Category Archives: banking

The Fanatic Season: Politics as Liturgy

Fanatic Eric Hoffer summed it up in The True Believer: Thoughts on the Nature of Mass Movements in 1951:

“The quality of ideas seems to play a minor role in mass movement leadership. What counts is the arrogant gesture, the complete disregard of the opinion of others, the singlehanded defiance of the world.”

Consider how often the right wing insists on doing the unthinkable?  Why would anyone launch a deliberately provocative  “Cartoon Contest” and call it an exercise in ‘free speech?’  Why would anyone put a gun site target on the names of members of Congress? Why would anyone think it appropriate to print the addresses of physicians who provide abortion services?  Because, perhaps, these are arrogant gestures, with a complete disregard for the safety and well being of others, defying convention (and good sense) as would a single-handed hero in defense of something, anything, whatever…

On the national level this allows Fox News to promote the demonization of Islam and its adherents, or to declare a “War on Christmas,” or to offer comfort to the bigot, the intolerant, and the racist.   On a state level the concept allows the elevation of the gun enthusiasts and supports their sense of victimization – as some unspecified “they” are perceived to be “coming for your guns. “ It also allows the faithful to identify “public servants” as “pigs at the trough” when they aren’t being vilified for not doing their jobs with insufficient resources; and, to degrade the humanity of the working poor for “not making good choices,” thereby relinquishing their right to be treated with compassion as fellow human beings.  Hoffer had a line about this concept as well:

“Hatred is the most accessible and comprehensive of all the unifying agents. Mass movements can rise and spread without belief in a god, but never without a belief in a devil.”

Indeed, the current manifestation of the conservatives in the Republican Party (and this may mean just about all of its leadership at the moment, the moderates being driven from the field) is beset with devils of all sorts.   At this juncture political ideology becomes confused with something we might call political liturgy.

Let’s look at the definitions. First, ideology is defined as “a system of ideas and ideals, especially one that forms the basis of economic or political theory and policy.”   Liturgy means “a form or formulary according to which public religious worship, especially Christian worship, is conducted.”  A formulary “is a collection of formulas or set forms, especially for use in religious ceremonies.”

The fanatic may have some difficulty differentiating between an ideology and the performance of liturgy. Ideology is properly understood as a position a person takes regarding, say, how revenue is collected for the operation of a government and the priorities for its distribution.  A liturgical element inserts itself as time after time a politician asserts talking points which are faith based with little or no rational substance.

Some Examples

The standard Republican talking point (liturgical element) concerning proposals to increase the minimum way is that doing so will have a negative economic effect.  This is often reduced to the formulaic: Increasing the minimum wage will cost jobs.  The problem is that there is no substantive research confirming this notion.  There are several credible studies indicating there would be no “negative employment effects” of increasing the minimum wage, and the talking point defies the common sense notion that an employee of one company is always a customer of others.  Empirical studies demonstrate that lower wage workers are more likely to spend marginal income than wealthier ones. [Salon]

The standard Republican talking point (liturgical element) is “Support the Troops;” and a person can easily obtain a yellow ribbon car magnet for this message to place alongside the “Love Your Country Live With Pride” bumper sticker.  That this is a liturgical insertion rather than an ideological position is illustrated by the disinclination of Republicans in general to vote in favor of increased wages for members of the Armed Forces, in favor of more benefits for service members and veterans, in favor of more job training programs for veterans, and in favor of the extension of more VA medical services to veterans who served during peacetime.  At the risk of sacrilege, I’d say this is roughly analogous to reciting “Kyrie eleison, Christe eleison, Kyrie eleison” without thinking of the meaning.

And then there’s the standard GOP line … “the government is the problem.”  Until, of course, it’s the solution.  We might consider Texas Senator Ted Cruz’s remarkable illustration of how this liturgical element can be reversed as he begged for federal aid for Texas cities literally drowning in flood waters.  This, from the self-same Senator who voted against federal relief expenditures for the victims of Hurricane Sandy. [DailyBanter]  This line is hauled out of the vestry and applied to attempts to curtail malfeasance (and worse) in the banking industry, to curb polluters, to put the brakes on corporate mismanagement, until the nation becomes a victim of banking malfeasance (or worse), the state has to clean up a toxic spill, and the investors in a corporation despair of any relief from greedy executives.

The Ramifications

When policy positions (political ideological statements) become articles of faith (as part of a liturgy) then there’s a danger that portions of the electorate are no longer participating in a political process, but are voting and behaving as a “mass movement” in which the Devils will be scourged by those who can recite all the correct elements of the liturgy.  Nothing contemporary illustrates the liturgical quality of Republican leadership statements as the current blathering about climate change.

When the Pew Foundation did some polling on the subject it found that 67% of all adults surveyed believed that climate change is occurring, and 84% of Democrats (or those leaning toward the Democratic party) agreed.  Among Republicans 46% agreed the climate is changing, and this represents 61% of “mainstream GOP” who agree the climate is changing, and 25% of Tea Party adherents who agree.

