The Hill’s Finance & Economy page Public Accountability Project’s “LittleSis” Pro Publica’s “Eye on the Bailout”
Frontline/NYT investigate the massive consumer loan industry – the history, the new rules, and what’s ahead for banks and consumers. Roosevelt Institute’s conference on financial reform, featuring Elizabeth Warren, Joe Stiglitz, Simon Johnson, others
How Wall Street and Washington Betrayed America |
Not to be outdone, the Republican House minority leader, John Boehner, has weighed in, describing the proposal as a nuclear weapon being used to kill an ant. Which would make the financial crisis the ant, I guess. On Tuesday, the nuclear bomb had to go back to the, uh, sausage factory, for some more grinding after Sen. Robert Byrd’s death and the defection of a former Republican reform supporter left the Dems with less than the 60 votes they need to overcome the wall of Republican opposition.
Here’s a snapshot that puts into sharp focus where we are politically this summer: In a showdown between the U.S. military and the nation’s car dealers over protecting soldiers from predatory lending, the car dealers won. Even though the commander-in-chief said he wanted the fighting men and women to be shielded by the proposed new consumer protection agency when they went to get a car loan, congressional Democrats Tuesday sided with the car dealers, who would prefer not to face any additional regulation, thank you very much. After all, they argue, we didn’t cause the financial meltdown, so leave us alone. But according to the Better Business Bureau, new car dealers rank fifth in complaints about lending practices. Used car dealers do a little better; they rank seventh.
Driving through the west, headed towards home from a cross-country road trip with my wife Stacie and dog Billie, endless hours on the highway, no Internet and not much radio except for hard-right radio. Hearing the voices passing through the desert states is a grim reminder of the forces we’re up against, who now characterize themselves as the real “community organizers,” who represent the real people. It’s not just the right wing. Lots of people have adopted the timid trickle-down theories embodied by our political leadership: “Don’t get too tough on BP or they’ll take away our jobs. Don’t cross Wall Street, we need to keep the market stable.” We’re in Winslow, Arizona, wondering whether a boycott will worsen the dire poverty we see in front of us. It’s easier and more politically expedient to make immigrants the scapegoats for lack of jobs and economic uncertainty than it is to question a system that is seriously out of whack, that offers the biggest rewards to those who gamble on our collective losses without risking their own wealth. That’s what a big chunk of the financial system like hedge funds and derivatives has become. Cynical and bloodthirsty, producing nothing except profits for the few. And the gesture toward financial reform winding its way through congressional conference committee does little to change that.
One of the big unsettled issues for the congressional conference committee considering financial reform is whether to create an independent financial consumer protection agency. That’s what the House bill does. The argument for an independent agency is that consumers need a strong advocate in the financial marketplace. The Senate decided that an independent consumer financial watchdog wasn’t needed, and that it should the consumer financial protector should live in, of all places the Federal Reserve. After all, the Fed already has responsibilities to “implement major laws concerning consumer credit.” We all know how well that worked out. The problem is that the Fed has functioned as protector of the big banks, never more so than since the big bank bailout and in the battle over financial reform.
I’m in beautiful Glenwood Springs, Colorado with wife Stacie and dog Billie in front of the fireplace in the lobby of the historic Hotel Colorado, which Teddy Roosevelt used as his western White House. There’s the Roosevelt Suite on the second floor, leading out to the grand balcony from which he addressed the masses. Pictures and cartoons of him line the hallways.
“Who you gonna believe, me or your own eyes?” asks brother Chico in the madcap classic “Duck Soup.” It’s the middle of the night in Freedonia. Chico has disguised himself in a scheme to convince a skeptical wealthy widow, the country’s major creditor, that he’s actually the country’s newly elected president (Groucho) to get her to hand over Freedonia’s top secret war plans. The trouble is Chico’s Italian accent. And Harpo. He’s disguised himself as Groucho too. And of course there’s Groucho. Three Grouchos. Who’s the real one? Chico’s line reminds me of the not so funny antics of the Obama administration and our political leadership in their various efforts to convince us that financial system should be left intact and that reform should just be left up to the same regulators who colluded in creating the economic crisis and protecting big bankers’ interests.
– Transcript of two Enron traders discussing the blackouts in California caused by the company’s manipulation of electricity prices in 2000.
– Email from Fabrice Tourre, Goldman Sachs trader, joking about derivatives he was selling that later proved worthless. I have a job I really love – fighting injustice – so I always thought that being a Wall Street trader was just about as boring and inconsequential a job as you could think of. I mean, how enjoyable could it be to sit in front of a computer all day, doing nothing but moving an artificial construct around – “a ‘thing,’ which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price’” as the Goldman dealer described the derivatives he was peddling. But it seems these guys were able to have a few laughs after all. Turns out the money ain’t bad either.
Spoiler alert: I’m going to disclose what’s happening in “24, ” which focuses on the life of a mythical high-level super antiterrorism agent, Jack Bauer, who is pitted constantly and single-handedly not only against the wily, relentless terrorists but against the corrupt and inept politicians and government officials who are his bosses, usually at the same time. I don’t always agree with the politics of “24.” But I find it insanely entertaining and profoundly troubling. It’s also one of the few public entertainments that confronts directly the issues of authority and morality we’ve been grappling with since 9/11.
