Category Archives: banking

Things That Go Bump In The Night and Things That Are Making More Noise Than Sense

Another week of the Trumpster Fire, another week of news from a fire hose, and another week during which we, as news consumers, are required to filter wheat from chaff, and the relevant from the nearly irrelevant.  What things bumping in the night should be attended to? Which can be set off to the side and safely ignored for the moment.

Bumps With More Noise Than Significance

Preliminary public polling results.  The Press/Media is enamored of the latest rendition of The Great Blue Wave.  This is one of the least informative ways of filling one’s air-time.  First, national preference polling is interesting, but all elections are local.  While some members of the punditry are beginning to mouth the words “vote suppression,” and “gerrymandering,” not enough information and analysis has been shared about the effects of these GOP efforts to maintain control of the Congress, and of state elections. Secondly,  there are no national elections for Congressional seats — to state the perfectly obvious.  Those elections will be determined by candidate recruitment and quality, personnel and monetary resources, and campaign competence.  None of these, with the possible exception of shared mailing lists and big donors (monetary resources) is national in scope.  Third, some campaigns will be assisted by the efforts of third party groups. For example, are Union members out canvassing? Are students out doing registration drives?  Are small groups of activists providing services like rides to the polls? The extent and nature of these ancillary groups and their activities will have an impact, we just don’t know the extent to date.  None of this will be “news” to anyone who’s been paying attention to American civic life for the last few decades.

Just because it’s on the news doesn’t necessarily mean it’s important.  The occupant of the Oval Office and some members of the media are still playing the DC parlor game, “Who is Anonymous?” Or anonomus or anamonomous or whatever.  I’m still working on why this might be important.  For my money we still have staff in the executive branch who are willing to explode the national debt in service to tax cuts for the top 0.01% of American income earners, at ease with putting 12,000 children in “detention” facilities for an indefinite period, and quite pleased to allow health insurance companies to charge people with pre-existing medical conditions more for their premiums.  That these people will occasionally arise on their hind legs and proclaim the Great One has gone too far doesn’t impress me.  What would impress me?

How about more attention paid to this nugget:

“Besides family, one of the only people Trump continues to trust is Stephen Miller. “The op-ed has validated Miller’s view, which was also Steve Bannon’s, that there’s an ‘administrative state’ out to get Trump,” a Republican close to the White House said. “There is a coup, and it’s not slow-rolling or concealed,” Bannon told me. “Trump believes there’s a coup,” a person familiar with his thinking said.”

And thus our Oval Office Occupant (Or Triple Zero if spelled 0val 0ffice 0ccupant) is more heavily reliant on a blatantly racist, far right wing conspiracy fabulist, who stokes the Occupant’s most divisive tendencies?  This seems to call for more analysis, and yet the punditry still grasps the Who-Done-It? segment, or pontificates upon the “effect” of the infamous Op-Ed on the President’s “mind set.”  Clue number one a White Nationalist was influencing the 000 might have been the initial Muslim ban?  More clues — no DACA agreement  by Congressional Democrats was ever going to be satisfactory — no one ‘would care’ that there might be children separated from their parents at the southern border — it’s considered acceptable to move funds from FEMA and the Coast Guard to pay for more ICE detention facilities —  it’s supposed to be all right for asylum seeking families to be kept in these detention facilities indefinitely?

Things Not Making So Much Noise But Nevertheless Important

Health care and health insurance.  There is nothing the GOP would enjoy so much as repealing the last semi-colon and comma of the Affordable Care Act.  We’ve heard the “more competition” argument currently coming from the House Speaker before.  It doesn’t make any more sense now than it did then.  Health insurance is not a product analogous to purchasing a motor vehicle or any other consumer product.  One doesn’t choose to get hit by a bus, or hit with a cancer diagnosis, or hit with a complicated pregnancy — or even an uncomplicated one for that matter.

Consumer protection.  While the great fire hose emits its inundation of noise about all things Trumpian, consumer protections enacted to prevent yet another Wall Street melt down are under attack.  The student loan market is being “deregulated.”  Not a good thing.  The smaller issues involved in the Dodd Frank Act have been resolved with some bipartisan legislation, but the administration wants to go further — and the assortment of Goldman Sachs alums in the administration are being ever so helpful in this regard.  Left unchecked we’re going to see another round of de-regulation, which didn’t work out so well for us the last time.  Caveat Emptor American consumer — be careful before voting for any candidate who vows to cut red tape and diminish the “burdens” of regulations — like those preventing the next melt down in the Wall Street Casino.

