The Tea Party thinks it hates Wall Street. It doesn’t.

By Mike Konczal, Published: October 12

When it comes to financial regulation, there are no substantial issues on which Tea Party Republicans differ from Wall Street.

This fact may surprise you, because the latest argument among conservatives is that the Tea Party agenda isn't shaped by the financial sector. In fact, they'll say, the Tea Party is where the smartest ideas on financial reform are being generated.

Tim Carney of the Washington Examiner has made this case, writing that a “Republican who doesn’t care about Bank of America checks wasn’t possible before the Tea Party.” And Ross Douthat argues that the same far-right members of the Tea Party who called for the shutdown are “more open to new ideas on ... financial reform.”

One problem with this argument is that many Tea Party Republicans are in favor of the same bills favored by the financial industry. Take the Financial Takeover Repeal Act of 2013, a one-line bill sponsored by Sen. David Vitter (R-La.) that repeals Dodd-Frank and replaces it with nothing. This bill has 22 co-sponsors this year, including notable Tea Party senators such Mike Lee, Rand Paul and Ted Cruz.

Of course, not everyone on Wall Street is in favor of repealing Dodd-Frank and replacing it with nothing. After all, that could produce a backlash from the public. In many cases, the financial industry would just prefer to weaken existing regulations. And here, too, they've often found support from Tea Party types.

For instance: One change favored by Wall Street is to pull back on the more aggressive parts of Dodd-Frank's derivatives regulation. And here we see Citigroup actually writing the text of a bill that House Republicans took up and voted for. That was just one of many in the grab-bag of derivatives reforms that the Republican House, with some Democratic support, pushed for this year.

The financial industry has also pushed to weaken the independence of the Consumer Financial Protection Bureau (CFPB). And changing the funding of the CFPB has been a demand from the GOP from the beginning. Notice that the question of funding independence doesn't usually break down along ideological lines. The bank-friendly Office of the Comptroller of the Currency, for instance, also isn't funded through the annual appropriation process. Yet Senate Republicans didn’t make a fuss over this when they voted to put Thomas Curry in charge of the OCC last year.

Another reform at issue is whether the Federal Deposit Insurance Corp. (FDIC) should be able to force financial firms into a receivership during a crisis — a move that would end Too Big To Fail. For this process to work, those financial firms would have to be subject to scrutiny, special capital requirements, restrictions on capital purchases and bonuses, and possible restructuring. Yet the GOP wanted to lift these requirements as part of their government shutdown wish-list. It’s also a major feature of Paul Ryan's plan.

And there's more than Dodd-Frank at issue here. The Department of Labor, for instance, is releasing new fiduciary requirements to better deal with 401(k)s, IRAs and the rest of the wave of personal, private, tax-exempt savings accounts. House Republicans are trying to block these rules.

One might think conservatives would support these fiduciary requirements as a way of bolstering support for private-savings vehicles like 401(k)s over Social Security. Back in the 1980s, conservative think tanks supported tax carve-outs for private-savings vehicles in order to create the conditions for ending Social Security. And nowadays, one of the strongest arguments for boosting Social Security is the growing suspicion that 401(k)s and other private retirement programs are ripping people off. The lack of clear standards can actually strengthen support for government safety-net programs.

Still, the financial industry doesn’t want the fiduciary requirements, and the Tea Party doesn’t either.

These are not minor nitpicks, or obscure regulatory codes I’m bringing up as cheap shots. These are the major, substantive issues of the regulatory response to the largest financial crisis since the Great Depression. I’m not saying that you should support all these measures (though I do think this list, on the whole, is smart policy). But the pattern is obvious.

Some people will bring up the Brown-Vitter plan to raise capital significantly. That's a plan to strengthen financial regulation and is supported by a Republican. But the bill only has one other Republican co-sponsor, having lost one since its debut. And it's worth noting that Vitter hasn't pushed for higher leverage requirements at other points. (Indeed he didn’t acknowledge the surprise increase in leverage requirements over the summer proposed by U.S. banking regulators.)

Similarly, there are now three remaining important capital rules still on the table, dealing with liquidity, extra capital for the biggest banks and the question of how banks hold debt. There’s no support, or acknowledgement, of any of these rules from either the Tea Party or Vitter (other than a push to repeal Dodd-Frank entirely).

What are the takeaways here? The first is that the actual disagreements between the Tea Party and Wall Street appear to be over tactics — whether shutting down the government will help or hurt the cause. Tactical disagreements are important, but they shouldn’t be confused with substantive disagreements on policy.

Another point is that the alliance between Tea Party Republicans and Wall Street often gives substantial power to centrist Democrats on these issues, who become the swing vote on what gets passed. Given that financial influence is large with this group, it’s of grave concern that there's not actually a left-right alliance concerned with Wall Street.

The one time a left-right alliance on financial matters did emerge, in the form of support for a Fed audit amendment during Dodd-Frank, the alliance collapsed quickly. Those on the right wanted to dismantle the dual mandate, while those on the the left half wanted to remove bankers and regional Fed chairs from decision-making. Meanwhile, most of the “smart” conservative takes on financial reform start with the premise that Dodd-Frank is the law on the books, while Tea Party intellectuals do not.

Finally, the way the conservative press approaches this topic doesn't help. Take a recent piece by Tim Carney on the House Republican plan, known as the PATH Act, to privatize the GSEs without maintaining a credit guarantee. There are financial groups who oppose this bill (“The most powerful opposition to the House ... comes from the Mortgage Bankers Association”), which leads Carney to suggest that conservatives are standing up to "special interests." But he doesn’t mention that other parts of the financial industry do support the bill. Indeed, the American Securitization Forum has testified that they “strongly support the introduction of the PATH Act.”

Which is to say that there’s no neutral position here. The key question is how to best create rules for the financial system so that it works better for the economy as a whole, a process that will necessarily create winners and losers. Perhaps it is just a coincidence that Tea Party anger over the idea of a federal, regulatory state just happens to overlap with the interests of Wall Street. Perhaps. But I see no reason people should take comfort in that.

Tracking CEO Compensation

The Best Indicator of Inequality is the Gap Between What CEOs and Their Workers are Paid
by SAM PIZZIGATI


Under current U.S. law, all our publicly traded corporations must annually disclose exactly what they pay their top executives. So why do all those CEO pay scorecards we see every spring show such different results?

USA Today found an 8 percent hike in 2012 CEO pay while The New York Times detected an 18.7 percent increase. Towers Watson, a corporate consulting firm, announced that CEO pay growth “slowed considerably,” rising at just a 1.2 percent rate last year.

What explains all these wildly divergent results? Let’s start with how corporations pay their top execs. This can get tricky.

Most executive pay today comes as stock-related compensation. Stock “options” give executives the right, down the road, to buy shares of their company stock at today’s share price. If that share price jumps, the execs can buy low and sell high. Instant windfall.

“Restricted” stock awards, on the other hand, give executives actual shares of stock, not just an option to buy them. Execs do have to wait a few years before they can actually claim these shares. No big deal. The shares will still have value in future years even if a company’s stock takes a hit.

But how should we value all this share-related compensation right now? Should CEO pay scorekeepers estimate how much stock awards granted this year will be worth in years to come? Or should scorekeepers only tally stock-related awards when execs actually profit personally from them?

Different executive pay scorekeepers give different answers. Scorekeepers also keep score on different sets of corporations. USA Today‘s new scorecard for 2012 tallies pay at 170 firms, the New York Times at just 100.

