Posts tagged with 'financial reform'
Weekly Audit: Why Elizabeth Warren Should Head New Consumer Financial Protection Bureau
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by Zach Carter, Media Consortium blogger
With the Wall Street reform bill finally cleared through Congress, activists and intellectuals are pushing hard to make sure that this bill isn’t the last word Congress utters about Big Finance. We need deeper and more robust reforms, but it’s also critical to ensure that the new bill is implemented as effectively as possible. Part of that means appointing officials with a proven record as robust reformers—people like Elizabeth Warren.
Too-big-to-fail lives on
What more do we need to keep Big Finance from ravaging the middle class? As Stacy Mitchell notes for Yes! Magazine, the bill Congress just signed off on doesn’t really address the core problems posed by our out-of-control banking system. Too-big-to-fail is alive and well, and lawmakers must push to break up the megabanks during the next legislative cycle or risk another economic calamity. Mitchell writes:
“Since the collapse, giant banks have only grown bigger and more powerful, and less responsive to the needs of the real economy. While the financial reform bill includes several worthwhile measures, it will not set the industry right or entail a fundamental alteration of its scale and structure.” (more…)
Weekly Audit: Want Economic Justice? Then it’s Time to Act.
by Zach Carter, Media Consortium blogger
On Thursday, the U.S. Senate passed a financial reform package that includes a handful of important reforms, but it won’t fundamentally change the relationship between banks and society. Wall Street still has a vice grip on our economy, and lawmakers still find it very difficult to stand up to bigwig financiers.
The real fight for our economy will involve future legislative battles with bankers. Winning those battles will require sweeping action by engaged citizens. The good news is, critical progressive mobilization is already happening. Public outcry helped fuel the fire for Senate reform. Rep. Barney Frank (D-MA), has said that the Wall Street reform bill he pushed through the House last year would have been much stronger in today’s atmosphere of outspoken economic unrest. (more…)
Weekly Audit: Wall Street Reform, Financial Fraud, and Foreclosures
by Zach Carter, Media Consortium blogger
Last week, Senate Democrats broke the Republican filibuster on Wall Street reform. This week, Senators are introducing key amendments to strengthen the bill. While the current legislation is not strong enough to seriously curtail Wall Street abuses, all hope is not lost: A mere handful of amendments could make reform a reality. Unwinding the excesses of the Bush-era economy will require tough new rules on the nation’s largest banks. It will also require aggressive prosecution of fraud, and a serious new plan for helping homeowners in distress.
Ending too-big-to-fail
As Sen. Bernie Sanders (I-VT) emphasizes in an interview with GRITtv’s Laura Flanders , the four largest U.S. financial institutions have more than $7 trillion in assets—that’s over half the size of the entire U.S. economy. With that kind of political and economic muscle, banks can influence just about any financial reform that makes it through Congress simply by intimidating the regulators who try to implement them. (more…)
Weekly Audit: Republicans Filibuster Our Financial Future
by Zach Carter, Media Consortium blogger
Last night, Senate Republicans proved beyond any doubt that when it comes to the economy, they stand with Wall Street and against everybody else. Joined by lone Democrat Sen. Ben Nelson (D-NE), Republicans successfully filibustered the procedural technicality of opening debate on Wall Street reform. It’s an unmistakable ploy to kill the bill and collect campaign cash from bigwig bankers. The coming weeks won’t be pretty.
Republicans are going to be battered by this filibuster. Financial reform is popular, and nobody on Capitol Hill wants to be seen as the agents of Wall Street in Washington come November. Republicans are hoping to rhetorically counter Obama’s proposals, negotiate a fatally weakened reform package, and then vote with Democrats for reform-in-name-only before the elections. But the U.S. financial system is broken and voters know it needs strong medicine.