It’s the Stupid Economy.   Yes. Wall Street has been doing quite nicely thank you very much. I maintain my position that the worst business news is readily available on most broadcast networks.  If a person believes that the DJIA represents the state of the American economy then they’re in for more surprises like the ones which emerged in 2007-08.   Information like real median household income trends is available from FRED, but before we get too excited note median household income numbers may be obscuring other figures like wages adjusted for inflation for full time employees.   Further, what’s being added in to the mix as “income?”  All income includes everything from unemployment benefits to returns on investments.  It’s those returns on investments that have made some very nice progress over the last ten years…wages maybe not so much.  We’re on our own to dive more deeply into the wage issues and income distribution data.  There’s some good news, some bad news, and some news to think about like the 16 straight quarters we’ve had of increasing domestic household debt.  So, it’s time for the question:  Are we seeing candidates for Congress who acknowledge the need for common sense controls on Wall Street casino operations? Who are aware and concerned for wage and salary workers and their economic security?  Are we getting more noise from the highly generalized pie in the sky theoretical visionaries who want us to believe that those with great wealth are going to buy all the homes, cars, washing machines, shoes, movie tickets, and restaurant meals necessary to keep the US economy rolling on?

I could use a little more light on these subjects, and perhaps a bit less bump in the night stuff about a “crisis on the border” (manufactured by the current administration) or “The Press Is Out To Get Me,” from Orange Blossom.   And, I’m looking for Congressional and Senate Candidates who will speak to me about how to fix problems, rather than shout at me about how to fix the blame for them.  I’d like for political discourse to make more sense than noise.

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Filed under anti-immigration, banking, Economy, financial regulation, Health Care, health insurance, Heller, Nevada politics, Politics

Under The Radar: Deregulation and Setting Up the Next Big Bank Debacle

If a person were thinking that the current administration, and those politicians in Nevada who espouse Trumpism, are dangerous in terms of health care insurance affordability, women’s’ health issues, and environmental sustainability — let me offer one more thing to worry about:  Financial deregulation.

Let’s start with the nomination of Brett Kavanaugh for a position on the US Supreme Court, this would be the self-same Kavanaugh who once ruled that the Consumer Financial Protection Bureau was “structurally unconstitutional.” [Politifact]  Please recall for a moment that one of the reasons for the CFPB’s creation was the propensity in some  retail banking circles to generate consumer indebtedness (which could in turn be used as the basis for derivatives) in ways that were definitely not beneficial to both the borrower and the lender.   We know one man’s debt is another man’s asset, but when the debt level becomes impossible and default becomes probable the derivatives become unstable.  This, as the saying goes, “ain’t rocket science.”  But wait! How do we know when things are likely to become unstable?  There’s supposed to be an agency for that, the Office of Financial Research.  However, the Trump nominee to head this agency would really rather eliminate it.

But the fact that this nomination is flying under the radar is not surprising. The OFR is arguably the most important piece of the Dodd-Frank Wall Street Reform and Consumer Protection Act that is never discussed. Despite its lack of public attention, the OFR’s crucial financial stability role demands a leader willing to aggressively execute its lofty mission. Unfortunately, President Trump’s nominee to lead the OFR is more likely to defang and defund the agency than to strengthen it. [AmBanker]

The American Banker explains further:

In the lead-up to the 2007-2008 crisis, financial regulatory agencies did not have a good grasp of how risks that were building across and outside of their specific jurisdictions could threaten financial stability. Regulators were not sharing sufficient data with one another and there were significant pockets of the financial sector where data was not available to any regulator. The Dodd-Frank Act sought to address this issue, in part, by creating the Office of Financial Research.

So, the budget was cut by 25% and the staffing levels by 38%.  This really isn’t conducive to sharing sufficient data and making data available to regulators.   If this is beginning to sound like telling the CDC it can’t investigate and collect data on gun violence in this country because then we might have more relevant statistics in order to understand the problems, that’s because it is.  So, let’s not collect data because then we’d find out things some folks would be happier if we didn’t know.

Then there are the more blatant attempts to roll back the Dodd Frank provisions, for example, see Investment News from last March.  On compliance teams from last May.  And, the JOBS Act 3.0 is just about a death knell for consumer protections, as of August 7 2018.

But wait yet again! There’s more.  There’s that matter of $1.4 trillion — that would be trillion with a T — in student debts in this country a larger portion of which Wells Fargo would really like to access. [Bloomberg] And, yes, this would be the same Wells Fargo which agreed on August 2, 2018 to pay out $2.09 billion in fines for a decade old mortgage loan scheme. [HuffPo]  This, while Secretary of Education, our Yacht Collecting Betsy DeVos, is proposing a rule which would cut student loan debt relief by some $13 billion. [LATimes]  [NYTimes]  So, if a person were scammed by, say, Corinthian, [WSJ] or The Fly By Night School of Urban Hang Gliding, or … Trump University [NBC] … good luck with that?