Bear in mind the Tea Party  percentage when noting that 66% of Democrats agreed that human activity was a major cause of climate change, compared to 43% of independents, and 24% of Republicans in the 2013 survey.

The 24-25% of Republican voters would likely find nothing untoward about presidential candidate Rick Santorum’s request that the Pope leave the “science to the scientists.” [CSMonitor]  It’s probably important to note at this point, that no, the Pope doesn’t have the equivalent of a master’s degree in chemistry – but he did have a degree in chemistry in the Argentine educational system and according to a fellow Jesuit: “Liebscher said he hopes this does not sound like “we’re denigrating his education. Francis certainly respects the scientific method, and careful measurement ranks high in his list of values.”   The “correct” liturgical response about climate change has evolved in Republican political parlance.

Initially, and there are still adherents to the position, the GOP response was that Climate Change was misinformation, or at worst a hoax.  Later on the position was Climate Change is real but human beings aren’t responsible. The present iteration seems to be that Climate Change is real, human beings just might be responsible for some of it, and ordinary people shouldn’t talk about it because “science is best left to scientists,” the optional liturgical insertion may be “I’m not a scientist.” [Bloomberg]

Moving beyond a single illustration of how the transformation of ideology into liturgy is problematic for a democratic republic, when the correct formulaic recitation of liturgy stands in place of a discussion of policy alternatives only the True Believers are deemed fit to carry the party banners.  This is what former Republican official Bruce Bartlett complains of when writing that Fox News has actually harmed the political prospects of the Republican Party.

‘Fox has now become a problem for the Republican Party because it keeps a far right base mobilized and angry, making it hard for the party to move to the center or increase its appeal, as it must do to remain electorally competitive….One of the reasons Mitt Romney was so unable to pivot back to the center was due to the drumbeat at Fox, which contributed to forcing him to the right during the primary season.’

Compare this to one of the original quotations above:

“Hatred is the most accessible and comprehensive of all the unifying agents. Mass movements can rise and spread without belief in a god, but never without a belief in a devil.”

The unspoken assumption seems to be that Fox News will only beat out the rhythms of the Pure, the uncontaminated unadulterated liturgy of the extreme right.  It will only sate the political appetite of those who prefer liturgical formulations rather than explain the underlying catechism; in other words – those who wish to cast out the “devils” — be they African Americans in urban areas, minimum wage workers, environmental advocates, human rights activists, critics of the banking industry, or Democrats.

The proper incantation of the political liturgy will comfort those who wish to be comfortable in their biases, prejudices, and ideology.  Just as their unquestioning belief in a particular confession of faith grounds them, their insistence on a political liturgy relieves their anxieties keeps them anchored.   A liturgy which validates their fears – of African American men, of the working poor, of unemployment, of immigrants, of members of the LGBT community, of Muslims, of economic displacement, of anyone or anything outside their immediate experience – is consoling.

The Bottom Line

The problem, as Bartlett observes in a political realm, is that the more ideology is replaced by a confession of faith, and the more the confession of faith is sustained by the participation in ritualized liturgy, the more likely it is that the movement devolves into a sect.  Once a movement is reduced to a sect at least two things can happen, and they’re both bad.

First, as Bartlett notes, the sect becomes so restricted that it cannot reach a wider audience, and secondly the sect is inclined to defend the indefensible, merely because a fellow member is being criticized.  Witness the defense of the Duggar family’s handling of their son’s molestation of his sisters which almost perfectly summarizes the DARVO position – Deny, Attack, Reverse the Victim and the Offender.  Again, the more the sect becomes identified with a cultish adherence of defending the indefensible the more narrow the appeal of the movement.

One one hand there is some consolation in the idea that the Republican Party may eventually restrict itself to a narrow cult of unelectable True Believers, however, as one who finds the restriction of alternative points of view counter productive in politics and public policy the prospect of a degenerating GOP is not very appealing.

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Filed under banking, conservatism, ecology, energy policy, financial regulation, Republicans

Legislative Headaches: The Tax Man Cometh

Take Two Aspirin

If the three major tax plans in the Nevada Legislature, and their varied explications, are giving you a head ache, the Las Vegas Sun offers a good comparison of them.  There’s a major problem with the Assembly GOP plan which:

“Would change modified business tax rate from 1.17 percent for general business and 2 percent for financial sector businesses to 1.56 percent for all businesses. Exempts companies with payrolls less than $50,000 per quarter and removes a deduction for health care premiums.”

This is a form of “flat tax.” And, there’s one group of businesses which benefit most from a “flat tax,” – the big ones. I know, it sounds counter-intuitive, but what gives the appearance of equity (the flat tax) actually ends up being one of the most inequitable forms of revenue raising.