Given all this, do we have any single stat that tells us what we need to know? We do. That stat: the divide between worker and top executive pay.

America’s big-time CEOs, labor researchers at the AFL-CIO report, are now making 354 times the pay of average U.S. workers, the “largest pay gap in the world.”

Three decades ago, in 1982, American CEOs averaged just 42 times more than average U.S. workers. Two decades ago, in 1992, the gap stood at 201 times. A decade ago: 281 times.

The overall trend line, in other words, couldn’t be clearer. How can we reverse it? Identifying the specific pay gap between individual CEOs and their own workers would be a good first step.

Corporations have had to publish, for decades now, how much they pay their top execs. They haven’t had to reveal publicly how much — or how little — they pay their workers. The Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in 2010 changes this dynamic, at least on paper.

Dodd-Frank requires corporations to annually disclose the gap between what they pay their CEOs and their most typical workers. But a corporate lobbying blitz has kept the Securities and Exchange Commission from writing the regulations needed to enforce this disclosure mandate.

Why do our biggest corporations so fervently oppose disclosing their CEO-worker pay ratios? Disclosure by itself, after all, won’t shove down CEO pay levels. But disclosure could open the door to other steps that could curb CEO pay excess.

Lawmakers could, for instance, choose to deny government contracts or tax breaks to corporations that pay their top executives over 25 or even 50 times what their own workers are making.

Far-fetched? Current law already denies government contracts to companies that discriminate by race or gender in their employment practices. As a society, we’ve concluded that our tax dollars must not go to corporations that widen racial or gender inequality.

So why should we let our tax dollars enrich corporations that widen our economic divide?

Sen. Elizabeth Warren slams Republicans: Worry less about helping big banks

By Eric W. Dolan | RAW Story
Tuesday, March 12, 2013


Democratic Sen. Elizabeth Warren of Massachusetts slammed Republicans on Tuesday for holding up the confirmation of Richard Cordray to be director of the Consumer Financial Protection Bureau.

At a Senate Banking Committee hearing, the progressive senator suggested Republicans were using false arguments to fight the nomination of Cordray. Warren, who was a key figure in setting up the relatively new agency, questioned why Republicans believed it was wrong for the CFPB to have a single director, but was acceptable in the case of numerous other agencies like the Office of the Comptroller of the Currency.

“I see nothing here but a filibuster threat against Director Cordray as an attempt to weaken the consumer agency,” Warren said. “I think the delay in getting him confirmed is bad for consumers, it’s bad for small banks, bad for credit unions, for anyone trying to offer an honest product in an honest market.”

“The American people deserve a Congress that worries less about helping big banks, and more about helping regular people who have been cheated on mortgages, on credit cards, on student loans and on credit reports,” she added.

The Consumer Bureau was created by the Dodd–Frank Wall Street Reform and Consumer Protection Act to regulate financial services such as mortgages and credit cards. The agency issued new rules to restrict high-risk home loans in January and began looking into predatory private student lenders in February.

Senate Republicans previously blocked Cordray’s confirmation to the CFPB in 2011, but Cordray later became the director of the agency through a recess appointment. Republicans have called for the agency to have significantly reduced powers, claiming it currently lacks proper oversight.

Watch video, uploaded to YouTube by Sen. Warren, below:

The Best Congress the Banks’ Money Can Buy

Friday, April 6, 2012 by Common Dreams
by Bill Moyers and Michael Winship


Here we go again. Another round of the game we call Congressional Creep. After months of haggling and debate, Congress finally passes reform legislation to fix a serious rupture in the body politic, and the President signs it into law. But the fight’s just begun, because the special interests immediately set out to win back what they lost when the reform became law.

They spread money like manure on the campaign trails of key members of Congress. They unleash hordes of lobbyists on Capitol Hill, cozy up to columnists and editorial writers, spend millions on lawyers who relentlessly pick at the law, trying to rewrite or water down the regulations required for enforcement. Before you know it, what once was an attempt at genuine reform creeps back toward business as usual.

It’s happening right now with the Dodd-Frank Wall Street Reform and Consumer Protection Act -- passed two years ago in the wake of our disastrous financial meltdown. Just last week, for example, both parties in the House overwhelmingly approved two bills that already would change Dodd-Frank’s rules on derivatives -- those convoluted trading deals recently described by the chairman of the Commodity Futures Trading Commission as "the largest dark pool in our financial markets."

Especially vulnerable is a key provision of Dodd-Frank known as the Volcker Rule, so named by President Obama after the former Federal Reserve Chairman Paul Volcker. It’s an attempt to keep the banks in which you deposit your money from gambling your savings on the bank’s own, sometime risky investments.

It will come as no surprise that the financial sector hates the Volcker Rule and is fighting back hard.

On March 26, Robert Schmidt and Phil Mattingly at Bloomberg News published an extensive account on the coordinated campaign being waged by the banking industry to persuade regulators to scale back reform. Headlined, "Bank Lobby’s Onslaught Shifts Debate on Volcker Rule," their report chronicles the many ways in which banks are turning up the heat, enlisting the help of clients, customers, and other companies, among others.

"Some banks recommended consultants and law firms," they write, "... to help clients write letters arguing that the proposed language defines proprietary trading too broadly. Partnering with trade associations, the banks also commissioned studies, tested messages with focus groups, distributed talking points and set up a phone hotline for Capitol Hill staffers."

The banks found another ally in the US Chamber of Commerce, the biggest pro-business lobby in America, which helped put together a coalition of companies, including Boeing, DuPont, Caterpillar and Macy’s department stores.

In one instance, the banking behemoth Credit Suisse got an assist from a man named Robert Auwaerter, who oversees hundreds of billions as the fellow in charge of the fixed income group at Vanguard Group, a mutual fund company. He came to a briefing Credit Suisse held for three congressmen who belong to the New Democrats, a group of House members known "for their centrist and pro-business leanings."

Auwaerter led the 90-minute meeting and said the three Democrats "were really receptive to our comments." We’ll just bet. According to the Bloomberg News reporters, one of them, Joe Crowley of New York, "pushed back at one point, telling the group that he’d recently marched in a Lunar New Year parade in Queens with Thomas DiNapoli, the New York State Comptroller who oversees a state retirement fund of about $140 billion. Why wasn’t DiNapoli complaining about Volcker?

"The asset managers told Crowley they have a closer view of how the markets work than the pension funds that hire them. The proposed rule, they said, would slow bond trading, making it harder for them to execute their strategies. They predicted that would mean lower returns for funds like DiNapoli’s, as well as for 401(k) plans and individual investors.

"Less than two weeks after the Credit Suisse visit, 26 New Democrats signed a letter to regulators noting that 'millions of public school teachers, police officers and private employees depend on liquid markets and low transaction costs' to retire with ‘dignity and ease.'"

In other words, fellow members and regulators, lighten up on the Volcker Rule! A thick wallet helps, of course -- lobbyists for the financial sector spent nearly half a billion dollars last year. And the congressional newspaper The Hill reports, "Members of Congress pressuring regulators to go easy on the 'Volcker Rule' received roughly four times as much on average in contributions from the financial industry than lawmakers pushing for a stronger rule since the 2010 election cycle, according to Public Citizen, a left-leaning group advocating for strict implementation.

"When it is all added up, opponents of a tough Volcker Rule received over 35 times as much from the financial industry -- $66.7 million -- than advocates for a strong stance, who received $1.9 million."