Did we take our eyes off the major players from the 2007-08 debacle?  Kindly review the “Malaysian Problem” re-emerging at Goldman Sachs.  Or, are we paying attention to what’s happening with a Goldman Sachs whistleblower case of possible wrongful termination which bubbles to the surface every so often? Stick a pin in the name Lars Windhorst for future reference? Why is Goldman Sachs moving jobs out of New York and into Utah? [BusinessInsider]  Cut costs? Yes, but why move back office compliance jobs to “remote” areas?

Then there’s the CFPB’s inexplicable turn to weakening the rules made with regard to loans made to members of the American Armed Forces. [NYT]  This reporting from NPR is pretty chilling:

“NPR has obtained documents that show the White House is proposing changes that critics say would leave service members vulnerable to getting ripped off when they buy cars. Separately, the administration is taking broader steps to roll back enforcement of the Military Lending Act.

The MLA is supposed to protect service members from predatory loans and financial products. But the White House appears willing to change the rules in a way that critics say would take away some of those protections.

“If the White House does this, it will be manipulating the Military Lending Act regulations at the behest of auto dealers and banks to try and make it easier to sell overpriced rip-off products to military service members,” says Christopher Peterson, a law professor at the University of Utah, who reviewed the documents.”

Bank deregulation didn’t work.  It didn’t work in the 1920s; it didn’t work in the 2000s; and, it’s not going to work now.  Notice, please, how when Republicans like Senator Dean Heller refer to Dodd Frank and other financial reform legislation they get vague and highly general. They speak of “onerous” regulator burdens, which are “job killing,” and don’t promote “free enterprise.”   These politicians need to be nailed down with specific questions, such as:

(1) Should the Federal Government collect data about banking trends and risk management and share this with relevant regulators?

(2) Should the Federal Government promote safe lending practices including the regulation of payday loans and similar loans made to members of the US Armed Forces?

(3) Should the Federal Government be taking a more critical look at the levels of student indebtedness, and at the accountability of the institutions offering student loans?

It’s hard to focus on some of the important news involving financial regulation, consumer protection, and other topics whilst we’re being fire-hosed with a daily inundation of surreptitious tapes, the latest cabinet level scandal du jour, and the musing of the misogynist in chief.  However, these are topics on which we should hold candidates accountable in November.

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Filed under banking, Economy, financial regulation, Politics

I Just Can’t But I Will

When I started this little blog yea these many years ago it was in no small part because there didn’t seem to be (1) all that many liberal blogs in northern Nevada, and (2) a way to force myself to wander around the Internet LEARNING things to fill gaps in my understanding of important issues.  Oh, and by the way, in a former life I was a history and political science major so I liked the opportunity to dig back into these subjects and treat myself to historical references and such.   Until 2017 this was fun.  There have been a paucity of posts lately, because of the Trump Administration’s propensity for taking the fun out of just about every topic imaginable.

For example, it’s no fun anymore to peruse the economic data, seek trends, and find interesting analyses — because in Trumpland data, analysis, and rationality don’t matter.  In Trumpland our allies are peppered with trade threats which make absolutely no sense whatsoever, while our adversaries and competitors are left guessing what “policy” the administration might be advocating from one day to the next.  There is no plan.  There are only petulant, provocative, reactions — predicated, it appears, on an understanding of world trade premised upon the situation of at the very least 38 years ago.

For example, it’s no fun anymore to watch the development of social policy, and social progress.  Yes, there’s been Hate Radio since the 1980’s, but terms like “Femi-Nazis” and “Half-Ricans” were the language of the exterior, marginalized away from polite conversation and civic discourse. We did not refer to “sh*thole nations,” nor did we speak of people “infesting” us, or “invading” us. We did not refer to human beings as “vermin.”  We did not classify entire populations of adherents to a particular religion as “terrorists.” We did not deem people unfit for service because of the color of their skin or their sexual orientation.  Now, we have a President who says there were “good people” on both sides in Charlottesville — where one side chanted ‘Blood and Soil,” and “You Will Not Replace Us,” outside a synagogue. We have a President conflating asylum seekers with drug traffickers, with human traffickers, with ordinary families seeking a better life for their children.  And we ripped their children away from those asylum seekers and ordinary families.  We reclassified (?) the children as “unaccompanied minors” when we deported their parents. We lost track of where we hid those children in the dark of night. There was no plan. There never seems to be a plan.  It’s always more like the petulant provocative reactions to momentary political expediency.

For example, it’s no fun anymore to follow governmental approaches to common issues in American life.  The Consumer Financial Protection Bureau?  Repurposed to serve the interests of the bankers who caused the problems in the first instance?  The EPA, corrupt leadership included, catering to the industries which find polluting and exploiting more profitable in the short term than caring for the viability of the planet they leave for their children.