How lame is that? One blogger compared Obama’s timid performance to FDR’s attack on Wall Street for its rabid opposition to the New Deal. But I kept thinking about the other Roosevelt, the one who took on the railroad trusts. While Teddy Roosevelt was far from perfect, he had his moments: “A typical vice of American politics,” he said, “is the avoidance of saying anything real on real issues.” He could have been talking about Obama. What we saw on Thursday was a terrible thing: a brilliant and articulate president of the United States unwilling or afraid to tell it like it is.
I had to laugh when I saw Treasury Secretary Geithner and Fed Chair Bernanke announce, with great fanfare, a new high-tech $100 bill. It’s supposed to ward off counterfeiters. How big is the currency fraud the two G-men are after? Of the roughly $625 billion in “Franklins” in circulation, less than 1/100 of one percent is reported counterfeit, according to the Treasury Department. That means that Geithner and Bernanke are trying to protect the taxpayers against the loss of $62.5 million from phony hundred dollar bills. That might seem to be a big hit on the American people – we need every dollar we can get these days – except that’s nothing when you compare it to, say, the $750 billion in taxpayer money that went to rescue Wall Street from speculation and outright thievery.
Face it, if we found out that a Vegas casino was run like our banking system, the worst strung out addict wouldn’t gamble there. Even they wouldn’t be able to stand the stench. Casino operators know you have to provide at least the appearance that the games aren’t crooked. Casino operators know they can’t force people to spend their hard-earned money gambling on a toxic waste dump. But the bankers and their political cronies who have been playing us for suckers forced us to pay to clean up the shambles, as well as the continuing costs of the broken economy. Now the casino operators are trying to assure us that everything is hunky-dory but that same foul scent is still wafting from their dumpsite. Goldman Sachs shrugs off the Securities and Exchange Commission’s fraud charges, hiring the president’s former lawyer to fight them, while it rakes in eye-popping profits that beat even the most optimistic projections.
Washington has spent trillions of taxpayer dollars to bail out the Money Industry – not just the $700 billion cash life preserver, but also loans at near zero percent interest. Then the banks and credit card companies turned around and loaned us our own money at ten times the interest rate they paid, forcing us to pay through the nose coming and going. And there’s no sign of relief. The New York Times reports that interest rates on mortgages, car loans and credit cards are reaching historical records. Credit card rates could climb another three points by the fall, according to one expert. And that doesn’t include the endless creation of other techniques to fleece beleaguered consumers – ATM charges, minimum balance requirements, and my personal favorite, “billing fees.” That’s a fee you pay the company for the privilege of receiving a bill. To catch a glimpse of where this is all headed, just look at how the airlines are unbundling their services. Last week, Spirit Airlines announced that flyers will be required to pay up to $45 for carry on baggage.
Remember when the president’s chief of staff, Rahn Emmanuel, strode onto the political stage and stirringly channeled Churchill, saying: “Never waste a crisis?” It turns out that what he was really saying was: “Never waste an opportunity to reward your campaign contributors.” Two years after the credit meltdown that crippled our economy, the financial system remains way too complicated and continues to reward high risk and focus on short-term profits that offer few benefits to those who aren’t bankers. And even after the fiasco we’ve been through, the banks continue to snooker the snoozing watchdogs. Last week, the Wall Street Journal reported how 18 banks have continued to manipulate their financial reporting to disguise from regulators and investors their real level of risky borrowing. The battle for financial reform comes down to the ownership of one critical piece of real estate, one that has managed to avoid the crash that has ended the dreams of security for so many: the nation’s Capital. “We’re at a critical moment point in our democracy,” Elizabeth Warren, the congressional bailout monitor, told those of us gathered on a webinar Wednesday. “Either the banks own Washington or the people do.” Warren was referring to something that the Democratic Senate whip, Dick Durbin, said last year about the place where he works, in an rare moment of a politician telling the truth: “The banks own this place.” Elizabeth Warren, a tireless promoter of consumer protection and truth teller about the decline of the decline of fortunes of regular folks, prefers to view Durbin’s declaration as premature.
When our government institutions fail us through incompetence or corruption – the financial collapse being Exhibit A – what is the solution? That’s the question I posed a few weeks ago. The Tea Partyers increasingly seem to advocate getting rid of government altogether, or at least the federal government. They (and the health insurance industry) are getting a lot of mileage these days by arguing that the Wall Street debacle shows government cannot be trusted to regulate health care. It’s not a crazy argument, but their solution is. When government fails, the answer is not to get rid of government, but to force it to work better. How? To start, citizens should be given “standing to sue” the federal government. It might surprise you to learn that the courts have often rejected the right of citizens to go to court to enforce state and federal laws. read more
There have been lots of positive comparisons between Phil Angelides and Ferdinand Pecora, who led an earlier investigation of Wall Street excesses that led to the Great Depression. Pecora was a no-holds barred former prosecutor who ran his hearings with meticulous preparation and theatrical flair, and his work galvanized public support for widespread reforms. Some have been impressed by Angelides’ reputation as a reformer from his days as California treasurer, when he tried to use the power of the state’s investments for socially worthy causes and implement some protections for shareholders. Angelides was widely praised after public hearings earlier this year for his understanding of high finance and his scolding of the head of Goldman-Sachs, Lloyd Blankfein, comparing him to a used –car dealer. I’ve been less impressed by Angelides, who doesn’t seem to have a grasp on the opportunity he has to marshal support for real financial reform. And he’s too cozy with a Democratic leadership that’s been soft on Wall Street in the wake of the financial meltdown.