Beloved by such think tanks as the ultra-conservative Cato Institute, flattening taxes works against middle income groups, both domestic and business.  Let’s assume that the 1.56% tax were to apply to all businesses in the state with payrolls more than $50,000 per quarter ($200,000 per year.) This would apply to all forms of enterprises except those in the financial sector.  For clarity, the financial sector includes commercial banks, investment banks, insurance companies, investment companies, unit investment trusts, face amount certificate companies, management investment companies (closed/open), and three types of non-bank investment companies: (1) savings & loans, (2) credit unions, and (3) shadow banks. [Investopedia]

Current law and the Sandoval Plan keep the tax on those financial sector enterprises at 2%.  The Assembly Republicans would provide them with a 0.44% tax break. At this point, it ought to be asked – Why is a bank like Wells Fargo with a reported revenue of $21.4 billion (up 4% YOY) getting a tax break when a supermarket is running on a 6% margin?  Or, why is a hedge fund, and those similar firms which operated in the shadows in the run up to the crash of 2007-2008, getting a break?

One conclusion is that the Banking Lobby and associated financialists are running full bore at the tax proposals.  Hedge fund managers already have one of the sweetest tax breaks imaginable in the form of the Carried Interest Loophole, and now the Assembled Wisdom is proposing they get a nice break from the state. [See also: TO.org, BusinessInsider]  If nothing else, the Assembly proposal indicates that Financialism is alive and well in the Legislature’s bailiwick.

In short, what looks superficially “equitable” actually makes it easier on the financial sector firms, and places more of the revenue raising responsibility on those businesses which operate on a local level – retailers, wholesalers, and the like.  “Shadow” financial institutions, already the beneficiary of copious tax avoidance strategies, are paying the same “freight” as the supermarket chain and the retailers.

There’s another point which ought to be addressed:  Who is at greater general risk during an economic downturn?  In case we hadn’t noticed – the financial sector is no longer directly connected to the commercial sector. The advent of the Shareholder Value theory of corporate management is what drives stock prices – it doesn’t matter if employment is dropping, if the cuts in payroll are assumed to be part of the management plan to boost the value of the shares.  However, in the real economy it matters very much if employment is reduced because that in turn yields lower demand for goods and services.

In this instance, “sharing the load fairly” actually means that the businesses most likely to be hurt by any economic downturn, and those businesses which are dependent on local economic conditions, are to “share” an equal burden in terms of revenue raising with those which are all too often the perpetrators of commercial difficulties in the “real economy.”

Putting it less diplomatically, the Assembly proposal really isn’t very fair at all.

*And by the way – doesn’t eliminating the deductions for health care insurance make it less likely employers will sponsor such plans, making it all the more necessary that the health insurance exchange markets under the Affordable Care Act be sustained?

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Filed under banking, Economy, Nevada economy, Nevada legislature, Nevada politics, nevada taxation

GOP: Protect the Sharks!

Pay Day Lending Shark Some dots connect.  Dot Number One:

“A bill passed Wednesday by the House would set new limits on, and effectively cut, the amount of money the Consumer Financial Protection Bureau can spend.

The legislation, passed with nearly exclusive Republican support, was originally aimed at placing new limits on agencies writing regulations, requiring them to conduct more analysis on their impact and subjecting them to additional legal review.” [The Hill]

First, the amount cut from the Consumer Financial Protection Bureau would be some $36 million dollars less than the expected expenses for the CFPB in FY 2016.  Secondly, the “more analysis” part translates to “cost/benefit analyses” which have been a crucial part of the Republican litany.  There’s a reason to suspect that this particular dot comes with some major freight.

The “cost/benefit” analysis nearly always comes skewed in favor of the corporations.  The Institute for Policy Integrity found this to be the case in the instance of coal ash regulation in 2010, and while the major impact of the bill would be to the Environmental Protection Agency – a popular whipping boy for the Right – the abuse of the cost/benefit analysis regime could be equally unhelpful for American consumers.  The problem can be summarized as follows:

“Regulatory cost-benefit analyses are inherently vulnerable to challenge. The long-term benefits of regulations are often difficult to quantify, while the costs can be immediate and straightforward. The calculations can be even more complex with public health and safety issues, where the value of human lives must be weighed against corporate costs.” [HuffPo]

In this case we have to ask do the short term losses to the payday lenders outweigh the long term benefits of not having working Americans subject to usurious lending rates?  Evidently, Representatives Heck (R-NV3), Hardy (R-NV Bundy Ranch), and Amodei (R-NV2) [rc 64] believe that the short term losses which might accrue to the payday lenders are of more significance than the long term problems associated with payday lenders in underserved communities?   At the least, they’ve voted in favor of placing more hurdles – in the form of more litigation – in the way of any agency such as the CFPB seeking to curtail some of the more egregious business practices of payday lenders. (For more information on Cost/Benefit Analysis see Better Markets.)

Dot Number Two:

“But a late amendment from the bill’s primary sponsor, Rep. Virginia Foxx (R-N.C.), would also place new limits on the funding for the CFPB.