So, the blog posts were few and far between of late.  The other notion which informed the initiation of this blog was that it would be “family friendly.”  The comments section would be monitored.  I would avoid invective and profanity in the posts.  Last week the only terms I could find to apply to the Trumpian policy of deliberate, incompetent, incomprehensible, family separation were invective and profoundly profane.

I’ve vented, alone and among friends, and I’ve calmed a bit.  So, the blog posts will continue and I will do so with the comments monitored and a curb on my tongue.  However, I will not be silenced.  I should have taken the words of one of my heroes in youth, the late great Ronnie Gilbert, to heart when someone ask her how the current situation compared to the bleak days of the McCarthy Era Black Lists — she said it was now worse.

So, I’ll pull myself together — pound out some more pixels, more often, and with as much enthusiasm as I can muster without breaking my two main rules — no unfiltered comments, no profanity.  But, I will applaud flight attendants with the courage to tell us that immigration officials lied to get migrant children on board the flight; cheer the owner of the Red Hen restaurant who would not serve a member of the Trump Administration as a measure of her conscience, and smile at the those ordinary Americans who, when they see migrant children being moved in the wee hours will call a local reporter — who will share the information with a national reporter — who will stick another pin the the map — who will try to answer the question: Where are the children and girls?

And, I’ll keep doing this until the Trump Administration hears Ronnie Gilbert’s bold contralto singing out the lyrics of “So Long, It’s Been Good To Know You.” (Not)

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Filed under banking, blogs, financial regulation, Human Rights, Immigration, Politics

Deregulation isn’t the solution, it’s the problem

Representative Mark Amodei (R-NV2) was pleased to vote for the so-called “Choice Act,” which rolls back some of the reforms enacted in the wake of the Wall Street casino debacle and subsequent recession as the Great Wall Street Derivative Monster collapsed like an air dancer in a Nevada wind.   The theory behind this ridiculousness is that regulations restrict commerce, and a restriction of commerce diminishes wealth, therefore diminished wealth impacts investment, ergo diminished investment equates to a limit on economic growth.  Not. So. Fast.

Yes, regulations restrict “commerce,” but only some kinds of “commerce,” generally the fraudulent variety.  I am free to issue shares of stock in my corporation — however, I am not free to issue shares of stock in the Reese River Steamboat Company.  Some sharp soul offered shares of this highly dubious company during one of the mining booms, and assuredly some investors were cheated by this obviously fraudulent sale.  We have regulations to prevent this.  We have laws and related regulations to prevent insider trading, to prevent “blue sky” stocks, and to reduce the possibility investors are cheated by financial products which promise high returns with little or no risk.  Sometimes the adage, “If it looks too good to be true, it probably is,” isn’t quite enough to prevent mismanagement of other people’s money.

Recently, Wells Fargo was found guilty of violating regulations and laws relating to the creation of phony accounts, the fine totaled a massive $185 million and some 5,300 individuals were fired. [NYT] The situation was all the more egregious because the bank was ripping off its own customers.  $100 million of that fine was the highest penalty the CFPB ever levied against a financial institution.  This is precisely the agency the so-called “Choice Act” wants to ham-string.

The “Choice Act” would eliminate the regulation regime which was intended to prevent the collapse of banking institutions.  Just for the record, let’s look at the list of US institutions that either disappeared or were acquired during the Great Recession: New Century, American Home Mortgage, Netbank, Bear Stearns, Countrywide Financial, Merrill Lynch, American International Group, Washington Mutual, Lehman Brothers, Wachovia, Sovereign Bank, National City Bank, CommerceBancorp, Downey Savings and Loan, IndyMac Federal Bank, HSBC Finance Corporation, Colonial Bank, Guaranty Bank, First Federal Bank of California, Ambac, MFGlobal, PMI Group, and FGIC.

If we extrapolate the “let the market sort it out” argument to its conclusion — it’s acceptable to allow banking institutions to over-extend themselves to such an extent that they will ultimately collapse; that’s just the market “at work.”  Fine, if the impact of such deregulation solely impinges on the banking institutions themselves, but that’s not what happens in the real world.  In the real world such supposedly safe havens (money market accounts) were in peril:

“A little over a year ago the collapse of Lehman Brothers sparked heavy redemptions from the dozen or so money market funds that held Lehman debt securities. The hit was particularly hard at The Reserve Fund, a money market fund that had a $785 million position in Lehman commercial paper. Soon The Reserve saw a run on its Primary Fund, spreading to other Reserve funds. Reserve tried to furiously sell its portfolio securities to satisfy redemptions, but this only depressed their values.

Despite its best efforts, The Reserve Primary Fund couldn’t find enough buyers and on Sept. 16 the unthinkable happened. The Primary Fund “broke the buck,” meaning that the net asset value of the fund, $1, fell to $0.97 a share. It was only the second time a money market fund, which are commonly thought of as guaranteed, broke the buck in 30 years.”

