Category Archives: Economy

Race, Poverty, and Stereotypes

The Census Bureau compiles statistics on poverty and the poverty rate in the United States. Their chart for 1959 to 2015 shows 13.5% of Americans living in what is officially designated as poverty, which translates to approximately 43.1 million Americans. [Census pdf]  Poverty in this country is measured as a function of the number of members in a household with a range of $12,082 for a single person to $49,177 for a family of nine or more people as of 2015.  [Link to Chart]

The Numbers

The Kaiser Family Foundation reports that 9% of white families are “in poverty,” 24% of African American families, 21% of Hispanic American families and 14% of ethnic groups categorized as “other.”    Other numbers to keep in mind: As of this morning we have 325,178,412 people living in this country, and 82,184,000 households.  [Census dwnld]  77.1% of our population as of July 2015 was white (61.6% not Hispanic or Latino); 13.3% African American; 1.2% Native American; 17.6% Hispanic or Latino; and, 5.6% Asian American. [Census]  Thus, “yes,” the percentage of the total African American and Hispanic American families in poverty is higher than the percentage of white families in poverty – but to get a more accurate picture of the “face of poverty” it should be noted:

76% of African American families are NOT living in poverty; 79% of our Hispanic or Latino families are NOT living in poverty… so when the reporter on the television starts droning on about  income, poverty, and other statistics and the film rolls on with the stereotyped footage of the “inner city,” we need to recall that we’re looking at what mostly white media producers think poverty looks like.

The Persistence of Prejudice

The reality is that if a person is single, living in a central city, female, member of an ethnic minority group,  and southern, then there’s the likelihood that cuts in social safety net programs will be the most damaging.  [IRPHowever, the point needs to be made yet again: “Social scientists and others have long made the observation that the media over-emphasizes people of color in coverage of poverty and government benefits.”  [Root]  Not certain about this? Start with the Luther, Kennedy, Combs-Ormes study for the University of Tennessee, of media coverage from 1993 to 2000.  Add the American Progress report on stereotypes in poverty policy published in 2012.   It isn’t too difficult to surmise how we’ve moved from poverty policy based on the needs of the ‘deserving white widow’ to the African American welfare queen (who never existed) in modern political discussions.

The media attention has a history:

“…starting around 1965, the discourse about the War on Poverty became much more negative, and that was for a few reasons, one of them being that programs that the administration had been promoting were now out in the field, and people, especially conservatives, were starting to take aim at them. And the media started to portray those programs much more negatively as being abused by people who didn’t really need them, as being inefficient and so on. And it’s really right at that time — and it’s a very dramatic shift in the media portrayal — that the imagery shifts from poor white people, positively portrayed, to poor black people, negatively portrayed.” [Moyers/Gilens]

This stereotyping plays into a narrative among a decreasing number of whites about the motivations of African Americans.  While support for overt discrimination has declined, some of the underlying attitudes may not have diminished as much as might be desirable.   There appears to be a gulf between the theoretical and the practical among white Americans about the role of government in promoting equality: “In general, though, apart from these nuanced differences across types of implementation, this set of questions makes it clear that whites are more willing to support the principles of equality than commit resources to its implementation.” [Illinois Edu

In terms of racial stereotyping there’s good and bad news, the good news first:

“The overall patterns for stereotypes show that between 1990 and 2004, there was a striking decline in the percentage of whites who report negative stereotypes of blacks. But after that point, the levels have remained constant (see Figure 9 (W) above). For example, in 1990, two out of three whites rated whites as harder-working than blacks; a percentage that declined steadily until 2004, when the figure was just about half that level (37 percent). From 2004 to 2014, though, the percentage of whites endorsing the stereotype ranged from a high of 42 percent in 2006 to a low of 34 percent in 2014. The belief that blacks are less intelligent than whites similarly declined from 57 percent in 1990 to just over one in four in 2004 and since then endorsement has stabilized at 23 to 27 percent.” [ Illinois Edu]

And, now the bad news:

“On the one hand, these results about the declining use of stereotypes may provide some reason for optimism. Whites are less willing (in a survey interview) to draw sharp distinctions between racial groups on the traits of intelligence and laziness. However, caution is advised against making too much of these findings. First, social desirability pressures may be particularly at work on these kinds of items. It has become increasingly socially unacceptable to admit to believing in racial differences of this type, and thus surveys may under-estimate levels of stereotype endorsement. Indeed, evidence from laboratory studies of “unconscious” stereotyping suggest that stereotypes continue to shape how whites think about race and racial groups (Fazio et al., 1995; McConnell and Leibold, 2001).”  [ Illinois Edu]

Therefore, when that tape depicting “inner city life” rolls behind the reporter commenting on recent statistical releases on income inequality, social safety net programs, or economic opportunity it rolls before a white audience ready to accept the theoretical desirability of equality, but not so anxious to implement policies designed to assist people who are still held to be “lazier.”