All of which makes it darkly amusing to read in the April 4 edition of the financial newspaperThe American Banker that, in the words of Roger Beverage, president and CEO of the Oklahoma Bankers Association, "Congress isn’t afraid of bankers. They don’t think we’ll do anything to kick them out of office. We are trying to change that perception."

Which is why Beverage and his colleague are creating the industry’s first Super PAC. They’re calling it -- we’re not making this up -- "Friends of Traditional Banking," a smokescreen of a sobriquet if we ever heard one, vaguely reminiscent of the Chicago mobsters in Billy Wilder’s Some Like It Hot who dub themselves "Friends of Italian Opera."

Matt Packard, the Super PAC’s chairman, told The American Banker, "If someone says I am going to give your opponent $5,000 or $10,000, you might say, 'Yea, okay.' But if you say the bankers are going to put in $100,000 or $500,000 or $1 million into your opponent's campaign, that starts to draw some attention." Don Childears, president and CEO of the Colorado Bankers Association chimed in, "It would be nice to sit on the sidelines or sit on our hands and say, 'Oh we don't get involved in that stuff,' but that just means you get run over. We need to get more deeply involved as an industry in supporting friends and trying to replace enemies."

All of which demonstrates, as per Bloomberg News, "that four years after Wall Street helped cause the worst economic downturn since the Great Depression and prompted a $700 billion taxpayer bailout, its lobby is regaining its power to blunt or deflect efforts to rein in the banks."

Nonetheless, just last week, The Wall Street Journal reported on how a movement to challenge big banks at the local level has gained momentum around the country. Activists want to restructure Wall Street from the bottom up. As a result, the Los Angeles City Council is considering an ordinance that would gather foreclosure and other data on banks that do business with the city. Officials in Kansas, City, Missouri, passed a resolution directing the city manager to do business only with banks that are responsive to the community. And here in New York City, legislation is pending to require banks to reinvest in local neighborhoods if they want to hold city deposits. Similar actions are underway in other cities.

They’re turning up the heat. You can, too.

We Are Not Going to See Change on Wall Street Until It Is Forced to Change Its Ways

Friday, March 30, 2012 by Countdown

Robert Reich, former U.S. Labor Secretary and a professor at UC Berkeley, and Eliot Spitzer, former governor of New York, consider how the Occupy movement has affected the climate on Wall Street in light of an independent study from Echo Research and Makovsky that seems to show Occupy has had a direct impact on the financial services industry. “The kingpins on Wall Street see this as a public relations problem. They don’t see this as a fundamental problem in terms of changing their ways. They are at this very moment in federal courts all over this country trying to get the rules and regulations pursuant to the Dodd-Frank regulatory reform bill stayed and thrown out of court,” Reich says.

Wall Streets Reloads With Toxic Bonds

Financial Crisis, Round Two
by MIKE WHITNEY

“Despite the Dodd-Frank financial reform bill and its directive to address this issue, the problem of bank runs in the shadow system has not yet been solved.”
–Mark Thoma, Professor of Economics, University of Oregon, February 13, 2012.

Wall Street is at it again.

In the last few months, the nation’s biggest banks and investment firms have resumed the same perilous activities that crashed the financial system and plunged the economy into the deepest slump since the Great Depression. According to a number of recent reports, there’s been a steady uptick in the type of risky bond deals that preceded the repo market bank run in 2008 leading to the default of 106-year old financial giant Lehman Brothers. With interest rates locked at zero percent and gradual improvements in the economic data, investors have been scouring the markets for better returns on their investments. This search for higher yield has triggered a gold rush on risky assets which has increased the probability of another major cataclysm. Here’s the story from CNN Money:

“The risky bond deals that were a hallmark of the pre-financial crisis boom are staging a comeback as investors continue to hunt for ways to find higher rates of return. 

And companies are willing to meet the demand. Roughly $58 billion of high yield, or junk, bonds have been issued by 95 corporations since January. That’s the fastest start in 15 years, according to Dealogic. 

Investment grade bonds, which offer a lower, albeit more stable yield, have also continued to attract investor interest. Since January, about $150 billion of corporate bonds have been issued by 315 companies, according to Dealogic. While that’s slightly faster than the past two years, it’s well behind the pace set in 2007, 2008 and 2009.” (“Bonds: Risk is back!”, CNN Money)

Trillions of dollars in bailouts, subsidies and other corporate welfare has restored many of the Too Big to Fail banks back to health, allowing them to reengage in transactions which, once again, put both the financial system and the broader economy in danger. And, although there have been modest efforts to re-regulate the system–particularly Dodd-Frank–the new laws fall well-short of what’s needed to decrease the vulnerabilities in the shadow banking system or to increase confidence in the bonds that are at the center of this latest investment binge. Congress has failed to pass legislation that would improve the underwriting standards of the loans that are pooled in these bonds to make sure that borrowers have the ability to repay their debts. Absent stricter standards, there’s certain to be a repeat of the collapse in the secondary market which followed the implosion in subprime mortgages. It’s deja vu all over again. Here’s more from International Financing Review:

“As the credit crisis recedes and underwriting standards begin to loosen, bonds backed by consumer debt such as auto loans, credit card payments, and student loans are becoming increasingly risky, Moody’s said on Thursday. 

Relaxed underwriting standards, more complex structures, and new untested market participants are just three of the trends suggesting that risk is on the rise for some sectors of the asset-backed securities market, Moody’s said in a report…. 

With credit standards slipping in asset classes such as subprime auto loans, and risky crisis-era structural features showing up in transactions, credit rating agencies need to make sure they are keeping up with the deteriorating credit standards and rating the these bonds appropriately – which means withholding their coveted Triple A rating if it is not deserved, or making sure there are other features that mitigate the risks, said Moody’s.” (“As crisis fades, risk returns to asset-backed debt – Moody’s”, IFR)

Easy money, looser credit and poor underwriting standards: Where have we heard that before? And all this is by-design, the inevitable result of a monetary policy that feeds liquidity into an overbloated financial system that neither creates value nor provides capital for productive activity. The present arrangement merely transfers the wealth from working people to a class of investors who’ve become a danger to themselves and society. Here’s more from the IFR:

“The riskiness of securitizations is still low and has not approached the level it reached in the early to mid-2000s…ABS reached its issuance peak in 2006 at US$754bn. However, if the normal pattern of the credit cycle plays out, the easing of credit that took place in 2011 will persist into 2012 and beyond… 

Originators have begun to ease underwriting standards…. in sectors such as subprime auto-loan securitizations, where underwriting is returning to its pre-recession norm, losses on loan pools backing auto ABS are bound to increase.” (“As crisis fades, risk returns to asset-backed debt – Moody’s”, IFR)

As we have noted in earlier articles, subprime auto securitization and student loans represent most of the gains in the recent credit expansion. Loans that are bundled and sold to investors are used numerous times-over as collateral (rehypothecation) so that banks and financial institutions can maximize leverage. This same “gearing” process was all the rage until 2007 when two Bear Stearns hedge funds unexpectedly defaulted precipitating a run on the shadow system that wiped out over $4 trillion in equity in less than a year.

Other signs that Fed chairman Bernanke’s loosy-goosy monetary policy is inflating another asset bubble include the fact that banks have doubled the volume of their credit card solititations since 2010 “with an increased emphasis on offerings to individuals with less than pristine credit histories.” In other words, the banks don’t care whether they get their money back provided they can offload the unpaid debt onto gullible investors in the form of bundled loans. The former head of the FDIC, William Seidman, figured this scam out long before the dot.com bubble burst and issued this warning to regulators:

“Instruct regulators to look for the newest fad in the industry and examine it with great care. The next mistake will be a new way to make a loan that will not be repaid.”