Meanwhile in Nevada, unemployment soared to 14+%, the state endured being listed among the states with the highest levels of foreclosures, and it took until 2016 for the state to recover almost all the wealth and jobs lost in the aftermath of the deregulated Wall Street casino debacle. [LVRJ]

Deregulation may sound fine when discussed in theoretical, ethereal, terms, it obviously didn’t work in the real world in which Bear Stearns, Lehman Brothers, WaMu, and IndyMac collapsed, and where the Reserve Primary Fund “broke the buck.”

The questions someone should ask of Representative Amodei, and other “deregulators,” are:

(1) Do you favor a return to the regulatory environment in which investment banks were allowed to over-extend and engage in risk taking far beyond their capacity to remain solvent?

(2) Do you favor a regulatory environment in which those being regulated are allowed permission to “self regulate,” without oversight from governmental agencies and institutions?

The second question is particularly important because it addresses the question of trust in commercial relationships.

The most basic of all commercial relationships is the simple act of buying and selling.  I have something to sell, and there is a potential customer for my goods or services.  This is another point at which deregulation can easily become part of the problem.  If I am selling food, there are self-evident reasons for regulating the conditions under which that food is prepared and served to the general public.  Deregulation invites disasters of the public health variety.  We trust that the food offered for sale by restaurants and groceries is safe for consumption.

If I am selling financial products does the buyer (consumer) have the expectation that my product is what it purports to be?  That it is backed by sufficient funds for ‘redemption?’ That it conforms to the standards of acceptable practices?  And, if it doesn’t, are there avenues of redress such that the consumer can be compensated?  In short, can the customer be assured that he or she can trust the product?

If I am selling a manufactured product, can the consumer trust that the item was produced in a safe way, that the product will perform as advertised, that the product will not create a hazard in my home or office?  There are voices on the fringe of Free Market thought calling  for the abolition or at least the restriction of the Consumer Product Safety Commivoicssion, who would love to see the return of Caveat Emptor, but most reasonable people agree that regulations pertaining to product safety are conducive to commerce, NOT restrictive.  A vehicle which meets or exceeds safety standards is more likely to be my choice than a vehicle which does not.  A vehicle which meets or exceeds fuel consumption standards is more like to be my choice than one which does not.  In short, regulatory standards benefit the best products (and their producers) while those who do not meet the standards have a more difficult time at the point of sale.  Now, the question becomes — do we want a regulatory environment which benefits the marginal, the inadequate, or perhaps even the corrupt producers?

Unfortunately, the deregulatory voices are answering this question in the affirmative.

Is this really the answer Representative Amodei and his cohorts want to give to constituents in the Second District? In the US?  To our customers around the world?

 

 

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Filed under Amodei, banking, Economy, financial regulation, Foreclosures, Nevada economy, Nevada politics, Politics

Senator Heller’s Choke Point

Heller Amendment Operation Choke Point

One thing in life is almost more certain than death and taxes – if there is legislation that the banking industry wants then Senator Dean Heller (R-NV) will be quite happy to sponsor it, carry water for it, vote for it, and then remind anyone who is still listening how he’s a Man for the Consumers because he once voted against the “bail-out.”   To see Senator Heller’s latest foray into playing the Banker’s Boy one needs to dig a bit, unearthing S.Amdt 4715 to S.Amdt 4685 amending HR 2578, the Commerce, Justice, Science and Related Agencies Appropriations Act of 2016.

Senator Heller has teamed up with Senators Vitter, Crapo, Paul, Lee, and Cruz to insert the following: 

Sec. __.  None of the funds made available in this Act may
    be used to carry out the program known as “Operation Choke
    Point”. [Cong.gov]

What is Operation Choke Point and what was it intended to do?  The Department of Justice was disturbed by reports that fraudulent merchants had found a way around federal banking regulations and once they inserted themselves into the banking system they could team with payment processors to initiate debit transactions against consumer’s accounts and have the amounts transmitted to their own accounts.

Even more disturbing, the Department’s investigations revealed that some third party processors knew that the merchants with whom they were working were frauds but they continued to process their transactions in direct violation of federal law.  [Harris pdf]

So, for example, Quickie Check Instant Lending could get a customer to sign a loan agreement for some outrageous amount of interest, and then hand the item over to a payment processor.  With some cooperation from the bank (usually garnered by providing a handsome fee thereto) the payment processor would have the bank make automatic debits to the person’s account.  Or, say, the Fast Weight Loss Pill Factory got an order from John Q. Public, and the payment processor + bank would insure that John’s bank account was regularly debited for the fraudulent product, or for products not delivered, or whatever scam was being run.