Thus the White Face of Poverty, obscured by the Black image of inner city disadvantage, perhaps allows some voters to continue their illogical dependence on the idea that one can be theoretically pure while being a rugged individual, and demanding others be the same: “Presumably, then, voters imagine that pledges to slash government spending mean cutting programs for the idle poor, not things they themselves count on. And this is a confusion politicians deliberately encourage.” [Krugman]

Meanwhile, there’s Owsley County, Kentucky, home to about 4,461 people, of whom 98.3% are white, with a median household income of $20,985 per year, and 42.4% of its population living in poverty. [Census]

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Filed under Economy, Politics, poverty, racism

The Job Probably Didn’t Go To China

The U.S. has lost 5 million factory jobs since 2000. And trade has indeed claimed production jobs – in particular when China joined the World Trade Organization in 2001. Nevertheless, there was no downturn in U.S. manufacturing output. As a matter of fact, U.S. production has been growing over the last decades. From 2006 to 2013, “manufacturing grew by 17.6%, or at roughly 2.2% per year,” according to a report from Ball State University. The study reports as well that trade accounted for 13% of the lost U.S. factory jobs, but 88% of the jobs were taken by robots and other factors at home.  [Fortune 11/8/16] (emphasis added)

For all the palaver expended, and rhetoric spewed – 88% of the manufacturing jobs lost in the US were lost to “robots and other factors.”  The Ball State University study (pdf 2015) clarifies:

“Three factors have contributed to changes in manufacturing employment in recent years: Productivity, trade, and domestic demand. Overwhelmingly, the largest impact is productivity. Almost 88 percent of job losses in manufacturing in recent years can be attributable to productivity growth, and the long-term changes to manufacturing employment are mostly linked to the productivity of American factories. Growing demand for manufacturing goods in the U.S. has offset some of those job losses, but the effect is modest, accounting for a 1.2 percent increase in jobs beyond what we would expect if consumer demand for domestically manufactured goods was flat.” 

For “productivity” read Robotics and technological changes to production.  If any workers had cause to complain – they might be Chinese, since a factory opened in Dongguan which is fully automated.  However, since it takes Homo Sapiens to develop ideas about how to improve processes and products, the robots alone can’t take over manufacturing.  So, get ready for a new word: Cobotics.

“Cobotics is rapidly gaining momentum, and successful implementations to date have focused largely on specific ergonomically challenging tasks within the aerospace and automotive industries. But these applications will expand as automation developers introduce more sophisticated sensors and more adaptable, highly functional robotic equipment that will let humans and machines interact deftly on the factory floor.” [PWC.com]

Robotics, cobotics… both are associated with new processes in manufacturing; processes which have direct impacts on the number of people hired by manufacturing firms, and the training required for those who are hired.  Thus, before ranting about the Chinese – it’s important to remind ourselves that manufacturing no longer means smoke stacks and simple assembly lines.  It’s 3-D printing, robotics, cobotics and other “productivity” factors as well.

If the job of wrenching the Wadjets to the Widgets has been taken over by the Gimcrack Special 300A, how to increase employment in the manufacturing sector? We might want to start with DEMAND. Demand for civilian aircraft (Boeing specifically) helped a 4.8% increase in durable goods manufacturing in 2016. [WSJ]  However, since most people aren’t inclined to purchase their mode of transportation from Boeing, let’s consider something more realistic – automobiles.

“And while new-car prices continue to rise, the underlying demand has softened.“We don’t have a lot of pent-up demand now like we did coming out of the economic crisis,” said Bryan Bezold, an economist for Ford Motor.

Ford was among several automakers that posted sharp reductions in sales during August compared with 2015. General Motors, the nation’s largest automaker, said that it sold 256,000 vehicles during the month, which represented a drop of 5.2 percent.

G.M. has taken some criticism on Wall Street for scaling back on less profitable sales to rental-car companies and other corporate fleets. Instead, the company has focused on retail sales to consumers, which generally produce healthier profits-per-vehicle.” [NYT]

What softens “underlying demand?” The obvious response is that people will not buy what they cannot afford.   However, they may be induced to buy what they can’t afford if the financing is sold along with the vehicle. [ADM] Someone has been selling something since 1976 – granted the downward spike during recessions, witness the FRED trends in vehicle sales.