If only someone had been listening.

IFR also reports that private equity high-rollers are joining in the fray by loading up on junk paper that promises slightly better returns than low yielding CDs or US Treasuries. Here’s the clip:

“The entrance of players … with higher risk profiles is a sign that competition for asset origination will increase”….Additionally, small originators and issuers with low credit quality have been getting back into the game, and their ability to honor representations and warranties may be limited."

“Too Big To Fail” ensures that any investment in high-yield garbage bonds is a reasonably safe bet due to the fact that US taxpayers now guarantee Wall Street against any substantial loss. That implicit backstop includes all manner of financial institutions including insurers, PE, hedge funds etc. The Fed has wrapped its arms around the entire system while transferring trillions of dollars in red ink from the balance sheets of these foundering Wall Street casinos onto its own.

This below-the-radar surge in financial offal has spread to the same complex assets that were at the heart of the crisis, collateralized debt obligations or CDOs. The big boys–Goldman and Barclays–have been inquiring about the $47 billion in AIG assets held by the New York Fed. Some of these assets have already been sold off in, what appeared to many to be, secret auctions. Even so, there’s more dreck where that came from which has piqued the interest of other banks and brokerages. Here’s more from the Wall Street Journal:

“The $47 billion face value in assets, held by the Federal Reserve Bank of New York, are the same kinds of financial instruments that … caused record losses across the financial industry. Plunging values of the securities, called collateralized debt obligations, or CDOs, caused AIG’s near collapse and a government rescue in 2008. The $182 billion bailout was widely criticized because a chunk of taxpayer aid was funneled through AIG to large banks.

Now, amid rising investor demand for riskier, higher-yielding assets, attempts by Wall Street firms to buy those same assets may spark further controversy. Some large banks were on the winning end of bets with AIG over the instruments during the crisis, and benefited from the insurer’s bailout….

Banks that bought credit-default swaps from AIG on the CDOs had inundated AIG with demands for collateral when the housing downturn caused market prices of the CDOs to nose dive. The New York Fed’s move made more than a dozen U.S. and foreign banks whole on their bets with the weakened insurer. Some of those banks, including Goldman and Barclays, are now the same ones interested in buying the securities, people familiar with the matter said.” (“Banks Want Fed to Iron Out ‘Maiden’”, Wall Street Journal)

Wow. So all 12 banks were paid 100 cents on the dollar for bogus insurance policies (CDS) that were essentially worthless since AIG did not have the resources to repay the claims. And now these same banks want to buy the remaining AIG assets at firesale prices? That’s what you call the double whammy.

The reason that most people can’t grasp how serious these new developments are, is because their understanding of the financial crisis remains sketchy. The Crash of ’08 had less to do with subprime mortgages and Lehman Brothers than it did with the flawed architecture of a shadow system that performs the same tasks as traditional banking, but is unregulated, undercapitalized and hopelessly crisis-prone. ”What happened in September 2008 was a kind of bank run,” said Robert E. Lucas, of the Minneapolis Fed.

“Creditors lost confidence in the ability of investment banks to redeem short-term loans, leading to a precipitous decline in lending in the repurchase agreements (repo) market.” Yes, but there’s more to it than that. The reason that “creditors lost confidence” was because they knew the banks were using bonds that were comprised of dodgy loans to people who had no ability to repay the debt. In other words, there was a moment of enlightenment (when two Bear Stearns hedge funds stopped redemptions) when the main players suddenly realised that the entire $10 trillion shadow banking system and repo market was propped up on a foundation of pure quicksand. (ie–”bad loans”) That’s when the race for the exits began.

And now, not even 4 years later, the banks are at it again, buying up toxic bonds by the boatload. We’re back to Square One. Barring a dramatic reversal in the present policy, (which is extremely unlikely) it’s hard to see how another disaster can be averted.

Still No End to 'Too Big to Fail'

Thursday, February 16, 2012 by The Nation
by William Greider

When Congress passed the Dodd-Frank financial reform bill in the summer of 2010, the Obama administration made happy talk about putting an end to “too big to fail” banks. Hold the champagne. The Federal Reserve Board has just created the fifth-largest bank in the country, despite a flood of warnings from community advocates and smaller banks.

Skeptics in financial markets are entitled to their skepticism. Capital One has been rapidly assembling this new behemoth, acquiring local deposits and credit card operations in a series of mergers. Federal Reserve governors reviewed the complaints and rejected them. In banking regulation, the “new normal” so far looks a lot like the “old normal.”

Of course, it is impossible to say this marks an end to reform. But it’s a real downer for the reform advocates. They have pleaded for a different perspective from the Fed regulators—weighing the “public benefits” of bank consolidations against the “adverse effects,” as Dodd-Frank requires. But the Fed made this calculation on very narrow grounds.The governors concluded that one more very large bank will not by itself bring down the system. True enough. But each decision the Fed makes now on applying the new rules sets a precedent for its future decisions. How big is too big? The Capital One decision seems to say size is not an issue.

Reform groups like the National Community Reinvestment Coalition argued that the new, enlarged Capital One is a bad bet on its own terms because its business model is grounded in credit card debt, with a heavy portion of so-called “subprime” credit card holders—borrowers much like the “subprime” mortgage holders now lined up for foreclosure and bankruptcy. When the credit card bubble bursts, these critics say, the government will stick with the same bad choice—bailing out the creditors when the debtors fail.

Financial market cynics have assumed all along that Dodd-Frank did not end “too big to fail” but instead created a charmed circle of protected banks labeled “systemically important” that will not be allowed to fail, no matter how badly they behave.

The Fed and other regulators were given the impossible job of changing the behavior of these megabanks without messing with their awesome size and financial power.

Good luck to the Fed. The new regulatory rules are still being written, and the banking industry has flooded Washington with comments, questions and fine-print objections. Some say the bank lobbyists are in a purposeful stall, hoping to delay the final regulations until they get a more banker-friendly president. I suspect the stalling tactics are designed to outwait the public anger.

Republican Jobs Plan: An Economy for the 1%

Go back, the Republicans are saying. Reprise unfettered, irresponsible Wall Street, the Republicans demand.

By Leo Gerard, AlterNet
Posted on October 24, 2011

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.

Bringing Transparency to Wall Street

The Bizarre Calls to Repeal Dodd-Frank

by DEAN BAKER

The calls for repealing the Dodd-Frank financial reform bill are more than a little bizarre. It was only three years ago that the whole financial system was at the brink of collapse, with President Bush warning us of a second Great Depression if Congress didn’t quickly approve a massive bailout bill.

This crisis was the result of a poorly regulated financial system that was issuing millions of mortgages that they did not expect to be paid off. It was packaging these bad mortgages in mortgage-backed securities and more complex instruments and passing them off to gullible buyers all over the world. And we had companies like AIG issuing hundreds of billions of dollars credit default swaps that they had no ability to support.

This is the pre-Dodd-Frank world. Is this the world that those demanding repeal want us to bring back?

Dodd-Frank is far from a perfect piece of legislation. It could have been much stronger. For example, it could have required that the too-big-to-fail banks break themselves up, so that they could no longer freeload on an implicit government guarantee of support if they get into trouble. It could also have reinstituted a strict Glass-Steagall type separation that prohibited banks that take government-insured deposits from engaging in risky investment banking or hedge fund type activity.