The idea behind Choke Point was to gather information from banks which appeared to be engaged in fraud, or might have evidence of fraudulent conduct by others. Subpoenas were issued, and indeed there were some banks doing some rather obnoxious business.  [See Fair Oaks Bank]  The Fair Oaks Bank had received hundreds of notices from consumers’ banks that the people whose bank accounts were being charged had NOT authorized the payments; had evidence that more than a dozen merchants served by the payment processor had “return rates” over 30% and one had a “return rate” over 70%; and, Fair Oaks had evidence of efforts by merchants to conceal their real identities.

One of the obvious targets are payday lenders who were operating in violation of state regulations regarding the amount of interest that could be charged to a customer.  As the New York Times explained back in January 2014:

“The new, more rigorous oversight could have a chilling effect on Internet payday lenders, which have migrated from storefronts to websites where they offer short-term loans at interest rates that often exceed 500 percent annually. As a growing number of states enact interest rate caps that effectively ban the loans, the lenders increasingly depend on the banks for their survival. With the banks’ help, the lenders that typically work with a third-party payment processor that has an account at the banks are able, authorities say, to automatically deduct payments from customers’ checking accounts even in states where the loans are illegal.”

The object of Choke Point was to cut the insidious relationship between the banks, the processors, and the fraudsters – or choke it off.  If one wanted to promote the interests of the payday lenders, third party processors, and banks willing to turn a blind eye toward the nature of these transactions – there are fewer ways much better than to hamstring the Department of Justice’s investigations into these kinds of transactions.  However, that is precisely what Senator Heller is proposing.

The DoJ’s investigations were also reviled because some of the ammosexuals among us got the idea that if pawn shops couldn’t use the untraditional routes for payment, therefore the whole operation was one giant gun grab. Senators Cruz and Lee bought this horse and have been riding it for some time now.  One quick visit to Politifact will demolish the SunTrust Bank/Brooksville Pawn shop story that made the rounds in 2015.

“SunTrust announced in a Aug. 8, 2014, press release that the bank had “decided to discontinue banking relationships with three types of businesses – specifically payday lenders, pawn shops and dedicated check-cashers – due to compliance requirements.” The bank still works with firearms dealers, according to the release.” [Politifact]

Hence, the policy decision made by SunTrust was no more “anti-gun” than it was anti-jewelry, anti-guitar, anti-CD, anti-work out equipment, or anything else  in a pawn shop.

There are some salient features of this story – once again Senator Heller who delights in his description as a “moderate,” has teamed up with some of the most radical members of the GOP in the U.S. Senate (witness his previous alliances with Senator Jim DeMint (R-SC).  Once again Senator Heller has sided with the payday lenders against any action taken to regulate their relationships with their customers. And, once more Senator Heller has demonstrated his willingness to carry any water in any bucket the American Bankers’ Association wants him to transport to the Senate floor.

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Filed under banking, Economy, financial regulation, fraud, Heller, Nevada politics

Break Up The Bank Bandwagon, or how to be unhelpful?

Break Up Big Banks bandwagon  Much of the debate on the Democratic Party side of the primary silly season is related to Wall Street – easy to demonize, more difficult to understand, and altogether more complicated than  sound-byte sized portions of political coverage will allow.  In other words, H.L. Mencken was probably right: “For every complex problem there is an answer that is clear, simple, and wrong.”  Let’s start with the proposition that our economic issues can be resolved by breaking up the large banks.

Yes, 2007-2008 still stings. The Wall Street Casino that created financial market chaos was especially harmful in Nevada, one of the “sand states” in which the real estate bubble was augmented by avarice and the Wall Street appetite for securitization of highly questionable mortgage lending products, and practices.  Certainly, the call to break up the big banks resonates with a significant portion of the national as well as the Nevada population.   However, this “clear and simple” solution may not be the panacea on anybody’s  horizon.  Here’s why:

From a consumer’s prospective, big is not always “badder.”  I, for one, like the idea that my debit card is accepted in convenient locations throughout the country.  I’m technologically challenged so I don’t avail myself of many advances in remote deposits, and other mobile banking services, but I sympathize with those who do.  I also like making my primary banking decisions for myself, and I’m not – as a consumer/customer – particularly happy about the prospect of being dropped by my bank because it is “too big”, i.e. it has too many customers.   And, here we come to a second issue.

How do we define “big” and “too big?”  If we are defining “big” in terms of the amount of deposits then JPMorganChase, Bank of America, Citigroup, Wells Fargo, and USBankcorp  (the top five in total deposits) are targets for the break up.  Thus, if we “break up” any or all of these five based on the “size” – either the total assets or the total value of deposits – then how many customers must deal with the transition costs of moving their bank accounts?

Do we mean breaking up as in reinstituting the old Glass Steagall Act, and separating commercial and investment banking?  This action wouldn’t limit the banks based on assets or deposit values, but instead would constrict their banking activities.  This has some appeal, perhaps more so than just whacking up banks based on the size of their assets and deposits, but this, too, opens some questions.