Foxx’s amendment, added to the bill at the House Rules Committee before it reached the House floor, would cap CFPB funding at $550 million — $36 million less than the Congressional Budget Office estimated the CFPB would spend in fiscal 2016.”  [The Hill]

Now, why would this particular agency be mentioned in this “late amendment?”  If Dot Number One makes it more difficult for an agency, such as the CFPB, to finalize regulations on corporate activity,  Dot Number Two makes it even more difficult for the CFPB to defend its proposed regulations.  Leading us to Dot Number Three.

Dot Number Three: The Consumer Financial Protection Bureau is, in fact,  about to release rules governing payday lending practices [NYT] against which the $46 billion a year industry is lobbying hard and fast.

“The rules are expected to address expensive credit backed by car titles and some installment loans that stretch longer than the traditional two-week payday loan, according to industry lawyers, consumer groups and government authorities briefed on the discussions who all spoke on the condition of anonymity because the deliberations are private. Certain installment loans, for example, with interest rates that exceed 36 percent, the people said, will most likely be covered by the rules.

Behind that decision, the people said, is a stark acknowledgment of just how successfully lenders have adapted to keep offering high-cost products despite state laws meant to rein in the loans.” [NYT]

Translation: Because the payday lenders have been relatively successful thus far in avoiding or mitigating the attempts by the states to rein in some of their more egregious practices, the CFPB has stepped in to assist consumers avoid these financial pitfalls.  And, the Republicans are quite obviously marching in step with payday lending industry lobbyists.  Now, we can see why this was one of the first bills introduced in the 114th Congress, the timing isn’t simply a matter of coincidence.

Dot Number Four: There is a secondary market for payday lender loans. [HoustonSmallBus] [ABA]  And, wouldn’t you know it – AIG and private equity group Fortress Investment Group launched a securitization of sub-prime personal loans (read: payday) in February 2013. [WallStJ]

“The $604 million issue from consumer lender Springleaf Financial, the former American General Finance, will bundle together about $662 million of loans secured by assets such as cars, boats, furniture and jewelry into ABS, according to a term sheet. Some loans have no collateral.” [WSJ]

The last time someone tried this – Conseco Finance Corporation – things did not end well. Conseco ended up in bankruptcy in 2002.  ZeroHedge opined that the Springleaf Financial deal was a resurrection of the worst of the pre-Great Recession credit bubble.   With this in mind, should it come as any surprise that Springleaf Financial partnered with private equity firm Centerbridge Partners LLP in wanting to buy into Citigroup’s One Main Financial – the big banks subprime lender? But wait, there are more suitors.  Citigroup is trying to offload that subprime business, to focus on “the affluent customer,” and Apollo Global Management has joined the potential buyers list as of January 2015.  [BloombergBus]

Let’s muse: If the Consumer Financial Protection Bureau announces regulations that might put a crimp in the profitability of payday loans, particularly those subprime personal loans which have been securitized (ABS) then the bidders from the Springleaf/Fortress operations and Apollo Global Management might not want to pay more for Citigroup’s One Main Financial – which it would very much like to offload onto someone – Lonestar, Springleaf/Fortress, or Apollo Global Management?

Or, to muse and speculate less kindly:  There’s a deal in the works to sell a subprime personal loan unit from a major U.S. bank; there are bidders from private equity firms, and it would be better for the Big Bank if the CFPB would butt out of any activity which would make the subprime personal loan units less attractive.  Further, the subprime personal loan securitization schemes might be less profitable if the CFPB puts the brakes on some of the more “profitable” practices.   If the subprime personal loan lenders aren’t as “profitable” then they might not be able to bid as much as wished for the One Main Financial spin off?

Hence, it’s necessary, nay Vital, that the CFPB be made to back off the subprime personal loan regulations and allow the bankers to continue to securitize those loans and to deal for a bigger share of the subprime personal loan pie?  Would this be part of the reason for the rush to get H.R. 50 through a compliant House of Representatives?

The Republicans have not demonstrated any particular interest in protecting the sharks of the natural variety, but they seem bent on protecting the financial ones.  And, the bigger the shark the better?  Nevada Representatives Amodei, Heck, and Hardy played right along.  Representative Titus (D-NV1), to her credit,  voted “no.”

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Filed under Amodei, banking, Economy, financial regulation, Heck, Nevada politics

From CDO’s to BTO’s: Wall St. tees up the next financial disaster

Wall Street Greed CDO

Think Progress picked up on a piece from Bloomberg News which ought to be raising eyebrows on Main Street.  The banksters are at it again, only this time those pesky Credit Default Obligations which brought down our financial system in 2007-2008 have been repackaged and served up under a new label: Bespoke Tranche Opportunities.

