousiana Governor Bobby Jindal likes to say that the partial moratorium on deep-water drilling could cost his state 20,000 jobs. Oil companies like BP were allowed to "self-regulate" - which is to say, they were unregulated - based on arguments like Gov. Jindal's.

How much has the oil industry's "self-regulated" deepwater drilling cost the Gulf? BP alone is likely to spend more than $40 billion in claims, fines, and other expenses. Local businesses have lost anywhere from $4 billion to $12 billion in lost income. 29% of people with plans to visit Louisiana cancelled them after the spill, according to the Natural Resources Defense Council.

The NRDC added that "the Gulf of Mexico saw a 39 percent decline in commercial fishing landings overall between 2009 and 2010. This represents a $62 million loss in dockside sales." According to the NRDC, "The Gulf Coast Claims Facility paid 174,172 claims to individuals and businesses who have suffered damages and costs related to the spill."

Anybody who proposes deregulation in the future (sorry, I meant "self-regulation") should be required to let the public know just how much money it could cost, how many jobs might be lost, and how much of our nation's beauty and other priceless treasures might scarred or destroyed.

To be fair and balanced, let's look at the upside of deregulation. Has it created any jobs to make up for the millions it destroyed, as its supporters have promised? The Bush Administration aggressively cut regulations and appointed regulators who were industry-friendly and lax on enforcement. The result? Even before the deregulation-caused crisis, the Bush years were the worst extended period of job growth in this country since World War II. They also marked the first decline in median household incomes since the Census Bureau began tracking that information in 1967.

So a fair and balanced version of the Shelby bill would have warned the public that the last ten years of deregulation were going to cost millions of jobs and trillions in wealth. And in return, deregulation was going to produce ... well, nothing.

Yep. The more I think about Sen. Shelby's idea, the more I like it - with this little modification, of course. An honest assessment of the way that regulation affects jobs and growth, compared with the effects of deregulation, will conclusively prove that the only way to put America back to work is by putting regulations back to work for us.

The only problem is the name of the bill. The old one, the "Financial Regulatory Responsibility Act," just doesn't fit anymore. Maybe we could call it the "Deregulatory Responsibility Act." Or the "Deregulatory Irresponsibility Act." Or the "Think Before Your Act Act."

But whatever we call it, politicos like Richard Shelby should be forced to tell the truth the next time they claim they have an idea that will "protect jobs." And if the real motivation for a bill like this one is just to make it harder to protect the American people .... well, they should be forced to disclose that, too.

Fraudclosure: Will State AGs Step Up to Their Moment in History?

Mary Bottari — Wed, 02 Feb 2011 11:11:17 -0500

Rumor has it that the 50 state attorney general investigation into the Fraudclosure scandal is wrapping up. It's time for a backbone check. Will the state attorneys general just ask the big banks and service providers to turn over a chunk of change from seemingly bottomless pockets? (This strategy was pursued by the Security and Exchange Commission (SEC) with little impact). Or will Iowa Attorney General Tom Miller take the lead in wrestling a real settlement out of the banks so that families hammered by unemployment and underemployment can stay in their homes?

Widespread Criminality

Americans know that the big banks and the mortgage service providers got us into this hole by pursuing an array of financial crimes. The SEC settlements alone have revealed a plethora of illegal, predatory and deceptive lending related to mortgages, securities fraud, accounting fraud, insider trading, brokerage fraud, bribery of government officials, criminal conflict of interest, deception of shareholders and investors, and more.

Now the "robo-signing" scandal is pulling back the curtain on Act II of this white collar crime spree -- revealing a new array of financial crimes by the very same institutions: robo-signing, fake witnesses, fake notaries, fake documents, fake attorneys, not to mention plain old theft as servicers rob consumers of hundreds or thousands of dollars in misapplied fees. There are additional crimes related to the way that banks have failed to correctly transfer promissory notes through the system and efforts to mislead and defraud investors. The short story is that many homeowners were foreclosed upon based on falsified documents by a bank who was not the true holder of the mortgage note. This is a crisis not only for individual homeowners, but investors who bought flawed mortgage-backed securities and for the financial system as a whole.