In a speech last week before Cooper Union Hall in New York City, Obama laid out what’s at stake in the reform fight. Our biggest banks don’t fear failure because they know the government will bail them out in a crisis. As a result, they take massive risks that endanger the economy. Our current regulators ignored predatory lending in order to protect Wall Street profits. To top it off, the risky, multi-trillion-dollar market for derivatives—the financial weapons of mass destruction that brought down AIG—remains beyond the scope of regulatory authority altogether. (more…)
Weekly Audit: How Deregulation Fueled Goldman Sachs’ Scam
by Zach Carter, Media Consortium blogger
Last week, the Securities and Exchange Commission filed fraud charges against Goldman Sachs and underscored what most Americans have believed for some time: Wall Street has rigged the economy in its own favor, and will stop at nothing—not even outright theft—to boost its profits. What’s worse, Goldman’s scam could have been completely prevented by better regulations and law enforcement.
Goldman’s heist
Let’s be clear. “Financial fraud” means “theft.” Goldman Sachs sold investors securities that were stocked with subprime mortgages and had been cherry-picked by a hedge fund manager named John Paulson. Paulson believed these mortgages were about to go bust, so he helped Goldman Sachs concoct the securities so that he could bet against them himself.
Goldman Sachs, like Paulson, also bet against the securities. But when Goldman sold the securities to investors, it didn’t tell them that Paulson had devised the securities, or that he was betting on their failure. By withholding crucial information from investors, Goldman directly profited from the scam at the expense of its own clients. If ordinary citizens did what the SEC’s alleges Goldman did, we’d call it stealing. (more…)
Weekly Audit: Congress Must Get Tough On Wall Street
by Zach Carter, Media Consortium blogger
Congress returns from its April recess this week with financial reform at the top of its to-do list. With millions of Americans still 
bearing the brunt of the worst recession in 80 years, Congress needs to start protecting our economy from Wall Street excess, and repair the shredded social safety net that has allowed the Great Recession to exact a devastating human cost.
Big banks are an economic parasite
In an excellent multi-part interview with Paul Jay of The Real News, former bank regulator William Black explains how the financial industry has transformed itself into an economic parasite. Black explains that banks are supposed to serve as a sort of economic catalyst—financing productive businesses and fueling economic growth. This was largely how banks operated for several decades after the Great Depression, because regulations had ensured that banks had incentives to do useful things, and barred them from taking crazy risks.
The deregulatory movement of the past thirty years destroyed those incentives, allowing banks to book big profits by essentially devouring other parts of the economy. Instead of fueling productive growth, banks were actively assaulting the broader economy for profit. None of that subprime lending served any economic purpose. Neither do the absurd credit card fees banks charge, or the deceptive overdraft fees they continue to implement.
Weekly Audit: Congress to take up financial reform, but will it be strong enough?
by Zach Carter, Media Consortium blogger
Next week, the debate over financial reform will begin in earnest when Congress returns from its Easter break. Both political parties are gearing up for a major fight, and the stakes couldn’t be higher. An out-of-control banking sector has cost the economy over 7 million jobs since 2007, and without major reforms, Wall Street could repeat this disaster in just a few years’ time. But thanks to Wall Street’s lobbying might, all of the necessary reforms are currently in jeopardy.
Key Reforms
Writing for The Nation, Christopher Hayes offers a useful primer on financial regulation, highlighting three reforms that are crucial to any bill.
- With no effective regulation of consumer protection issues for years, the existing banking regulators were more focused on preserving bank profitability than on going to bat for ordinary citizens. If banks could make big profits with unfair gimmicks (or even fraud), regulators usually looked the other way. The solution is a strong, independent Consumer Financial Protection Agency (CFPA) charged with nothing but protecting consumers from banker abuses, an agency with the broad authority to both write rules and enforce them.
- We need to rein in the $300 trillion market for derivatives, the complex financial contracts brought down AIG. Unlike ordinary stocks and bonds, derivatives are not traded on exchanges, so nobody really knows what is going on in this tremendous market. When something goes wrong, like with the collapse of Lehman Brothers, nobody can tell who the problem will effect. Without information, markets panic, and the entire financial system can collapse within a matter of days. Fortunately, this problem has a simple solution: require all derivatives to be traded on exchanges.