But it does make the risks of the financial system more transparent. And, it give regulators an alternative to bailouts to deal with the sort of Lehman-AIG situation we faced in 2008.

Given the economic disaster that was brought on by the mismanagement of the financial system, Dodd-Frank is actually a very mild piece of legislation. Its opponents have highlighted the paperwork requirements imposed by the law. In fact, smaller banks will not be forced to deal with most of the requirements since they are explicitly exempted. The Goldman Sachs and the J.P. Morgans of the world specialize in creating paperwork and therefore will have little difficulty dealing with the requirements of the law.

However, the more important issue is the logic of this complaint. There is plenty of needless paperwork in the Defense Department, by the logic of the Dodd-Frank repealers we should just shut it down and start from scratch.

That doesn’t make sense and it doesn’t make sense to repeal Dodd-Frank. The proponents of repeal should put their specific complaints on the table and argue the case. That is the way serious people do things.

If Conservatives Were Right About the Economy (2 articles)

If Conservatives Were Right About the Economy
August 4th, 2011 by David Frum

Further to yesterday’s post about the respective economic acumen of the Wall Street Journal editorial page vs. Prof. Paul Krugman:

My conservative friends argue that the policies of Barack Obama are responsible for the horrifying length and depth of the economic crisis.

Question: Which policies?

Obama’s only tax increases – those contained in the Affordable Care Act – do not go into effect until 2014. Personal income tax rates and corporate tax rates are no higher today than they have been for the past decade. The payroll tax has actually been cut by 2 points. Total federal tax collections have dropped by 4 points of GDP since 2007, from 18+% to 14+%, the lowest rate since the Truman administration.

If so minded, you could describe Barack Obama as the biggest tax cutter in American history.

We have not seen a major surge in federal regulation, at least by the usual rough metrics: the page count of the Federal Register has risen by less than 5% since George W. Bush’s last year in office. Trade remains as free as it was a decade ago.

While the Affordable Care Act itself will eventually have major economic consequences, most of its provisions remain only impending.

Energy prices have surged, but that’s hardly a response to administration policies.

Conservatives complain about restrictions on drilling in the Gulf of Mexico, but on a planet that produces 63 million barrels of oil per day, a few thousand more or less from the Gulf will not much budge the price of oil. Rising oil prices are a story about Chinese and Indian consumption and Middle Eastern political instability, not about US drilling or lack thereof.

The Dodd-Frank bill does somewhat curtail the activities of some banks and investment firms. But is it seriously argued that this could be the cause?

Conservatives complain about excess government spending. Fine. But isn’t the evil of excess government spending supposed to be inflation rather than recession? And where’s the inflation?

There’s a strong case for condemning Barack Obama for the things he might have done, but did not do. He might have cut payroll taxes more and faster. He might have pushed for more expansionary Federal Reserve governors. He might have designed a better stimulus. All true. But the things he did do? Texas Gov. Rick Perry today urges us to believe that the economy is gripped by the worst slump since the Great Depression because Obama spoke disrespectfully of the owners of private jets. To which I can only say: Really? That’s the indictment? Really?

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Were Our Enemies Right?
August 3rd, 2011by David Frum


In February 1982, Susan Sontag made a fierce challenge to a left-wing audience gathered at New York’s Town Hall:

Imagine, if you will, someone who read only the Reader’s Digest between 1950 and 1970, and someone in the same period who read only The Nation or The New Statesman. Which reader would have been better informed about the realities of Communism? The answer, I think, should give us pause. Can it be that our enemies were right?

Posing that question won Sontag only boos from an audience that the New York Times described as “startled.” Yet the question has only gained power over the intervening years. It contributed to the rise of a healthier, more realistic left much less tempted to make excuses for “progressive” dictatorships than the left of the last generation. If Hugo Chavez has any defenders on the contemporary American left, I haven’t heard of them.

Think of Susan Sontag as you absorb the horrifying revised estimates of the collapse of 2008 from the Commerce Department. Two years ago, Commerce estimated the decline of the US economy at -0.5% in the third quarter of 2008 and -3.8% in the fourth quarter. It now puts the damage at -3.7% and -8.9%: Great Depression territory.

Those estimates make intuitive sense as we assess the real-world effect of the crisis: the jobs lost, the homes foreclosed, the retirements shattered. When people tell me that I’ve changed my mind too much about too many things over the past four years, I can only point to the devastation wrought by this crisis and wonder: How closed must your thinking be if it isn’t affected by a disaster of such magnitude? And in fact, almost all of our thinking has been somehow affected: hence the drift of so many conservatives away from what used to be the mainstream market-oriented Washington Consensus toward Austrian economics and Ron Paul style hard-money libertarianism. The ground they and I used to occupy stands increasingly empty.

If I can’t follow where most of my friends have gone, it is because I keep hearing Susan Sontag’s question in my ears. Or rather, a revised and updated version of that question:

Imagine, if you will, someone who read only the Wall Street Journal editorial page between 2000 and 2011, and someone in the same period who read only the collected columns of Paul Krugman. Which reader would have been better informed about the realities of the current economic crisis? The answer, I think, should give us pause. Can it be that our enemies were right?

Enemies Await Consumer Financial Protection

Monday, July 18, 2011 by CommonDreams.org

by Elizabeth Warren

 

This is a big week for the Consumer Financial Protection Bureau (CFPB). Today, the President will announce his intent to nominate Richard Cordray to serve as the first Director of the Consumer Financial Protection Bureau. On Thursday, the CFPB makes its transition from a start-up to a real, live agency with the authority to write rules and to supervise the activities of America's largest banks.

Rich will be a strong leader for this agency. He has a proven track record of fighting for families during his time as head of the CFPB enforcement division, as Attorney General of Ohio, and throughout his career. He was one of the first senior executives I recruited for the agency, and his hard work and deep commitment make it clear he can make many important contributions in leading it. Rich is smart, he is tough, and he will make a stellar Director. I am very pleased for him and very pleased for the CFPB.

The DNA of the new consumer agency is well established. Our mission is clear: No one should be tricked in any financial transaction. Prices and risks should be clear. People should be able to make apples-to-apples comparisons. Fine print should be mowed down, not used to hide nasty surprises. And, everyone -- even trillion dollar banks -- should follow the law.

We're underway. We are working through a much-simplified mortgage disclosure form. We are designing a new consumer complaint process, with the first piece coming on line this week. We have set up a strong Office of Servicemember Affairs that reaches out to military families and is already working on problems they face. And, on Thursday, we will have cops on the beat -- making our first contacts with the 111 largest financial institutions in the country so we can monitor their compliance with the law. We have hired the people and built the systems to make all this work. And, to cap it all off, we got a strong evaluation from the Inspector General last Friday about our efficient and drama-free set up period.

There's lots of good news, but make no mistake: this agency still has enemies in Washington, D.C. And they have a plan.

In May, forty-four Republican Senators wrote a letter saying that they will block anyone from serving as CFPB Director. Many of them don't like the agency or the ideas that led to its creation. They lost that fight last summer in a straight-up vote, but they say they will use a filibuster over a Director nomination to undercut the agency. Without a Director, however, the agency's authority over payday lenders, debt collectors and other non-bank financial companies can be challenged. The Republicans say that they will permit a Director only if the agency is amended to make it less independent and less likely to act.