Not a Single Prosecution of a Major Player

Perverse incentives on Wall Street allowed top executives to make more money on flawed loans than boring old 30-year mortgages. Even though there is widespread agreement that Wall Street's endless appetite for high-interest, high-fees loans to fuel the mortgage securitization machine had a causal role in supercharging the housing bubble, not one mortgage servicer provider or big bank CEO has been put in jail. This compares to over 1,000 successful prosecutions of top officers during the Savings and Loan crisis of the late 1980s.

While the SEC has been churning out fines resulting in a long list of "settlements", Wall Street firms are beginning to set aside money and treat these actions merely as the cost of doing business.

There is nothing more instructive than jail time, but the U.S. Department of Justice (DOJ) has been hoodwinked by America's biggest hoodlums, preferring to arrest a string of penny-ante Jersey mobsters than the Mafioso hiding in plain sight at Wall Street and Broadway. The DOJ delights in arresting people like Vinny Carwash" Frogiero, Frank "Meatball" Ballantoni, Anthino "Hootie" Russo. How about Jamie "Pretty Boy" Dimon, Lloyd "Godswork" Blankfein and Vikram "Slumdog" Pandit?

History is Calling

In the history of the financial crisis, state AGs have so far come out looking pretty good. State AGs were the first in the nation to recognize that the predatory lending practices of firms such as Ameriquest and Countrywide were a danger to consumers and to the entire U.S. economy. In 2004, they were radically preempted from taking action against these crimes by Bush-appointed federal regulators at the Office of the Comptroller of the Currency. Now state AGs have another moment to outshine negligent federal prosecutors.

State AGs can take a series of actions that the Feds have failed to take. First of all, they can book the crooks and force top officers to trade pinstripes for jail stripes. Secondly, they can force the banks into settlements with individual homeowners that really take a bite out of their profits, complete with foreclosure redos and damages for harmed homeowners. They can also subject the banks to ongoing independent audits of their foreclosure procedures and they can demand that the banks force principle write downs and other across-the-board measures that will stabilize communities and the economy.

February 3rd National Day of Action

National People's Action and other anti-foreclosure groups area calling for a national day of action tomorrow to urge the AGs to do the right thing. But why wait? You can go to BanskterUSA.org to email the lead investigator, Iowa AG Tom Miller, and urge him to do the right thing. You can also join thousands of people across the country by click here to find your AG's phone number so you can ask him or her directly for meaningful action on foreclosure.

If you are struggling with these issues, think about meeting up with your neighbors. "Mortgage Madness Meetups" are being facilitated by Huffington Post. The next worldwide meetup day is February 8th. Finally, if you are trapped in the snow today, check out Dylan Ratigan's excellent series on the housing crisis "No Way to Live" on MSNBC.

Here Come the High Rollers!

Mary Bottari — Wed, 01 Dec 2010 12:55:02 -0500

While the Dodd-Frank Wall Street reform bill did too little to address the problem of “too big to fail” banks, one of the big wins for reformers was the bill’s strong derivatives chapter which drags risky “over the counter” derivatives trades out of the shadows and into the light of day.

Reformers won strong provisions for clearing, margin and transparency, which will force the big banks to put real money behind their bets. Reformers also succeeded in securing mandatory position limits for key commodities that will protect consumers from price spikes caused by excessive speculation.

But now that the Wall Street reform bill is in the agency rulemaking process, bank lobbyists are back in droves, descending on regulators in an attempt to force giant loopholes into the law – loopholes worth billions of dollars for the big banks. The Los Angeles Times recently counted the noses and found that 90% of the time, regulators are meeting with the big financials firms. Surprise! Goldman Sachs and JP Morgan Chase topped the list.

Case in point: The big banks and the American Bankers Association are trying to redefine what constitutes “commercial risk” under the Dodd-Frank law. The ABA wants commercial risk "to be interpreted broadly enough to include financial risk for depository institutions.” According to Heather Slavkin of the AFL-CIO, "if the Commodities Futures Trading Commission (CFTC) were to adopt this definition, risky financial firms such as hedge funds and insurance companies could avoid business conduct and safety and soundness requirements that apply to major players in the derivatives market under Dodd-Frank” adding a substantial amount of risk to the system.