- Too-big-to-fail is too big to exist. The U.S. has never had banks as large as those that exist today, and their size gives them enormous political clout. It’s part of the reason why regulators didn’t make banks obey consumer protection laws, and why banks have been so effective in derailing reform. It’s been almost two years since the Big Crash, yet we are still wrangling over reform because giant banks deploy giant lobbying teams, and have almost unlimited resources to devote to their lobbying efforts. If we can’t scale back the banks’ power by breaking them up into smaller institutions, it’s unlikely that other reforms will be effective.
Weekly Audit: How Superhero Hilda Solis is Winning the Fight for Workers’ Rights
By Zach Carter, Media Consortium blogger
While the poor judgment of top-level officials at Treasury and the Office of Management and Budget frequently makes the news, there is another, unrecognized economic crew doing terrific work: Officials at the Department of Labor are restoring workers’ rights after nearly a decade of neglect.
To top it all off, President Barack Obama appears ready to make another set of strong, though less high-profile, economic appointments that will help rein in Wall Street excess.
DoL All-Stars
As Esther Kaplan documents in a masterful piece for The Nation, the Department of Labor (DoL) has been transformed from an agency that enabled corporate excess to one that holds companies accountable. In less than a year, Labor Secretary Hilda Solis and her team of deputies significantly leveled the playing field between ordinary workers and high-flying executives.
For decades, when conservatives have attempted to confront social problems, they’ve relied on the mantra of enforcement. If we had more cops, we’d fix everything. But as Kaplan documents, under President George W. Bush and his Labor Secretary Elaine Chao, the DoL simply stopped enforcing worker protection laws. From wage theft to mine safety, the Department essentially allowed corrupt employers to do anything they wanted.
That neglect has already ended. Armed with a budget of just $1.5 billion—that’s roughly 0.2% of the Troubled Asset Relief Program—Solis and company have cultivated a list of economic accomplishments that seemed impossible when they took office. As Kaplan details:
“Facing badly depleted enforcement ranks, Solis hired 710 additional enforcement staff, including 130 at OSHA and 250 for the crucial wage-and-hour division, upping inspectors by more than a third. Another hundred will come on next year to staff a crackdown on the misclassification of millions of employees as “independent contractors”–a dodge to avoid paying taxes and benefits–a move that has set off enormous buzz on business blogs. Her team took a plunger to the stagnant regulatory pipeline, moving forward new rules on coal mine dust, silica, and cranes and derricks. She restored prevailing wages for agricultural guest workers and is poised to restore reporting rules on ergonomic injuries.”
Fixing the Fed
Obama also appears ready to make another slate of strong economic appointments at the Federal Reserve, an agency stuffed with free-marketers who helped engineer both an economic catastrophe and resulting bailouts. Obama’s rumored picks—economists Janet Yellen and Peter Diamond and bank regulator Sarah Bloom Raskin—are aggressive about making the economy work for everyday citizens, as I emphasize for AlterNet.
If Congress passes financial reforms similar to what Senate Banking Committee Chairman Chris Dodd (D-CT) has proposed, the Fed’s regulatory responsibilities will actually expand, despite its failures over the past decade. The Fed has never effectively regulated anything and it’s not very concerned with unemployment as an economic problem.
That makes Obama’s pending slate of officials who prioritize bank regulation and broader employment very important. Raskin, in particular, stands out with her strong record as a state banking regulator. If Obama ultimately nominates her, she’ll be the first pure regulator ever appointed to the Fed. The potential picks don’t make up for Obama’s reappointment of bailouteer Ben Bernanke as Federal Reserve Chairman, but they do show that the President is capable of sound judgment.