As the Think Progress analysis reports, these derivatives were an extremely important part of the last mess:

“The Financial Crisis Inquiry Commission concluded that derivatives “were at the center of the storm” and “amplified the losses from the collapse of the housing bubble by allowing multiple bets on the same securities.” In 2010, the total on-paper value of every derivative contract worldwide was $1.4 quadrillion, or 23 times the total economic output of the entire planet.”  [TP]

Let’s be careful here, not all of that $1.4 quadrillion is in BTO’s, but the newly labeled derivative has that same capacity to “amplify the losses” when the underlying value of the securities becomes volatile.  For those who would like this explained in really clear diagrams, click over to the Wall Street Law Blog and follow along with the  White Board Wine Glasses Explanation – one of the best I’ve discovered to date.

Now, we can move on to what makes these BTO’s a problem, beginning with their creation:

“The new “bespoke” version of the idea flips that (CDO) business dynamic around. An investor tells a bank what specific mixture of derivatives bets it wants to make, and the bank builds a customized product with just one tranche that meets the investor’s needs. Like a bespoke suit, the products are tailored to fit precisely, and only one copy is ever produced.” [TP]

Now, why would anyone want to buy one of these products, much less order a special one?  In the Bad Old Days  fund managers could choose to purchase some tranched up CDO, those blew up, so why go out and order one tailored to their specifications?  Let’s return to the Bloomberg article:

“Goldman Sachs Group Inc. is joining other banks in peddling something they’re referring to as a “bespoke tranche opportunity.” That’s essentially a CDO backed by single-name credit-default swaps, customized based on investors’ wishes. The pools of derivatives are cut into varying slices of risk that are sold to investors such as hedge funds.

The derivatives are similar to a product that became popular during the last credit boom and exacerbated losses when markets seized up. Demand for this sort of exotica is returning now and there’s no real surprise why. Everyone is searching for yield after more than six years of near-zero interest rates from the Federal Reserve, not to mention stimulus efforts by central banks in Japan and Europe.”  (emphasis added)

Translation: Because interest rates have been kept low by central banks hoping to keep struggling economies moving ahead, banks haven’t been able to make what they deem to be enough profit off corporate and Treasury bonds, and therefore have started playing in the “financial product” game again (not that they ever really stopped for long) and have started making ‘bets’ (derivatives) in the Wall Street Casino – with ‘products’ (BTO’s) which aren’t subject to the reforms put in place by the Dodd Frank Act.

So, what’s the problem? A hedge fund manager wants to buy a structured financial product from a bank which has a higher yield than what he can get by investing in corporate bonds or Treasuries… what could go wrong?  Let us count the ways.

#1.  These securities aren’t tied to the performance of the real economy as corporate bonds would be.  In the jargon du jour, the BTO portfolio is a table of reference securities.  Here come the Quants again, there are formulas for determining the ‘value’ of these securities which may or may not be valid, and they certainly weren’t during the Housing Bubble.

#2. The yields are related to the the ratings.  Here we go yet again. One of the major ratings services, Standard & Poor, is ever so sorry (to the tune of a $1.5 billion settlement with the Justice Department) they helped create the Derivatives Debacle of ‘07-‘08, but that hasn’t stopped them from continuing to get involved in evaluating derivatives. [See the FIGSCO mess]

#3. The BTO encourages the same Wall Street Casino behavior we saw in the last Housing Bubble/Derivatives Debacle.  It’s explained this way:

“The trouble with this game is that the value of most structured finance products is opaque and subject to sharp and violent change under conditions of financial stress. So when they are “funded” in carry-trade manner via repo or other prime broker hypothecation arrangements, the hedge-fund gamblers who have loaded up on these newly minted structures are subject to margin calls which can spiral rapidly in a financial crisis. And that, in turn, begets position liquidation, plummeting prices for the “asset” in question, and even more liquidation in a downward spiral.” [WolfStreet]

Sound familiar? Sound a bit like Lehman Brothers?  Remove the jargon and the message is all too familiar – no one really knows the value of the structured product, and if the product is purchased with borrowed funds it’s subject to margin calls (people wanting their money back) which in turn leads to sell offs and the price for the “thing” drops off the financial cliff, and…. down we go. Again.  We’ve seen this movie before, and the ending wasn’t pleasant.

#4. The BTO is a way around financial reform regulations. The offerings, be they FIGSCO or BTO’s are being peddled at the same time the Financialists are trying their dead level best to (a) get Congress to whittle down the regulations put in place under the Dodd Frank Act financial reforms; and (b) figure out ways to get around the Dodd Frank Act provisions – witness the BTO.

The profit motive is perfectly understandable. If I can invest in something that pays more than a Treasury bill or bond, or more than a corporate bond, then why not?  However, at this point, as an investor, I need to make a decision – Am I investing or speculating?  If I’m investing then it would make more sense to take a lower yield on something that has a more credible value. If I’m speculating (gambling) then why not borrow some money and purchase some exotic structured financial product the value of which is far less credible (or even comprehensible) and “make more money?”