On a different front, the CFTC is working on developing “position limits” or caps on the number of speculative futures a trader can hold. The intent of Congress was to crack down on the energy and food commodity speculation that serves no productive purpose other than to line the pockets of traders and jack up prices on consumers.

Remember $4 a gallon we paid at the pump in 2008? It was due to crude oil speculation and it is happening again. “Wall street speculators are driving the current run-up in crude oil prices - cashing in before federal regulators have had a chance to protect households by tightening trading rules and establishing strong position limits,” says Tyson Slocum an energy expert for the consumer group Public Citizen. But the big traders are attempting to undermine the new law behind the scenes and refusing to cooperate with regulators, prompting Bart Chilton, a Commissioner for the CFTC, to express frustration with the industry.

At some federal agencies the big banks are gaining ground. Bowing to pressure from the big banks, Treasury Secretary Tim Geithner appears to be moving ahead with an exemption to the mandatory clearing and transparency requirements for a certain type of derivatives called foreign exchange derivatives (or ForEx swaps). $4 trillion dollars of Forex swaps are traded around the globe daily – a huge market and a disastrous loophole in Dodd–Frank]. Geithner appears to be repeating the mistake of his predecessor, Larry Summers, who famously fought to keep derivatives unregulated. He is worried about the ForEx trade going overseas. Well, I say if you can’t do your business in the light of day like other American firms, let me help you pack.

Senator Maria Cantwell, a leader in the derivatives fights, thinks Geithner is on the wrong path. “I urge Treasury not to create a potentially dangerous loophole. The security of our economy depends on foreign exchange derivatives coming under the same transparency and oversight provisions as the rest of the vast derivatives market,” Cantwell told Bloomberg.

You can take action to crack down on the big banks by clicking here. And you can learn more about who is knocking on the door of regulators by visiting the CFTC website by clicking here.

Ridiculous Idea of The Day: Melissa Bean for CFPB

Zach Carter — Mon, 08 Nov 2010 11:38:20 -0500

This is a joke. Politico is floating the idea that notorious Wall Street crony Rep. Melissa Bean, D-Ill., could be tapped to head the Consumer Financial Protection Bureau if she loses her close election with Republican Joe Walsh. Even for Politico's rumor-mill, this is pretty funny stuff—only slightly less absurd than suggesting that Alan Greenspan might be picked to head the new agency.

The idea just gets a single paragraph in Politico's Morning Money column, and it even features an administration official shooting down the idea. With good reason, because it makes no sense. President Barack Obama went to the mat to put Elizabeth Warren in charge of the CFPB, and she is doing a terrific job setting up the agency. She's named one of the world's best researchers on consumer finance, Raj Date, as a top adviser, and has started cracking down on deceptive fine print in credit card contracts. There's no reason to replace her with anybody, much less a notorious consumer foe.

Melissa Bean is probably the single greatest consumer antagonist in the Democratic Party. As financial reform moved through Congress, Bean repeatedly slipped in amendments aggressively defending Wall Street's right to pillage our pocketbooks. She single-handedly held up negotiations in the House Financial Services Committee for months, hamstringing the reform process and earning plenty of enemies in the Democratic leadership and the Democratic base. She is simply unconfirmable.

Fortunately, Obama doesn't need to do much looking to find a good CFPB director. He's already got the best person for the job, Elizabeth Warren, steadily building a record of effectiveness getting the agency off the ground. When the time comes to name a permanent CFPB director, that record, along with Warren's decades of work protecting the middle class, will make a very compelling case for her appointment. To be sure, the Republican leadership will filibuster whoever Obama nominates, but Warren already has strong relationships on Capitol Hill with members of both parties, and is extremely popular with the public. If anyone can survive a Republican filibuster, Warren can.

Here's the silly plant in Politico:

MELISSA BEAN FLOATED AS CFPB HEAD – Buzz on Friday had Rep. Melissa Bean (D-Ill.) possibly getting tapped as the first Consumer Financial Protection Bureau head depending on the outcome of her too-close-to-call reelection race, in which Republican Joe Walsh maintained a slight lead as of Sunday afternoon. But a possible Bean nomination is not sitting well with reformers on the left who say the moderate Illinois congresswoman is far too close to the banking industry. Said one administration official: “It’s not clear she would be acceptable to the reformers.”