One set of questions revolve around what we mean by “banking services?”  For example, if a person has an account with Fidelity investments, and one of the services associated with that account is a debit card or a credit card, then does this constitute a “bank-like” service?   There are banks offering brokerage accounts, and insurance services – reinstating the provisions of Glass Steagall would mean a customer would have to give up some services to retain others – or perhaps be dropped as the financial institution made its decision as to the camp it was joining – the commercial or the investment one.  If a person likes the idea of consolidating investment and commercial services, and doesn’t – for one example – have much if any need for things like certified checks, then an investment account with some “bank like” services could be the best option. For others, who like the idea of a “life-line” bank and the notion that some other ancillary services may come with it, then the traditional route would be more enticing.  However much a person may like the sound of “bring back Glass Steagall” there are situations in which this would mean some significant inconvenience and costs for customers and clients.

Another point which ought to be made is that all too often Glass Steagall and the Volcker Rule get mashed together as if they meant the same thing, or something close to it.   Let’s assume for the sake of this piece that what we all really want is a banking system which does not turn deceptive practices into major revenue streams, and which doesn’t allow banks to use deposits to play in the Wall Street Casino.

If this is the case, then it might well do to let the Dodd Frank Act have a chance at more success.  For all the political palaver about this 2010 act, it has been successful.  As Seeking Alpha explains:

“Dodd-Frank did several things that promoted the culture change and reduced the likelihood that a large American bank will fail: (1) annual stress tests that forced a focus on risk management not only among risk managers but at every level of the bank; (2) establishment of the Consumer Finance Protection Board (CFPB), which has primary responsibility for consumer protection in the financial field without the conflicts of interests naturally experience by the banking regulators; (3) the Volcker Rule that removed proprietary trading from bank holding companies, thereby facilitating the cultural reform that I referred to above, and reducing the level of risk in banks’ assets; (4) enhanced capital requirements for large banks, which addressed the major weakness that permitted mortgage losses to turn into a financial debacle in 2008; and (5) living will requirements for large banks, which while perhaps unnecessary, are having the salutary effects of increasing liquidity in stressful situations and decreasing organizational complexity and thereby making big banks more possible to manage.”

In short, if the object is to make banks safer, better managed, and less likely to get themselves into the liquidity swamps of the pre-Dodd Frank era, then the act does, in fact, make the grade.   Those who would like a return to the bad old days, when banks could wheel, deal, and deceive, will find solace in the slogans of many Republican politicians calling for the repeal of the Dodd Frank Act.

Yet another set of questions relate to what breaking up the banks is supposed to accomplish; or to accomplish beyond Dodd Frank.  It’s easy to say that if a bank is too big to fail it is too big to exist. However, we still haven’t dealt with exactly what it means to be “too big.”  Like it or not, we do have a global economy.   Let’s take one example: “Global businesses want global banks. This makes intuitive sense for companies that manufacture, distribute, and sell products globally. 3M, for example, derives a majority of its sales from outside the United States, operates in more than 70 different countries, and sells products in over 200 countries.” [Brookings]

What does 3M do? Operate through a system of regional banks? (and increase costs)  Or, does 3m start using a foreign bank?  What does this do to American market share in global banking? And, we’re not just talking about 3m, what about Intel (82.4% sales overseas), Apple (62.3% sales overseas), General Electric (about 52% sales overseas in Africa, Asia, and Europe), Boeing (58.3% sales overseas), and Johnson & Johnson (53.2% sales in Europe)?  [AmMUSAToday]

At the risk of sounding too nuanced for blog posts of a political bent, I’d offer that the Break Up The Banks bandwagon has been on the road long enough, and has been a distraction from issues that have cost the American middle class (and those trying to achieve that level of financial security) dearly in the last 40 years.

Breaking up the big banks will not assist in the organization of American workers so that the power of the owners is balanced by the power of the workers.   What we DO need are government policies which support the unionization of employees. Policies which increase the minimum wage. Policies which improve wages and working conditions. And, policies which make education and training affordable.

Breaking up the big banks will not assist in establishing fair trade with the rest of the world. What we DO need are policies which promote the interests of American manufacturing, by American workers, in American plants.  We need policies which affirm our support for environmental responsibility.  We need policies implemented which promote modern technology and modern energy sources; with American ingenuity and labor.

Breaking up the big banks will not reform a financial system which too often rewards its components for short term gambling as contrasted with long term financial vision.  It will not replace the transformed and corrupted Shareholder Theory of Value among managers.  What we DO need is a system which rewards investment and replaces the fantasy of “Trickle Down” economics.

Perhaps it’s time to find a new bandwagon?  One that’s going in the desired direction, and not merely headed toward a successful election day performance?