It’s speculation that tends to get us into trouble. This new round of creative financial products shows all the elements that got us into financial trouble the last time in recent memory.  Formulaic determination of value which ran head first into the wall of reality. Valuations which were based on “what’s good for business,” rather than on what might be other plausible outcomes.  Emphasis on speculation rather than investment – or on financialism rather than capitalism.  Short term yields as opposed to long term investment.

It was a recipe for trouble in 2007-2008 and it’s still a recipe for trouble in 2015.

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Filed under banking, Economy, financial regulation

Not So Safe, Not So Sound: Amodei, Heck and H.R. 3193

Occupy Wall Street bankersRepublicans have never liked the Consumer Financial Protection Bureau.  Nor have the members of the Republican Party in the House of Representatives stopped trying to find ways to gut the powers of the Bureau.  A voted taken on February 11, 2014 is an indication of that opposition.

H.Res. 475: “Providing for consideration of the bill (H.R. 3193) to amend the Consumer Financial Protection Act of 2010 to strengthen the review authority of the Financial Stability Oversight Council of regulations issued by the Bureau of Consumer Financial Protection, providing for proceedings from Feb. 13, 2014 – Feb. 24, 2014.” [rc 59] (223-193) Representative Joe Heck (R-NV) voting in favor of the bill; Representatives Dina Titus (D-NV) and Stephen Horsford (D-NV) voting in opposition.

And what would H.R. 3193 do?

(1) “Amends the Consumer Financial Protection Act to authorize the Chairperson of the Financial Stability Oversight Council to issue a stay of, or set aside, any regulation issued by the Consumer Financial Protection Bureau (CFPB) upon the affirmative vote of the majority of Council members (currently, two-thirds), excluding the Director of the Bureau.”

In short, any and all regulations issued by the CFPB could be “stayed,” or dismissed on the vote of only a simple majority of the FSOC.  Nothing like making it easier for the banking lobby to get pesky consumer protection rules set aside by reducing the number of votes on the FSOC from 2/3rds to a simple majority?

(2) “Requires the Council, upon the petition of a member agency of the Council, to set aside a final regulation prescribed by the CFPB if the Council decides that such regulation is inconsistent with the safe and sound operations of U.S. financial institutions. (Currently the Council is merely authorized, upon petition, to set aside a final regulation if it would put the safety and soundness of the U.S. banking system or the stability of the U.S. financial system at risk.)” (emphasis added)

Now we get to the meat of the matter. What is “safe and sound” and why is it not so safe and not so sound?  First and foremost — “safe and sound” is a shorthand term for PROFITABILITY.

In short, what the House Republicans are proposing is that any regulation issued by the Consumer Financial Protection Bureau which impinges on the PROFITABILITY of a lending institutions can be dismissed upon the “petition” (read ‘gripe’) of a member agency of the council — including the Comptroller of the Currency, an agency which did not exactly cover itself in glory during the time prior to the collapse of the financial markets in 2008.   But wait… H.R. 3193 is even a greater boon to the bankers.

(3) “Repeals: (1) the prohibition against Council set-aside of a regulation after expiration of a specified time period, and (2) mandatory dismissal of a petition if the Council has not issued a decision within such time period. Requires the CFPB Director, when prescribing a rule under federal consumer financial laws, to consider its impact upon the financial safety or soundness of an insured depository institution.”

There’s no time limit.  There’s no ‘statute of limitations’ after which the FSOC can declare a regulation made by the Consumer Financial Protection Bureau null and void?  Again, the old profitability test comes to the fore.

So, once more with feeling — Representative Joe Heck (R-NV) has voted in favor of a bill which would allow the banking sector to put the kibosh on any CFPB rule which might jeopardize the PROFITABILITY of a bank.   This, from a Representative of a state with the second highest foreclosure rate in the country — 1 in every 533 homes — where the national average is 1 in every 1,058. [LVRJ]  Not to mention the fact that the Nevada Attorney General just settled with Lender Processing Inc. over the ‘robo-signing’ mess created in our mortgage market. [News4]

Nothing says “I love you” to the financial sector more than saying, “Don’t worry about that pesky CFPB, the FSOC can overturn, dismiss, or stay any regulation which puts a crimp in your Safety and Soundness Profitability.

But Wait the GOP isn’t Quite Finished!

“H.R. 3193 makes necessary reforms to an unaccountable Consumer Financial Protection Bureau (CFPB). Specifically, the bill replaces the existing director who has sole responsibility for carrying out the CFPB’s mission with a Commission comprised of the Fed’s Vice Chair for Supervision and four members appointed by the President, with the advice and consent of the Senate.” [GOP HR 3193]

So, we would have an agency without a director — instead ‘governed’ by a committee, the members of which are subject to filibusters by the U.S. Senate.   It took ‘only’ two years to get the Senate Republicans to stop blocking the appointment of one director [HuffPo], imagine how much time could be consumed trying to get four commissioners selected, nominated, and confirmed?