Strengthening the Dodd bill
But the strength of Obama’s potential Fed nominees doesn’t justify the weakness of Dodd’s financial regulation bill. As Amy Goodman and Juan Gonzalez of Democracy Now! reveal in interviews with economist Robert Johnson and ColorLines Editorial Director Kai Wright , the bill leaves plenty to be desired. Dodd is currently making the rounds and declaring that his bill will end the abuses giant banks deployed against the broader economy, but the truth is, the bill has largely been gutted by bank lobbyists. Here’s Johnson:
“We’re engaged in a Kabuki theater right now, hoping the material is too complex for the American people to understand, declaring victory, and yet basically encoding into law current practices of the banks. Every one of your listeners should ask the question, given this legislation, if the President, House and Senate pass it, will we be in a place where AIG couldn’t have happened, Lehman Brothers couldn’t have happened, Bear Stearns couldn’t have happened, and, more importantly, nine, ten percent unemployment caused by the banking crisis couldn’t have happened? I argue this bill does very little.”
The importance of trust-busting
So Dodd’s bill needs to be substantially strengthened as it moves through the Senate. But there’s plenty of other economic work to be done outside of Wall Street. As Barry C. Lynn and Phillip Longman explain for The Washington Monthly, the steady expansion of corporate monopolies has resulted in a fundamentally unstable economy.
The U.S. simply does not create jobs at the rate it once did, and companies aren’t held accountable to market forces like competition. Many of our monopolies are hidden, as Lynn and Longman note. Macy’s and Bloomingdale’s seem like competitors, but they’re owned by the same holding company. The same dynamic holds true in auto manufacturing, banking, pet food, health care and IT. Consumers think they’re choosing between competing goods and services, when in fact they’re shopping in different divisions of the same corporate Goliath.
All hope is not lost. As Laura Flanders emphasizes for GRITtv, the passage of health care reform proves that the Obama administration and Congress can make substantive progressive changes when they put their minds to it. The question is whether Obama is willing to limit his economic accomplishments to lower-level issues, or go big and take on the deep-pocketed corporate campaign contributors.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
Weekly Audit: After Health Care, the Economy
By Zach Carter, Media Consortium blogger
Now that health care reform has finally been enacted, a host of critical economic issues are taking center stage, including financial reform, unemployment and deeply rooted economic inequality. But it’s important to note that with its health care vote, the U.S. House of Representatives actually approved a very important, and often overlooked financial reform: Student lending.
Pedro de la Torre III of Campus Progress explains the current student loan nightmare in an interview with The American Prospect‘s Rebecca Delaney. For years, the U.S. government has paid massive subsidies to some of the worst-run companies in the country.
Thanks a lot, Sallie Mae
As de la Torre notes, instead of directly making loans to students, the government spent years funneling money to firms like Sallie Mae to actually make the loans. When things went sour, taxpayers covered the lender’s losses from student loans that ultimately went bad.
Taxpayers were also footing the bill for the loans and taking on the risk, while private companies and their executives enjoyed the benefits. The executives made quite a haul. In 2008 alone, Sallie Mae CEO Albert Lord took home an astonishing $46 million. Even among CEOs, that’s a princely sum—more than double what Halliburton CEO David Lesar made the same year. All of that money could have financed a lot of college educations.
Fortunately, the student loan landscape is almost certain to change as a result of the health care vote. The House bill included a provision to end student loan subsidies and boost funding for direct grants from the government to students.
Since the student loan reform and health care were both eligible for reconciliation in the Senate (meaning only 51 votes are needed for passage instead of the 60 to clear a filibuster), House Democrats decided to move on both at the same time. It’s a significant reform, and one that will soon become law with President Barack Obama’s signature.
What would an overhaul of the consumer finance industry entail?
The student loan system is just one aspect of the consumer finance industry that needs a major overhaul. On mortgages, credit cards, overdrafts, and payday loans, the banking status quo is one of outright predation. As Heather McGhee of Demos explains to The Nation‘s Christopher Hayes, there’s a reason why federal agencies do a lousy job regulating consumer banking abuses.