AIG Redux: Wall Street Presses Regulators To Repeal New Derivatives Rules

Zach Carter — Thu, 28 Oct 2010 09:47:05 -0400

It's been pretty well-documented that the ultimate fate of Wall Street reform will depend on a series of highly technical proceedings at federal regulatory agencies. If regulators adopt tough new rules, the financial overhaul could succeed well beyond the expectations of optimistic reformers. But there is a very real danger that banks will be able to roll regulators during these quiet and technical affairs, without any real public oversight. One of the most important areas to watch are the rules surrounding derivatives—the shadowy market that brought down AIG. The battle is already under way, and the bank lobby isn't pulling its punches.

Wall Street reform basically did two things unquestionably well. It created a new Consumer Financial Protection Bureau to curb bank abuses, and it reined in the derivatives market, which is currently a hotbed for fraud, abuse and systemic risk. There are dozens of smaller-bore accomplishments in the Dodd-Frank bill, but derivatives and the CFPB are the two major wins.

Take a look at this 7-page letter from The American Bankers Association—the bank lobby—and this 10-page letter from the International Swaps and Derivatives Association (ISDA)—another Wall Street lobby group. See if you can spot where they regulators to completely erase the legislative progress on derivatives.

You probably can't-- unless you're a bank lobbyist, a finance lawyer or a nerdy blogger. And the bank lobby loves it that way, because there are only a few nerdy bloggers out there, even fewer financially literate mainstream reporters, and hundreds and hundreds of bank lobbyists. Here are the critical passages from page 6 of the ISDA letter, and page 4 of the ABA letter. I'll explain why it's so destructive below. ISDA:

Financial" risks are "commercial risks." The dictionary definition of "commercial" is "of, pertaining to, or characteristic of commerce." The term "commercial risk" should be defined against this background.

ABA:

It is very important for our members that the term "commercial risk" be interpreted broadly enough to include financial risk for depository institutions.

In the years leading up to the financial crash of 2008, banks could trade complex derivatives completely in the dark. If Goldman Sachs wanted to make a deal with AIG, all they had to do was make a phone call (or just as frequently, type out an AOL instant message). No government regulator looked at this trade, and nobody in the market evaluated whether either party could possibly make good on it.

And so AIG built up literally trillions of dollars in exposure to the housing market by betting money it didn't have with big Wall Street banks. And banks, eager to dump the risks posed by crappy mortgages onto AIG, didn't bother to figure out if AIG could ever possibly make good on all of its derivatives contracts.

Ultimately, AIG got burned badly, and the banks came crying to Washington for help. The Federal Reserve acquiesced, and funneled billions of dollars to AIG, which in turn went directly to major banks—most notably Goldman, which scored $12 billion from the first round of payments alone.

One way to fix this problem is to give the market some scrutiny over derivatives trading—the same kind of scrutiny it has over ordinary stock trades. This is a minimum step—as we've seen with flash crashes and naked short sales, market scrutiny isn't a guarantee against fraud, abuse or excess. But it's a lot better than nothing.

So the Wall Street reform legislation required all derivatives contracts to be traded through what's known as a "central clearinghouse." This is basically a third company that serves as an intermediary between the two firms that want to trade—the way the New York Stock Exchange stands between two companies trading a stock.

When Goldman calls up AIG, the clearinghouse forces both companies to post margin on the trade, verifies their ability to make good on it, and agrees to foot the bill of one party can't pony up.

But the big banks, operating primarily through the U.S. Chamber of Commerce, were able to carve-out a big loophole in this process. Surely not every trade needed to be centrally cleared, they argued. Plenty of farmers and manufacturers ink derivatives contracts in order to insure themselves against ordinary, non-financial commercial business risks. If a farmer is worried that the price of wheat might go up or down, he can go to JPMorgan Chase and ink a trade. The farmer pays JPMorgan a few dollars every month, and if the price of wheat goes too high or too low, JPMorgan agrees to pay the difference to the farmer. We don't want to punish poor farmers for excesses committed on Wall Street.