“The bill eliminates the CFPB’s current exemption from the budgetary process and subjects the CFPB to the regular authorization and appropriations process.[2]  It also reins in CFPB salaries by requiring the CFPB to pay its employees according to the GS pay scale like other federal agencies.”

That second part is a nice touch, however it translates to putting the funding of the CFPB under Congressional control.  The CFPB is outside the Congressional claws and inside the protection of the Federal Reserve so that its education and enforcement missions are NOT subject to the whims of Congressional winds.

Once again, nothing says “I Love Bankers” more succinctly than allowing their allies in Congress to jam up the leadership of a regulatory agency and to let Congress bring enforcement to a halt by chopping the agency’s budget.

And… Representatives Joe Heck (R-NV) and Mark Amodei (R-NV) are  all for this?

On February 27, 2014 at 6:39 p.m.  Representatives Amodei (R-NV) and Heck (R-NV) voted in favor of the passage of H.R. 3193 [rc 85]  Representatives Horsford (D-NV) and Titus (D-NV) voted against this latest assault on the Dodd Frank Act provisions.

Background Information: Apuzzo, Bush Administration Weakened Lending Regulations, HuffPo, December 2008.   “Speed Kills,” Desert Beacon, December 16, 2011.  CFPB not out of the woods yet, WaPo, February 27, 2014.  “Cordray Confirmed,” HuffPo, July, 2013.   CFPB, Mission and Budget, 2014.

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Bits and Interesting Pieces

Jig Saw Puzzle** That stalwart champion of free enterprise, Las Vegas’s own Sheldon Adelson, is complaining about his competitors offering lower room rates, and diminishing his profits. [LVinc]  Perhaps if he’d saved a bit of that moolah he pitched at GOP candidates in the last election…?

** If an endorsement from Governor Sandoval is supposed to be an effective repellant to ward off pesky intra-party competition — it’s not working, at least not in the run for 2016, in the Lt. Governor’s Office department.  Ray Hagar has more in the RGJ.  Muth complains here.  More from Ralston here.

** Governor Sandoval had an opportunity to help prevent the possibility of private guns sales to ineligible persons, and he blew it.

“Nobody — least of all Sandoval, a former attorney general and federal judge — wants felons or the mentally ill to get guns. But the fact remains, the governor had a chance to make it more difficult for that to happen, and he chose not to take it. And while this incident was resolved without tragedy or bloodshed, the next one may not be.”  [Sebelius]

Amen.

** There was the “transportation” of James F. Brown, and now Nevada’s Rawson-Neal Psychiatric Center is losing its accreditation.  [LVRJ] The Nevada Progressive has more + video.

** Talking Point Memo lists the “8 biggest losers”  should Congress fail to pass a comprehensive immigration policy reform bill.  And, might we add radical right wing Nevada politicians in a state in which the Hispanic population is projected to increase from about 687,166 in 2010 to approximately 802,432 by 2016? [StateDemographer pdf]

** Oh, my goodness and glory… Senator Harry Reid spoke about the effects of climate change and its association with wildland fire danger, and predictably the right wing goes off the rails.  From the Damned Pundit:

“Reid was stating the obvious. For decades scientists have been pointing at factors like warmer spring temperatures, lighter winter snowpacks and earlier growth creating an abundance of dryer fuel, and linking those factors to more — and more intense — Western wildfires.”

Here’s the predictable piece from the Elko Daily Freepers, a portion of the litany of “fact checking” provided in an attempt to advance the deniers’ fantasies: “Pay no attention to the fact there has been no appreciable global warming in 15 years despite a dramatic increase in carbon output from all sources — a phenomenon none of the global warming models can explain.”  Thus we are supposed to ignore this data from the Arctic studies?  Or, the Cambridge University study projecting that Arctic methane release could cost the global economy about $60 trillion over the next decades?

By the way, the old “prescribed burn” system which the EDFP writer would prefer to see restored — it’s not necessarily a thing of the past, witness the 2008 Prescribed Fire Guide (download) for forest and wildland management. [SJEl.org]

** So, why is Representative Steve King (R-IA Xenophobia) still on the House Subcommittee on Immigration?  NRDC would like to know.   Oh, wait — Rep. Michele Bachmann (R-MN6) is still on the House Permanent Select Committee on Intelligence.   There’s more on Representative Cantaloupe Calves here.

**  It’s really hard to gin up any sympathy for the Bankers when they do stuff like mistake a foreclosed home for the one across the street and remove all a person’s belongings — then they trashed or sold all her stuff, and the bank is now refusing to pay for  replacements. [Crooks & Liars] Original story from Channel 10 here.   The First National Bank of Wellston is “disputing” the lady’s $18,000 claim for replacing lost personal property.  Her response: “I’m not running a yard sale here. I did not tell them to come in my house and make me an offer,” she said. “They took my stuff, and I want it back.” [ColumbusDispatch]  The FNB of Wellston has $94,813,000 in assets, and $56,598,000 in outstanding loans, it has reserves of $590,000. [BankTracker]   This story has hit other  national blogs, such as Think Progress.