The head of President Obama’s Security and Exchange Commission went before Congress Wednesday to wring her hands about how the Lehman fiasco “raises serious concerns” about the effectiveness of post-Enron reforms. “One would hope,” SEC chair Mary Schapiro told a congressional committee wanly, that the post-Enron Sarbanes-Oxley Act “would have prevented this kind of conduct.” Eight years after Congress passed reforms that were supposed to prevent another Enron or WorldCom scandal, the Lehman mess reminds us how the government regulators and the accountants that are supposed to be vigilant watchdogs against destructive, deceptive bookkeeping continue to fail. They have remained in cahoots to ensure that the financial titans can ignore the rules and then evade the consequences for their bad and even fraudulent decisions. According to the bankruptcy trustee’s scathing but sober 2,200 page report, Lehman used a financial maneuver known as Repo 105s, manipulating their financial reports disguise its bad debt from investors and the public as the company’s condition worsened before it finally went bankrupt, triggering the worst economic collapse since the Depression. The Repo 105 transactions secretly moved billions of dollars of debts off of Lehman’s books.
One of the particularly infuriating aspects of the financial crisis is the unapologetic hypocrisy of the Wall Street titans. These devotees of free markets didn’t hesitate to grab the taxpayer life preservers blithely tossed them by the U.S. Treasury when they were about to go under. Taxpayers never got a “thank you,” much less “I’m sorry,” from these geniuses who nearly destroyed our economy. But one among them has set himself apart. I refer to Maurice Greenberg, the founder of American International Group, or AIG. In its prime, AIG was possibly the largest insurance company on the planet, selling everything from life insurance to environmental liability coverage for big corporations. Greenberg was used to the royal treatment accorded the billionaires at the top of the Money Industry. He pulled in $20 million in 2004 from AIG and an off-the-books executive slush fund the company setup for its top execs. Like many of his peers at that level, Greenberg was a major player in American politics. AIG and Greenberg’s charities donated tens of millions of dollars to grease the wheels in Washington and keep his company free of regulation. |
Volcker Rules – Not!
June 30
Until the morning of January 21, 82-year-old former Federal Reserve president Paul Volcker had been a lonely and largely ignored figure among President Obama’s economic advisers. Volcker seemed to be the only one of Obama’s advisers not under the spell of the “too big to fail banks” and their highly touted innovations. Volcker was especially vocal about protecting the public from the financial world’s riskier innovations. As he told a financial conference last year, “Riskier financial activities should be limited to hedge funds to whom society could say: ‘If you fail, fail. I’m not going to help you. Your stock is gone, creditors are at risk, but no one else is affected.’ ” It was Volcker who had said that the only financial innovation to benefit consumers in the last 20 years was the ATM card. But he wasn’t getting much traction with the president and his advisers. Then the Democrats lost Ted Kennedy’s Senate seat. In a lurch back toward the populism he had embraced during his campaign, President Obama hastily reached out for Volcker. During a press conference, the president endorsed something he called the Volcker rule as an essential plank of his financial reform plan. That rule would restrict banks from risky proprietary trades with their own (borrowed) money. Here’s what the president said: “Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. If financial firms want to trade for profit, that’s something they’re free to do. Indeed, doing so –- responsibly –- is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people.” For a more on proprietary trading and the Volcker rule, read this from Rortybomb’s Mike Konczal and the NYT. For more about why the Volcker rule was a good idea, see this from WSJ’s Dealbreaker. Obama mentioned the Volcker Rule a couple more times, as did the man who was marshaling financial reform through the House, Rep. Barney Frank. But neither the president nor anybody else in the Democratic leadership ever mounted a public campaign to make it an essential part of reform. In fact, within a month, the president was already backing off his support of the Volcker rule. And now, like many other parts of the reform that would have protected consumers and inconvenienced banks, it has been largely gutted. Bloomberg reports “lobbying by banks and congressmen sympathetic to Wall Street’s views, as well as some administration members in the banks’ defense, trampled the views of Volcker and others who favored a stronger proposal.” The weaker provisions won’t even go into effect for as many as 12 years. It would have been one thing for Obama and the Democrats to go down swinging on the Volcker Rule. But they didn’t even put up much of a fight. If you’re as disappointed as I am with the president’s lack of leadership on this, after he made such a big deal about it, why not let him know?
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