This argument was always stupid for lots of reasons, but it ultimately won the day. "End-users" like airlines and farmers that wanted to hedge "commercial risks" were not required to trade through a clearinghouse.

Fast forward to September 20, and the bank lobby is trying to pull a fast one by redefining the word "commercial." The bank lobby is trying to convince regulators that the business risks of financial institutions—banks, hedge funds and companies like AIG—ought to count as "commercial risks." If the bank lobby succeeds, they'll allow all kinds of huge financial firms to keep their derivatives trading in the dark, and leave the economy open to another AIG-style calamity.

That would directly benefit major Wall Street banks like Goldman Sachs, JPMorgan Chase and Bank of America. Remember, it's not just the farmer who avoids the clearinghouse when she hedges a "commercial" risk—it's the trade itself. That means that the bank on the other side of the trade gets to deal off the grid, as well. So long as the too-big-to-fail Wall Street banks conduct their riskiest, most abusive deals with hedge funds, insurance companies or anybody except another too-big-to-fail Wall Street bank, they could keep their trading totally secret. That is exactly what happened with AIG, and with these two letters, the bank lobby is pressuring regulators to maintain that status quo. If the TBTF derivatives dealers get into trouble again, after all, they can always come to taxpayers for a bailout, just as they did with AIG.

So there you have it. A full 900 words of blogging to explain why a single word in a letter from bank lobbyists threatened to undo one of the most significant accomplishments from the Wall Street reform bill.

There are literally hundreds of rules like this coming. And Republicans are already vowing to hamstring regulators if they gain control of the House next year.

Vote for Hope

Leo Gerard — Thu, 28 Oct 2010 09:30:27 -0400

The electorate is bitter and angry. It’s no wonder. Foreclosures rise while Wall Street bankers, whose recklessness caused this grave recession, grab million dollar bonuses. Unemployment is stuck at 9.5 percent, but corporations continue to ship jobs overseas.

The level of acrimony showed itself Monday in Lexington, Ky., when a group of men supporting Republican U.S. Senate candidate Rand Paul threw a woman backing Democrat Jack Conway to the ground and stomped on her head.

This is not the hope America voted for in the fall of 2008. Now another election is upon us. On Tuesday, voters can choose candidates capitalizing on bitterness, or they can return to hope and provide time for change to play out. Voters can stay the course with the President whose basic philosophy is a Biblical one – that we are all our brothers’ and sisters’ keepers. Or Americans can empower Republicans who believe it’s every man for himself, who espouse the view that a man’s success is his own, and, equally, each man is solely responsible for all of his setbacks.

This midterm election is about how those disparate Republican and Democratic values will play out in legislation. Do Americans want to live in a Republican country that blames individuals for their unemployment in an economy creating only one position for every five jobless workers? Or do Americans want a country that lives by the Democratic philosophy that government must aid, not blame, the unemployed, that it must give a hand up, not a slap in the face, to the suffering?

Hard as it is during troubled times, as difficult as it may feel after some legislative efforts have fallen short of important idealistic goals, let’s build a country of hope, one in which we help our fellow Americans.

That virtuous aim, of course, is the subject of ridicule. Here’s Sarah Palin mocking optimistic Americans at a Tea Bagger event in February, “How’s that hopey-changey thing working out for ya?”

But come out to vote for hope Tuesday anyway; stand up to the malevolent bullies.

What the bullies want is a country where workers are on their own: for health insurance, for income security in their old age, for surviving another Wall Street collapse. For everything.

Unemployment insurance is a good example. Over the past year, the GOP has scorned the jobless, calling them lazy freeloaders. Republicans repeatedly voted against extending unemployment benefits. From the GOP point of view, Wall Street’s crash didn’t cause the economic collapse and high unemployment. No, according to Republicans, each unemployed worker is responsible for his situation, and it’s not the role of government to intervene to help. That philosophy is behind Republican South Carolina Lt. Gov. Andre Bauer’s comment that the unemployed, like stray animals, should not be fed: “You are facilitating the problem if you give an animal or person ample food supply.”

Come out Tuesday and vote for hope, vote to aid the unemployed.