Right now there is no agency responsible for consumer protection alone. Every regulator also focuses on making sure banks don’t fail, which generally means that regulators support anything that increases short-term profits. Egregiously predatory practices generally lead to big short-term gains in banking.
A new consumer financial protection bureau
Last week, Senate Banking Committee Chairman Chris Dodd (D-CT) introduced a bill that would create a new bureau of consumer financial protection, with no constraints from bank profitability. It’s a step in the right direction, but as McGhee notes, there are plenty of problems with Dodd’s proposal. Most problematically, the bill gives existing agencies a veto power over any new consumer protection rules. That’s a terrible loophole. Existing regulators have actively opposed consumer protections in the past, and there is every reason to expect that practice to continue.
Rapid tax refunds scam the poor
It’s late March, which means tax season is getting into full swing. All over the country, mascots from Liberty Tax are spilling into the streets wearing goofy costumes, trying to win your business. But millions of Americans don’t realize that Liberty, along with H&R Block, Jackson-Hewitt and hundreds of smaller businesses are engaged in a monstrous scam disguised as a complicated accounting service.
As Alexander Zaitchik emphasizes for AlterNet, these tax preparers have used deceptive advertising and slick salesmanship to con people into taking out “refund anticipation loans,” also known as “rapid refunds” and a handful of other pleasant euphemisms. It’s a simple gimmick: H&R Block does your taxes, and then presents you with your tax refund, right away, no waiting. But the check you receive is not actually your tax refund—it’s your tax refund minus a truckload of fees that you didn’t realize were being deducted. This is the tax-time equivalent of payday lending.
When the government sends in your actual, larger tax refund one-to-two weeks later, you won’t see it—it goes straight to H&R Block’s bank partner. Those banks are making big money taking from your tax returns. Here’s Zaitchik:
“In 2008, more than eight million Americans spent nearly a billion dollars paying interest and fees on RALs—often based on misleading or incomplete information—swelling the profits of tax preparers and their partner banks.”
The one break low-income people get under the U.S. tax code is the Earned Income Tax Credit (EITC), the nation’s largest anti-poverty program. Only about 16% of taxpayers qualify for the EITC, but as Zaitchik notes, nearly two-thirds of the people who take out refund anticipation loans receive the credit. Tax preparers are making a concerted effort to prey on the poor, making the EITC program more expensive and less efficient for all taxpayers—not just those who go to H&R Block or Liberty Tax.
More action needed on jobs
Beyond finance, the U.S. economy has a serious jobs problem. Last week, Congress approved an $18 billion jobs package that is simply far too small to make a serious dent in the nearly double-digit unemployment rate. As Art Levine explains for Working In These Times, the package will create 250,000 jobs at best. That number shouldn’t be acceptable to anyone watching the U.S. economy, which has shed about 7 million jobs since the recession began.
There are much stronger options available than the $18 million bill the Senate approved. Rep. George Miller (D-CA) has introduced a bill in the House that would quickly save or create one million jobs, and the House has already passed a separate $154 billion jobs package that would prevent 900,000 lay-offs. If the Senate moved on either one, the result would be a major economic boost.
The link between poor economies and poor health
All of these problems—unemployment, student loan scamming, refund anticipation loan sharking and other forms of financial predation—reinforce economic inequality in the United States, which is at levels unseen since before the Great Depression. That inequality is ultimately actively damaging to public health, as epidemiologist Richard Wilkinson explains in an interview with Brooke Jarvis for Yes! Magazine. Rampant economic inequality in the United States is literally making us sick.
“We looked at life expectancy, mental illness, teen birthrates, violence, the percent of populations in prison, and drug use,” Wilkinson says. “They were all not just a little bit worse, but much worse, in more unequal countries.”
With health care finally finished, Congress and the administration have an opportunity to make serious headway on the economy. They’ve got plenty of work to do.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
Weekly Audit: Will Weak Reforms Bring on Another Crisis?
By Zach Carter, Media Consortium blogger
Senate Banking Committee Chairman Chris Dodd (D-CT) 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.
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. (more…)