I remain hopeful that those who want to cripple this consumer bureau will think again and remember that the financial crisis -- and the recession and job losses that it sparked -- began one lousy mortgage at a time. I also hope that when those Senators next go home, they ask their constituents how they feel about fine print, about signing contracts with terms that are incomprehensible, and about learning the true costs of a financial transaction only later when fees are piled on or interest rates are reset. I hope they will ask the people in their districts if they are opposed to an agency that is working to make prices clear or if they think budgets should be cut for an agency that is trying to make sure that trillion-dollar banks follow the law. I hope they will ask their constituents if they are opposed to the confirmation of someone who saved $2 billion for retirees, investors, and business owners as Ohio Attorney General and who has worked hard on the front lines fighting against fraudulent foreclosures and abusive lending practices.

This week is the culmination of two years of hard battles. The President put the consumer agency in his first outline of financial regulatory reform, and he never wavered in his support for it. The agency was declared dead several times, and weak versions and lousy bargains were offered again and again, but he stood fast. When he signed Dodd-Frank into law, creating the new agency, he offered me the chance to stand it up -- something for which I will always be grateful. The fights continued, and again, the President never wavered in his support. In fact, just last week he issued a veto threat if the Republicans try to move the agency's funding to the political process, and I know that in the future he won't allow opponents of reform to succeed in weakening the CFPB.

The agency has stepped out in the right direction. The work is good. But this agency needs to have its full powers right now, and that means we need Rich in place as Director. Today, I'm celebrating -- but I'm not taking my eye off those who want to cripple this agency. We got this agency by fighting, we stood it up by fighting, and, if takes more fighting to keep it strong and independent, then we can do it.

Obama Snubs Elizabeth Warren (2 articles)

(Proving Obama is a president for the bankers, of the bankers and by the bankers, the fix is in: Elizabeth Warren--long thought, by everyone who is NOT deeply entrenched in Wall Street, to be the ideal and most qualified candidate with the most integrity to head the CFPB--gets snubbed for former Ohio attorney general Richard Cordray, a career politician. Obama sucks, man.--jef)

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Sunday, July 17, 2011 by The Daily Beast
After a months-long guessing game, the president has chosen Richard Cordray to helm his new consumer protection agency—passing over the woman who proposed it in the first place.

by Gary Rivlin
 

Barack Obama finally named his nominee to head the new Consumer Financial Protection Bureau. And his name isn’t Elizabeth Warren.

The White House press office on Sunday announced that the president had chosen Richard Cordray, the former attorney general of Ohio to head his new agency, and not Elizabeth Warren who had proved controversial for championing the rights of consumers over bankers.

The White House press office on Sunday announced that the president had chosen Richard Cordray, the former attorney general of Ohio to head his new agency, created when he signed the sweeping Dodd-Frank financial reform package into law last July.

The move will likely hurt the president’s relationships with those who wanted him to push for Warren, a plain-spoken consumer champion who first proposed the new bureau. In the wake of the financial crisis, Warren envisioned an agency that better protected Americans against suspect financial products ranging from mortgages and credit cards to fringe financial services like check-cashing and payday loans.

The president pleased his left flank last summer when he appointed Warren to create this new bureau—but he stopped short of nominating her as its permanent director. Several other names surfaced over the months as possible nominees, including Cordray and also Ted Strickland, the former governor of Ohio, and Jennifer Granholm, former governor of Michigan. But whatever the liberal bonafides of these and other choices, Warren remained the overwhelming pick among consumer champions, especially those involved in the fight against predatory lending.

A permanent director, who would be appointed to a five-year term, needs Senate confirmation. When in May word spread that the president would appoint Warren to head the agency through a recess appointment (the disadvantage of that maneuver being that Warren would serve only for the remainder of Obama’s term, rather than a full five-year stint), Senate Republicans responded by refusing to adjourn for its traditional Memorial Day recess.

"There was always something outsider about her that scared people here,” said one high-ranking Obama appointee of Warren. “They couldn’t trust her because she wasn’t one of them."

“I really like Elizabeth and think she would have been a great choice, but there was always something outsider about her that scared people here [in Washington],” said one high-ranking Obama appointee, herself a woman. Warren taught at Harvard Law and had only gotten involved in politics a few years earlier. “They couldn’t trust her because she wasn’t one of them.”

Yet whether the Senate approves Cordray remains to be seen. These days, it takes 60 votes to get anything done in the Senate—and in May, 44 of the Senate’s 47 Republicans vowed to block any nominee unless the president agreed to a watered down agency, which stands as Dodd-Frank’s most significant and controversial provision.

A career politician, Cordray served a partial term as Ohio’s attorney general (he filled the term of a fellow Democrat caught up in a sex scandal) before losing a race for reelection in November 2010. The next month, Warren chose him to head up the agency’s enforcement division—in no small part, no doubt, because in his two years as attorney general he aggressively sought punishment of those guilty of foreclosure fraud in his state.

In response to today’s news, Warren issued a statement saying: “Rich has always had my strong support because he is tough and he is smart—and that’s exactly the combination this new agency needs. He was one of the first senior leaders I recruited for the agency, and his work and commitment have made it clear that he will make a stellar Director.”

Under Dodd-Frank, the Consumer Financial Protection Bureau goes live this Thursday—one year to the day that the president signed the bill into law. Until the Senate confirms a permanent director, though, the agency’s powers are limited. The bureau can start regulating the country’s largest banks, but it will have limited rule-making authority and won't have jurisdiction over payday lenders, debt collectors, or other non-bank financial institutions until a permanent director is in place.

Obama will announce his choice at a White House event on Monday.

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07.17.11 - 5:24 PM
Too Good, Too Smart, Too Able for Wall Street Approval 
by Ralph Nader

Statement by Ralph Nader on the rejection of Elizabeth Warren by President Barack Obama to be the Director of the new Consumer Financial Regulatory Bureau.

To dump Elizabeth Warren, the most qualified, most motivated and most articulate candidate for the directorship of the Consumer Financial Regulatory Bureau is an act of political cowardliness by President Obama and a boon to anti-consumer Republicans and their corporate paymasters in Wall Street.

Elizabeth Warren apparently is just too good, too smart, and too able to arouse the just concerns of millions of American families about the need to put the law-and-order wood to the corporate criminals, defrauders and reckless speculators with the savings and pensions of millions of Americans.

President Obama should realize that his back-of-the-hand attitude to his liberal and progressive supporters – who sent him to the White House – can have consequences. He believes they have no where to go. But they do. They can stay home in 2012, as so many did in 2010 to the detriment of the Democrats and many Congressional races.

Too Big to Fail Redux?

Neil Barofsky on TARP, SIGTAP, IGS and Elizabeth Warren

By RUSSELL MOKHIBER

We spent $700 billion to bail out the too big to fail banks on Wall Street.

And yet, we might have to do it again.

Why?

Because the big banks are still too big to fail.

And next time, we might have to spend $5 trillion.

It ain't a pretty picture.

As Neil Barofsky knows better than most.

He was the Special Inspector General for the Troubled Asset Relief Program.

Known in Washington as SIGTARP.

He's now a adjunct professor at New York University Law School.

"The largest banks are now 20 percent larger today than they were going into the crisis," Barofsky told Corporate Crime Reporter in an interview last week. "They are systemically more significant, they are bigger, they are more important. And we just haven't seen the political or regulatory will to take on the fundamental problems that are presented by these institutions."

"Standard and Poors recently put the U.S. government's credit rating on watch. And one of the things they talked about was the contingent liability to support our financial institutions. And they estimated that the up front costs of another bailout could be up to $5 trillion."