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Filed under banking, Economy, financial regulation

Happy Fourth of July: A More Perfect Union

Flag July 4th

It’s a good 4th of July weekend.  The benefits of citizenship have been affirmed for members of the LGBT community, but as the founders told us we’re on a path to create “a more perfect union.”  Therefore, there’s more work to be done to insure that housing, employment, and other areas of American life aren’t stumbling blocks of discrimination. We will have to keep up efforts toward building that “more perfect” union.

Ravenal Bridge

There may be some dead-enders, some battle flag flying remnants of blatant racism, but no matter how hard the Klan and their allies try, their proposed demonstration will be nothing compared to the thousands who walked along the Ravenal Bridge in Charleston, South Carolina.  We’re closer to being a nation of people who are taking Dr. Martin Luther King Jr.’s message to heart:

“When evil men plot, good men must plan.  When evil men burn and bomb, good men must build and bind.  When evil men shout ugly words of hatred, good men must commit themselves to the glories of love. “

At least two churches in the south have been the target of recent arson attacks, so in order to form that more perfect union it’s time for people of good will to build and bind.   It’s been a long walk from the bridge in Selma to the bridge in Charleston, but we’re getting there.  We still have to acknowledge the often painful accuracy of Winston Churchill’s backhanded compliment, “You can always count on the Americans to do the right thing, after they’ve tried everything else.”  

In a more perfect union, we’d not have maps showing that a person earning minimum wages cannot achieve a point at which only 30% of his income can pay for a one bedroom apartment.

Rent map

The darker the blue the worse the problem.  We’ll have a more perfect union when we address the complications of living on inadequate wages.  It does no good to march behind banners proclaiming that hard working Americans should “save for the future,” – when simply meeting basic needs for food, housing, and adequate clothing consume all the family’s income. It takes us no closer to a more perfect union to proclaim, “if the poor would just work harder they’d get ahead,” when elements of our judicial system, parts of our educational system, and the myopia of commerce combine to force workers into multiple jobs at minimal wages.  We are no closer to forming a more perfect union when we reward those who prosper at the expense of those who produce.

Unassisted graph

In a more perfect union this graph would be significantly lower.  How do we care for the least able among us? The learning disabled young man with nerve damage, but not quite enough to meet disability standards?  Unmarried, with no dependent children, unemployed except for odd jobs paying about $10 per hour?  A victim of child abuse, and now a victim of a system in which he doesn’t qualify for benefits because he’s never been able to find employment which sustains them. [Reuters]

We’ll be a more perfect union when we are more aware that the able-bodied are not necessarily able to fully function in our modern economy.  In a more perfect union there is more educational, job, housing, and food support for those who live on the margins of despair.

I look to the diffusion of light and education as the resource most to be relied on for ameliorating the condition, promoting the virtue and advancing the happiness of man.” Thomas Jefferson to Cornelius Blatchly, October 1822

And yet:

“About seven in 10 (69%) college seniors who graduated from public and private nonprofit colleges in 2013 had student loan debt. These borrowers owed an average of $28,400, up two percent compared to $27,850 for public and nonprofit graduates in 2012.   About one-fifth (19%) of the  Class of 2013’s debt was comprised of private loans, which are typically more costly and provide fewer consumer protections and repayment options than safer federal loans.”  [TICAS]

In a more perfect union, education advances the “happiness of man,” not merely the bottom line of banking institutions, and certainly not the unrestrained avarice of some for-profit operations who once having the federal funds in hand look to more recruitment without much concern for those already recruited.

And, then – predictably – there’s the Wall Street Casino, which has created SLABS (Student Loan Asset Based Securities).  While certainly not in the mortgage meltdown class, these are problematic because:

“What I find most disturbing about SLABS is that they create a system where an increase in tuition (and the debt-burden on the borrower) equals an increased profit for the investor. When you consider the role that unscrupulous speculators played in the mortgage crisis, one can’t help but wonder if a similar over-valuation of college tuition is taking place for the benefit of SLABS investors. With the cost of attending college increasing nearly 80% between 2003-2013 while wages have decreased, it’s no wonder that so many people are having difficulty paying off their student loans.” [MDA]

This situation is NOT the way to “diffuse light and education.”

There are countless other topics and issues on which we might dwell, assistance for the elderly, transportation, trade, economic security, police and community relations, infrastructure issues, voting rights,  domestic terrorism, domestic violence, gun violence, climate change … the list is  as long as the population rolls, as we try to create that more perfect union of imperfect human beings.

What we need is Churchill’s optimism – that eventually, after avoiding problems, exacerbating problems, tinkering with problems – we’ll do the right thing.

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Filed under banking, civil liberties, education, financial regulation, Global warming, homelessness, income inequality, Minimum Wage, poverty, racism