** Members of the Senate who are drafting taxation reform legislation have promised their colleagues they’ll keep their suggestions secret for the next 50 years.   Transparency? Accountability? Anyone? The story, if not the suggestions, have leaked already — into Politico and The Hill.

** Jobs, Jobs, Jobs — and by CBO lights, the GOP is on the hook for killing about 1.6 million of them.   [Politicususa]  Just think of how many more they can kill if they make good on their pledge to Shut Down The Government unless President Obama agrees to repeal Obamacare?

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Filed under Adelson, banking, ecology, Gun Issues, Immigration, Nevada politics, Taxation

Nevada’s Moral Hazard: The One With No Connection To Brothels

Foreclosure StreetNevada, one of the nation’s poster children in home foreclosures, is now tangled in the process of unwinding the results of the financial sector’s vulpine avarice.  Which home mortgages may legitimately be foreclosed upon and which are so defective that no legal process will rationally resolve the issues?  Bankers are lobbying for changes in NRS 106.210 and NRS 107.070 as included in AB 284 (pdf) of the 2011 session.

“At issue is Assembly Bill 284, a measure passed by the Nevada Legislature in 2011 and signed by Gov. Brian Sandoval that forces banks to prove they have the legal right to foreclose on a particular home before they take action. Most important, the law requires bank workers to sign an affidavit that they have personal knowledge of a property’s document history, or they will face criminal or civil penalties.”  [LVSun]

That “document history” part is important. A person doesn’t know the “document history” if the mortgage was robo-signed.  The “document history” may be unfathomable if the property documentation wasn’t properly registered with local government officials.  If the mortgage was signed, handed over to a servicer, later packaged with other mortgages into securitized asset products, sliced up into bits, and then re-sold to investors — we’ve seen this movie before and it didn’t have a happy ending…

Just how badly the financial sector had mismanaged the handling of mortgages can be quickly discerned from the numbers included in the Las Vegas Sun article.  Of the 5,350 foreclosure notices filed in August 2011, and the 4,684 default notices sent later, only 80 were compliant with the statute requiring that the banker demonstrate knowledge of the “document history.”

The issue also demonstrates how long it can take to fix messes created by free wheeling enthusiasts of financial creativity.  The housing boom lasted until 2007-2008, it’s now the end of 2012, and the bankers are only now returning to focus on their foreclosure mess.  It also provides an object lesson on the transitory nature of Moral Hazards.

Members of the financial community are oft heard speaking of Moral Hazards.  The New York Times explains: “…in economic terms it refers to the undue risks that people are apt to take if they don’t have to bear the consequences.”  For decades the formerly obscure term was applied to the “little guy.”

The Theory of Moral Hazard was applied to sales representatives, who it was said would not work hard to sell the manufacturer’s products if not given incentives like commissions to augment their enthusiasm for sales.  Later, it was applied to those “losers” who purchased home mortgages they did not understand with terms which were designed to create income for the mortgage sellers at the expense of the homeowner — whether the homeowner was financial capable of the increased expense or not.   In short, it is often argued under the matrix of Moral Hazards that the more trouble one might be in, the less help should be provided.

Even the libertarian Cato Institute was willing to accept the possibility that corporate malfeasance, unaccountable management, and shoddy risk management played a role in the collapse of the U.S. financial system in 2007-2008.*  The question becomes how much Moral Hazard should apply to the corporate entities which engaged in the financial transactions that fueled and eventually blew up the financial markets?

State Senator Tick Segerblom (D-Las Vegas) places the Moral Hazard on the bankers: “If it comes down to a homeowner who had a mortgage, or a bank — who has the right to be there? I’ll go with the homeowner,” he said. “I’m not worried about the banks. They made their beds. They can sleep in it.” [LV Sun]

If the question is: Shall the unworthy who got themselves into a Big Mess by the dint of their own avarice be offered succor from the government, either state or federal? Then those who truly hew to the Moral Hazard argument are stuck with banks, mortgage institutions, and investment houses whose porcine appetites caused them to fall into the trough.  The only other way out of the mess is to attempt to claim that the bankers didn’t really do it (an obvious mirage) or that, as the libertarians would like to assert, the bankers were merely acting out the extrapolations of government policy (as if the bankers have no free will and cannot discern Moral Hazards when they see them.)

Unfortunately for the banking industry apologists, the first option flies in the face of economic reality; and, the second makes them look like first class fools.

*The Institute author, after having pointed out the core of the problems, promptly reverts to the anti-government “Devil Made Me Do It” argument holding that low interest rates, deposit insurance, and federal participation in the secondary market were the ‘real evils.’

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Filed under banking, Economy, financial regulation, Foreclosures