Wall Street reform is another example of Republican “on your own” philosophy. Before the stock market crash of 1929, the unregulated American financial system whipped the economy in wild boom and bust cycles. The frequent crashes and runs on banks were called panics. In Democrat Franklin Delano Roosevelt’s New Deal, Congress imposed rules on Wall Street and the banking industry. For the next sixty years the economy largely avoided panics. Then Congress lifted the regulations, and the crash of 2008 wrecked the economy. Former President Bush responded by proposing and orchestrating the Wall Street bailout. But his party vigorously opposed re-regulation to avoid another economic disaster. The GOP voted against the legislation restoring protections for the economy, investors and consumers. Republicans believe government has no business policing the free market or interceding for investors and consumers because individuals are solely to blame for everything that happens to them.

Come out Tuesday and vote for hope, vote to protect hardworking Americans against financial fraud and the machinations of powerful, multi-national financial firms.

Health insurance reform provides one of the clearest examples of Republican “on your own” philosophy. The GOP proposed that “reform” consist of granting individuals small tax breaks, about a quarter the cost of health insurance, while revoking breaks given companies that provide health coverage to workers. This, Republicans said, would “free” companies from providing insurance and “free” individuals to choose their own plans. It would have liberated individuals to negotiate coverage and claims payment with giant, sophisticated, lawyer-laden insurance corporations. If an individual got a bad deal, one that enabled the insurer to drop coverage when he got sick, deny coverage to his sick child or raise rates continuously, well, then, that would be the fault of the individual purchaser. Republicans have promised that if empowered, they will repeal the Democrats’ Patient Protection and Affordable Care Act.

Come out Tuesday and vote for hope, vote to support the health insurance reform law that uses the power of government regulation to shield policy holders from insurer abuses, that lowers costs and that enables nearly all Americans to obtain insurance.

Retirees should be “on their own” as well, Republicans believe. Some in the GOP even contend Social Security is unconstitutional. Others want to cut it or privatize it. What privatizing means is getting the government out of the business of collecting Social Security taxes to ensure that all workers receive benefits after retiring. Instead, Republicans want workers to be on their own to invest for their retirement. If there’s another market “panic” – which could happen if Republicans repeal Wall Street reform – and workers lose their “privatized” retirement savings in the crash, the GOP’s response would be that individuals must take responsibility – their loss is their fault.

Come out Tuesday and vote to keep America’s promise to provide basic income security to all elderly citizens. Vote to be your brothers’ and sisters’ keeper and for them to be yours. Vote for hope.

Raj Date Is The Best Thing To Happen To Consumers Since Elizabeth Warren

Zach Carter — Wed, 27 Oct 2010 12:42:34 -0400

The New York Times should be embarrassed. This morning, the paper of record published an outrageous hit-piece on Raj Date, one of the most effective consumer advocates in the nation. The article completely misconstrues Date's work on financial reform, ignores his years of work pushing for stronger consumer protection, and falsely portrays Date as some kind of nefarious subprime hooligan. When Elizabeth Warren hired Date as an adviser for the new Consumer Financial Protection Bureau, it was the best possible hire she could have made, and activists continue to celebrate the decision with good reason. The Times owes both Date and the public an apology for this egregious smear.

As the Wall Street overhaul moved through Congress, Date was one of the strongest voices for serious reform. He conducted powerful research demonstrating the need for new safeguards in everything from auto loans to proprietary trading, and advised members of Americans for Financial Reform (disclosure: I joined AFR's steering committee in August of this year) on just about everything that mattered during the legislative debate.

Date did all of this work for free through the Cambridge Winter Center for Financial Institutions Policy, a pro-reform think-tank that he founded. In fact, Date himself funded many of Cambridge Winter's operations. The think-tank took on everything, and was universally critical of the Wall Street establishment and regulatory infrastructure that had driven the economy off a cliff. Even better, it proposed concrete solutions to complex problems, and provided detailed, technical financial research to back it all up.

The Times story doesn't even bother to link to the Cambridge Winter site, so I'll do them several better. Here's an article Date wrote criticizing excessive Wall Street pay. Here's a report he wrote (.pdf) about how to regulate the shadow banking system (note that the report was co-written by Mike Konczal, a major reform advocate and widely respected economics blogger). Here's a report (.pdf) Date penned slamming abusive auto lending. And here's Date's June 2009 essay praising the proposal to create the CFPB, at a time when such praise was profoundly unpopular on Wall Street. I could go on forever. They're all available for free on the site. A reporter for The New York Times ought to be able to figure out how to do this stuff.