"And when you think about the focus on our budget issues, our deficit and our debt – what happens with the next crisis and we have to come up with another $5 trillion to bail out our system once again?"

"It's a terrifying concept. One of TARP's biggest legacies is that it emphasized to the market that the government would not let these largest banks fail. And we haven't done anything to address this problem. So, we are going to be right back where we were in late 2008 – if not in a worse position."

During the debate over financial reform, the Senate voted on the Brown-Kaufman amendment, which would have limited the size of big banks – making them no longer too big to fail.

The measure was voted down, with only 33 Senators voting for it.

Barofsky says that it would have passed had the Obama administration gotten behind it.

Instead, Treasury Secretary Timothy Geithner lobbied against the bill.

"The reason it didn't pass was because the Treasury Secretary lobbied individual Senators to convince them to vote against this bill," Barofsky said.

And what was Geithner's argument against the amendment?

"As it was explained to me, it was – this was too blunt of an instrument to accomplish this. It would be better to give the regulators the power to treat the problem with a scalpel."

And your response to that?

"The regulators have failed spectacularly in the run up to the financial crisis," Barofsky said. "They have demonstrated that they are human beings. They are fallible as human beings. They, like the rest of the market, have repeatedly proven to be unable to see bubbles as they are being formed, and to comprehend the consequences of the concentration of risk and size."

"The reality of financial systems is such that there is no omniscient person who can understand and see around corners. Having a system that tries to see things before they happen and tries to deal with crises before they happen is doomed for failure."

"The FDIC's Sheila Bair has been very forceful about advocating for the use of Dodd Frank tools to address the size and significance of institutions, requiring them to spin off business, become less complex, have more capital. That is the one path that is out there. She is putting forth a path that has a chance at success. 

Unfortunately, she is stepping down in a few weeks."

Barofsky pushes back at the suggestion that there have been no major criminal prosecutions to come out of the 2008 financial crisis.

"I always like to take issue with the claim that there haven't been any big prosecutions," he says.

"At SIGTARP, we uncovered a multi-billion fraud that was being run by Lee Farkas, the chair of Taylor Bean & Whitaker – one of the country's largest non-depository mortgage companies," he says.

"It was an historic fraud. It's not that often that you run across multi-billion dollar criminal accounting frauds. Our agents uncovered that fraud. It had been going on for six or seven years. We already had seven convictions, including that of Farkas after trial."

"We got involved after they tried to steal $550 million of TARP funds through Colonial Bank, which was closely related to Taylor Bean & Whitaker."

"But the question you are referring to is this thirst for accountability for the largest Wall Street financial institutions."

"These cases and these investigations were really outside of our jurisdiction. Our jurisdiction started after the crisis ended. It started with the passage of the TARP funds in October 2008."

"So I was never privy to the evidence being gathered in those investigations."

"I'm always a little reluctant to make a judgment on whether the prosecutors looking at those cases are making the right or wrong judgment."

"Although there is a lot of smoke in these investigations – and there's Senator Levin's subcommittee's report – to really know whether there is fire underneath that smoke, you have to look at what the evidence is, what the defenses are, what the mitigating factors are, what the arguments are."

"We are talking about an extremely complex accounting fraud at a level that is far more complex than in past financial crises."

"The underlying representations and valuations of incredibly complex structured products are neither simple nor straightforward."

"And it's very difficult for me, without knowing the details of the evidence and the responses, to say they are doing a good job, a bad job, that there has been criminal activity, there hasn't been criminal activity."

"I do think there is something to the argument that much of this behavior, which seems strikingly unethical and inappropriate, may at the end of the day fall short of provable criminal liability."

"We created a regulatory system that blessed in many ways or gave tacit approval to activities that appear to be just downright wrong. But all of this activity has to be looked through that prism of the absence of regulatory activity and to some extent regulatory knowledge of what was going on."

"It may be a little bit too early to write the final story on this. There are ongoing investigations. These investigations by their nature take time. As the parallel civil cases make their way through the courts, there is going to be a lot of eyes taking a look at the same set of evidence, more evidence is going to be uncovered, and it's not impossible or improbable that we are going to see additional prosecutions."

"Whether the country is going to get what it wants – to get a CEO of a major bank – I don't think that is going to happen."

"This is far different from the savings and loan crisis. In that crisis, you had relatively straightforward fleecing of banks by senior executives.

This is a little bit more complex and difficult to prove."

Barofsky concedes that out of the more than 60 Inspectors General across the federal government, only a handful aggressively pursue criminal wrongdoing against the agencies they were set up to protect.

"It's unfortunate that we don't read or hear more from Inspectors General. So much is entrusted with these IGs in the oversight of these federal agencies. And they come in all different shapes and sizes, all different types of experiences," Barofsky said.

"You can have a relatively small shop, like the one run by David Kotz at the SEC. He is quite aggressive. And he gets a lot of information out there to Congress and to the American people. And then you have other agencies whose Inspectors General offices could be five or six or nine times the size of the SEC IG – and yet you never hear anything."

"It can't be that those agencies are just so perfectly run that there isn't a need or important value for those offices to fulfill in exposing misconduct, waste, fraud and abuse."

Barofsky believes TARP would have been better off with someone like Elizabeth Warren on the inside – instead on the outside looking in.

"It is striking how overwhelmingly the key decision makers in the TARP program came from Wall Street."

"When you look back on it, it shouldn't be that surprising that TARP, a program that was designed to help both Wall Street and Main Street, has done a phenomenal job in helping Wall Street and a terrible job in fulfilling its Main Street goals."

"This is not because the people who came from Wall Street were corrupt. It's not because they were out to screw the little guy. It's because of the lack of diversity. They did what they knew best and what they thought was best."

"But you had this uniform group of people from Wall Street – Hank Paulson from Goldman Sachs, the people who were running TARP who came from Merrill Lynch and Goldman Sachs, the investment officers came from a series of Wall Street banks, right down to the housing person who came from Bank of America."

"So, it's not that surprising that your policies reflect Wall Street's priorities."

"Think about how much different this program would have been had Elizabeth Warren – instead of being appointed to provide oversight of TARP – was instead put inside the bubble and was part of the decision making process in designing TARP's response."

"You'd see a much different and a much better program."

And Barofsky is critical of the Obama administration for not appointing Warren to head the Consumer Financial Protection Bureau.

"If the President made the decision that Elizabeth Warren was the right person to stand up this agency, which he essentially did in appointing her as an advisor, then he should have nominated her for the position," Barofsky said. "This was her idea. I got to know and work with Elizabeth when she was chair of the Congressional oversight panel, which also provided TARP oversight. She is doing a terrific job in her more limited role right now.

And she would be a terrific nominee and a terrific director for that agency. By not getting 100 percent behind her early on, they put themselves in a very difficult position. Now, it's going to be difficult to even have a recess appointment – whether it is Professor Warren or whether it is somebody else."

Attacked at Hearing: Why Elizabeth Warren Scares the Hell Out of GOP

Many Republicans have stopped pretending their actions are motivated by anything except a desire to serve Wall Street and other large corporate interests.
By RJ Eskow, Blog for Our Future
Posted on May 25, 2011

Editor's note: During an unusually contentious hearing on the Hill Tuesday, Rep. Patrick McHenry, R-North Carolina, lashed out at Elizabeth Warren, the fierce consumer advocate tapped to head the Financial Consumer Protection Bureau, browbeating her and falsely accusing her of "lying." Three of the top five industries to contribute to McHenry's campaign are commercial banks, insurers and accounting firms, so his opposition should come as little surprise, but the unusually aggressive grilling caught observers by surprise. The New York Times called it a "rare collapse of the decorum that usually pervades discussions among even the most fervent opponents on Capitol Hill." What is it about Warren that has Republicans so hot?