For Wall Street reform advocates, there has been no better resource of thorough, objective research than the work Date produced for Cambridge Winter (on his own dime). But you wouldn't know any of this from reading the Times story, which portrays Cambridge Winter as some kind of nefarious Wall Street lobbying firm, saying it was "active in the Dodd-Frank debate," and then noting that Date previously worked for both Capital One and Deutsche Bank.

Date has indeed had a very successful career in finance, and the revolving door between Wall Street and Washington is a major problem. But Date is not part of that problem. He's used his first-hand industry expertise to take on the bank lobby directly. He was involved in the Dodd-Frank debate by pushing hard against Wall Street.

"Raj Date was a true ally of consumer protection groups in our fight for meaningful financial regulatory reform," says Cora Ganzglass, legislative director of the National Association of Consumer Advocates. "As someone who has worked within the financial service arena (which he always fully disclosed) Raj could aptly describe how the system was broken and why it needed to be fixed."

The Times story—which is going to be a permanent blight on reporter Edward Wyatt's career—further tries to portray Date as a subprime lending miscreant by misconstruing an uncontroversial lending practice known as peer-to-peer lending. Until he joined the CFPB, Date served on the board of a company called Prosper Marketplace. For a detailed explanation of Prosper's business, see this Wall Street Journal article from 2008, but here are the basics.

Prosper links individuals who are interested in lending money with other individuals and businesses who want to borrow it. They do small loans—almost always less than $25,000—mostly for small businesses. The process is designed to be pro-consumer—the company sets up an auction-style bidding mechanism, and whoever offers the best terms for the borrower makes the loan.

It's not obvious that the Prosper experiment has been successful, but it is obiviously not shady subprime lending. Subprime mortgages were a problem because they saddled consumers with unaffordable loans. But the whole point of Prosper is to make affordable credit available, and it's designed to create attractive terms for borrowers.

This is not to say that Prosper hasn't had its share of troubles. The Securities and Exchange Commission views its lending platform as the sale of securities, so it's filed actions against the firm for failing to register securities with the SEC (that happened before Date joined the board, by the way). But the problem is a technical one that you'd expect to see with an actual financial innovation. Instead, the Times implies that Prosper is a predator that the SEC has cracked down on for consumer abuses.

There's a reason why consumer advocates attack subprime mortgages and payday loans but don't go after peer-to-peer lending. It's just not controversial. Maybe someday the business will take a wild turn for the worse (many of the shady loans offered during the housing bubble were loans that once had been designed for limited, useful purposes), but if so, it will have nothing to do with Raj Date.

There is no ethics scandal here. All of Date's work with Prosper has been disclosed. He recused himself from any Cambridge Winter activities regarding peer-to-peer lending, and he stepped down from Prosper's board when he joined Treasury.

The Times story is really horrible. It doesn't just smear Date, it mischaracterizes Elizabeth Warren's work on behalf of consumers as work for the financial industry. Check out this laughable paragraph:

Mr. Date is not the only official at the new agency whose background in the financial industry has attracted attention. Ms. Warren, an assistant to the president and a special adviser to the Treasury secretary, Timothy F. Geithner, disclosed in government filings that she earned more than $100,000 over the last two years for consulting work on bankruptcy law and for providing expert-witness research in a class-action lawsuit involving the credit card businesses of major United States banks.

This is inexcusably sloppy. Warren was a consultant for consumer groups! The class-action lawsuit Wyatt references was a lawsuit filed on behalf of consumers against credit card companies!

Shame on Edward Wyatt, shame on The New York Times, and bravo to Raj Date for his years of dedicated and thankless work on behalf of American families. The fact that he'll be working closely with Elizabeth Warren at the CFPB is great news for consumers, and very bad news for predatory lenders.

No Fluke: Republicans Support Off-Shoring Jobs

Leo Gerard — Thu, 30 Sep 2010 11:33:12 -0400

Like the clear results on a pH test strip, the vote in the U.S. Senate this week on the Creating American Jobs and Ending Off-Shoring Act showed Republicans’ true color: Red. Red for China.

Or Mexico. Or Indonesia. Or anywhere multi-national corporations get tax breaks for exporting American jobs. In this test of loyalty, every Republican in the Senate voted for corporate greed over American workers.

No fluke, this is a GOP pattern. The red party has consistently sided with giant corporations to the detriment of the American economy and American workers. In voting against health care reform, Republicans chose giant health insurance corporations over uninsured Americans. In opposing financial reform, Republicans embraced Wall Street over the taxpayers who bailed out the big banks and don’t want to do it again.

Republicans vainly attempted to rationalize those votes as opposing government regulation. There’s no regulation issue in the Creating American Jobs and Ending Off-Shoring Act.

That Act would have removed tax incentives the U.S. government gives corporations to close domestic factories, fire American workers and move production overseas. And, conversely, the Act would have instituted tax cuts for corporations that return foreign employment to U.S. soil.

Every Republican in the Senate voted against the Act. They voted to continue forcing Americans to give tax breaks to corporations that ship jobs overseas during the worst recession since the Great Depression. The GOP said it is right and proper for U.S. citizens to subsidize corporate killing of American manufacturing. And Republicans said it would be wrong to do the opposite -- to use tax breaks to encourage corporations to restore off-shored jobs to the U.S.

Democrats, whose first priority is American workers, are pushing a 17-bill Make it in America plan. The Creating American Jobs and Ending Off-Shoring Act is part of that effort to bolster domestic industry and employment.

With joblessness stuck at 9.6 percent and with the U.S. trade deficit destroying or displacing 5.6 million jobs -- 70 percent of them good-paying manufacturing jobs -- in just one year – 2007, Democrats developed this plan to preserve American industry and jobs. Recent surveys of likely voters suggest the Democrats’ Make it in American program is exactly what Americans want and believe the country needs.

In a Wall Street Journal/NBC News poll released earlier this week, 86 percent of respondents cited corporate off-shoring of American jobs as the primary cause of the country's continuing economic distress.

Similarly, a bi-partisan polling team that conducted a survey of likely voters for the Alliance for American Manufacturing in April found large majorities believe manufacturing strength is crucial to U.S. economic security and that the government should fortify American industry. These voters told the pollsters that they believe America no longer leads the world in manufacturing but could again with proper support.

That can-do-it attitude is realistic. Already some manufacturers are on-shoring. General Electric is moving production of its energy-efficient water heaters from China to the United States. Caterpillar and NCR, a technology company, are doing the same. A survey in June found 21 percent of North American manufacturers brought production into or closer to the United States in the previous three months and another 38 percent planned to research such a move.

Manufacturers gave USA Today numerous reasons for this repatriation. Chinese wages and shipping costs have risen. They cited poor quality foreign manufactured goods; theft of intellectual property; long product delivery times interfering with response to consumer demand, and benefits from providing engineers easy access to assembly lines.

The trade publication, Supply Chain Digest, quoted two experts in an August story about the on-shoring trend:

“George Stalk, a consultant at Boston Consulting Group, has led research efforts showing the inventory benefits for high margin, fashion-oriented goods from bringing production at least back to North America almost always trump the value of lower manufacturing costs in Asia. Those benefits come from both not losing sales from being out of stock and not getting stuck with obsolete inventory that a company can’t sell or must mark down dramatically.”

And, the story quoted Jeremy Leonard, a consultant for Manufacturers Alliance/MAPI:

“A lot of companies who have gone there to take advantage of cheap labor are starting to tell us that if you (calculate) total cost and don't just look at wages, it's actually not worth it."

Democrats sought to nurture and expand the repatriation trend. But like numerous Make it in America bills passed by the U.S. House, the Creating American Jobs and Ending Off-Shoring Act died at the hands of Senate Republicans. Democrats had the majority with 53 votes for the measure, but Republicans, as they have all year, blocked passage by using a filibuster to require a super-majority of 60.

The next test for Republicans will occur Nov. 2. In the mid-term election, Americans red-in-the-face angry at the GOP for extending tax breaks to corporations for expatriating American jobs have the opportunity to show Republican politicians what it feels like to lose a job.