"Money doesn't talk," sang Bob Dylan, "it swears." Rep. Patrick McHenry gave the week's most famous 70-year-old a dark birthday gift on Tuesday by proving that those lyrics still ring true after nearly half a century.

McHenry's savage attack on Elizabeth Warren and the Consumer Financial Protection Bureau was an obscenity by any definition except the FCC's, an assault on human decency proving once again that Wall Street's Capitol Hill goon squad is prepared to discard decency at a moment's notice to serve its masters.

One of the best ways to understand events like today's hearing is by looking at the actors involved. Today's case study is Patrick McHenry, Republican from North Carolina. He may have disgraced himself before the voters today, but look on the bright side: Rep. McHenry is now Wall Street's "Employee of the Month."

McHenry, like other Republicans before him, is just the latest symbol of a party that's stopped pretending its actions are motivated by anything except a desire to serve Wall Street and other large corporate interests.

Meet Rep. McHenry

I'll say this for Patrick McHenry: he knows who pays his bills. His top campaign contributor in the last election was Wells Fargo Bank, which paid a large settlement after it was found to have repeatedly laundered money for the drug cartels that have killed more than 35,000 people in Mexico.

Other top contributors include Bank of America, the American Bankers Association, and PriceWaterhouseCoopers, the morally compromised accounting firm that overlooked financial misdeeds at AIG and Goldman Sachs, among others. (It also looked the other way as Goldman shafted AIG -- while both companies were clients.)

The top industries contributing to McHenry's reelection include real estate, insurance, commercial banking, and accounting. Fifty-four percent of his campaign contributions came from PACs, and 40 percent came from large individual donors. A man of the people, he ain't.

Lies and the lying liars who lie about lies

It was ironic that McHenry chose to attack Warren's integrity by claiming she was lying, of all things, since the attack on CFPB has been nothing but a series of lies. McHenry's statement on Tuesday promoted the GOP's biggest Big Lie, that CFPB has unrestrained and excessive executive power. Actually the opposite is true: GOP cynics and complicit Wall Street Democrats worked to weaken the agency so much that it now has the bare minimum authority it needs to function, and it should be strengthened in years to come.

Tuesday McHenry and other members of the GOP Goon Squad claimed that Warren lied about the advice she gave to Treasury Secretary Tim Geithner and state attorneys general regarding the widespread foreclosure fraud conducted by McHenry's paymasters. A quick review of the record reveals she did no such thing. It also shows that the Goon Squad was just as thuggish in March as it is now. Back then they suggested it was somehow improper for Warren to advise the president, his Cabinet, and anyone else they directed her to advise. As special assistant to the president, that was her job.

McHenry also displayed the seemingly infinite wellspring of pettiness that corporate political hacks seem to always have on hand. His other accusation of lying arose from his indignation that Warren wouldn't spend her day waiting for Congressional Republicans, who were planning to leave the hearing for other business and then return later in the afternoon.

Rather than apologize and reschedule, McHenry accused Professor Warren of lying about the schedule established between Warren and his staff, saying, "We had no agreement. You're making this up." Logic tells us McHenry couldn't possibly know what his staff may have said to Warren or her staff members, since he didn't participate in those conversations. This was just petty crudeness.

The Superpowerful CFPB demands one million dollars or it will blow up the planet ...

Those are the small lies, however. The Big Lie is the suggestion that the Consumer Financial Protection Bureau is somehow "too powerful." To hear Republicans talk, you'd think CFPB is an evil empire in a giant underground lair -- one that could soon feature super-villain Elizabeth Warren, sitting at a giant console and laughing menacingly as she sends her forces out to torment America's innocent bankers.

But here in the real world, the organization was downgraded from an independent agency to a bureau in last year's Dodd/Frank deliberations. That was done to gain Republican votes that somehow, at the last minute, never materialized. (Duplicity is another Goon Squad trademark, although corporatist Dems benefited from this charade, too.)

That same (non)deal placed CFPB inside the Federal Reserve, and gave it a dotted-line relationship to the Treasury Department. (Those institutions aren't known for their consumer-friendly attitude toward bank regulation.) What's more, CFPB was given the additional hurdle of being forced to have its rules approved or denied by an inter-agency council. That's a pretty severe dilution of power for an evil super-agency.

These weakening actions were taken against the advice of 18 former members of the Federal Reserve's Consumer Advisory Council, and despite the fact that Republican Treasury Secretary and ex-Goldman Sachs CEO Hank Paulson said the country needs a strong and independent agency.

The banks' minions

The bureau can still do fine work, but it's anything but super-powerful. When hacks like Patrick McHenry hold hearings called, "Who's Watching the Watchmen?" or describe CFPB as "a super class of administrative elites," they're just doing the dirty work for their Wall Street paymasters.

That's also why Republicans introduced a flurry of bills designed to strip the bureau of a director and replace her with a committee, further weaken its authority, and weaken longstanding presidential authority over appointments. Those bills were shepherded by Finance Committee Chairman Spencer Bacchus, who famously said, "In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks."

Mission accomplished, Rep. Bachus.

What's more frightening to a banker than a super-villain?

It's important to remember what Elizabeth Warren has done that's frightened the banks so much. So far she's merely tried to offer suggestions on how to rectify widespread bank criminality in the forging of documents and other illegal foreclosure actions. She's begun building a consumer-friendly organization. And she's tried to design a simpler mortgage loan application, so that borrowers actually understand the contract they're signing. Amusingly, banks have suggested a readable mortgage contract would "stifle innovation" -- which is true only when the word "innovation" is used as it often is in financial circles: as a synonym for "deception" or "predation."

Warren tells the truth, talks straight and fights for the middle class, and that makes her dangerous to the people who call the shots for "leaders" like Patrick McHenry and Spencer Bachus. Those "leaders" are serving the interests of Wall Street firms that fear Warren and CFPB because they'll interfere with some of their core business practices: Unreadable mortgage documents that contain secret traps for unwary consumers; credit card ripoffs and deceptions; and dishonest underwriting practices that threaten borrowers, investors and the entire economy.

For America's top banks, deception and trickery are part of the business model. That's why CFPB and Elizabeth Warren are a threat.

America's Most Defrauded

The banks have deceived and exploited millions of people. But perhaps no group of Americans has been more suckered than Tea Partiers. In what may be the biggest sales fraud case in history, this heavily anti-Wall Street movement elected a crowd that lives and breathes to serve bankers. They should be listening to one of Mr. Dylan's best and angriest songs: "You've got a lot of nerve to say you are my friend ...."

As for Warren, Rep. Elijah Cummings tried to cheer her on by asking her to "keep on the battlefield." He might just as well have quoted an old gospel song, "Keep On the Firing Line." Because anyone who stands up for consumers and against Wall Street is going to be targeted by goon squads, just like Elizabeth Warren was targeted today.

McHenry's name sounds a lot like that of American patriot Patrick Henry, who famously said "Give me liberty or give me death." The representative from North Carolina isn't likely to make that kind of sacrifice. He won't even sacrifice a campaign check or a meal at the club with his banker pals. To protect those perks, Patrick McHenry's willing to attack a good public servant like Elizabeth Warren -- and the consumers she's trying to protect.