Auto Sales 2016 FRED Which probably has something to do with the trends in financing vehicles, also conveniently calculated and graphed by FRED for Finance Rates on Consumer Installment Loans at Commercial Banks: (New autos, 48 month loan)

Auto Finance Rates FRED

It certainly is easier to see one’s way clear to signing the loan agreement if the rate isn’t the 17.05% it was in 1982, and it’s closer to the 4.25% in April 2016.  And, as a nation we’ve been borrowing, as reported by the NYFRB:

Household Debt 2016

The fly in this ointment is the reported default rate – indicating people who bought, on credit, that which they ultimately could not afford. Again, from the NYFRB:

Loan Default Rates 2016 So far, so good.  For a look at the compilations on household debt between 2015 and 2016 the NYFRB has that information here.  What’s the point?

If we are looking for factors which impinge on the consumer purchases of durable manufactured goods, like cars and trucks, it’s prudent to look at what other forms of indebtedness are also at play in household finances.  Mortgage debt is still the first draw on the households in this country, however, student loan debt was the only form of household debt that continued to increase through the Great Recession and now has the second largest balance after mortgage debt. [NYFR]

While it would be nice to discuss manufacturing policy in terms of imports, exports, and employment – if we maintain that people will not buy what they cannot afford, and if mortgage and student debts hold priority in household bookkeeping, then it isn’t too difficult to see where at least some of the “underlying softness” in such markets as motor vehicles might reside.

Further, as consumer indebtedness increases financial institutions have more fodder for the securitization market, a positive prospect for the financial markets. However, as we learned in 2007-08 there is a limit to the burden the American consumer can bear.

Those manufacturing jobs aren’t just disappearing into China and Mexico, they’re disappearing literally into the waiting “arms” of the Gizmo 9870B robot; and, if demand doesn’t increase above the rather paltry level noted above, then all the credit rate drops in the world won’t keep already overburdened consumers from “softening their demand.” 

Wait. Watch.

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Filed under Economy, manufacturing

The Warning Flags are Up: Trumpsterism and Corporate Debt

Corporate Debt Chart 2016

No, you don’t need to get out the magnifier to get the gist of this chart, but if you’d like to see the original click here.  Simply consider the trajectory of the blue line indicating the level of non-financial corporate business debt – as in UP.  Nevadans may want to gaze at this with some caution, because (to borrow and vandalize a fine old saying) the last time the national economy caught a cold, Nevada got pneumonia.  We can, and should, look at the comparison in the trends of corporate debt, government debt, and household debt:

Corporate Government Debt Levels

In the last five years government debt has dropped precipitously, (don’t show this chart to Uncle Fustian at your holiday dinner it’s likely to jolt his fact free universe) household debt has declined, and “business debt” is way up.  There are all manner of reasons for an increase in corporate debt, and some of them are very productive – such as expansion of plants and factories – others not so much.  We’re in “maybe not so much” territory.

Part of the pile of current corporate debt is the result of stock buy backs, a boomlet of sorts in recent times:

“Over the first six months of the year (2016) S&P 500 companies paid out 112 percent of their earnings in the form of either dividends or share buybacks. That, Damodaran argues, is the kind of figure you might expect to see when a recession had suddenly crimped company cashflows, not during a very long-running, if tepid, expansion.

The last time companies were paying out this much more than they are taking in was in 2008, when the financial crisis hammered revenues faster than companies could cut buybacks and dividends.”

… Certainly the very idea of buybacks has come under increasing scrutiny. While a share buyback improves per share earnings performance, it is a piece of financial engineering which increases leverage but does nothing to improve a company’s product offerings or market position, much less its long-term prospects. Indeed, the vogue for buybacks has happened at the same time as an otherwise puzzling lack of corporate investment, especially given that corporate profit margins are still high by historic standards.” [Time] (emphasis added)

There’s nothing too terribly “puzzling” about this state of affairs.   Why would companies indulge in “financial engineering” while profits are high?  Could it be that the “wealth” of the company is financially anchored rather than structurally? Consider this Household debt service as a percentage of disposable personal income  chart from FRED:

Household Debt trends 2016

Superficially, we could argue that the American consumer has done some belt tightening since the Recession of 2007-08 and there’s less money being paid out in debt service from the family coffers – but, we’d also have to be realistic and see that the debt levels are already too high.

Yes, household debt levels relative to the GDP have been declining, but it remains higher than it’s been for almost all of post-war history, and by post-war we mean World War II. [Slate]  

What else could be depressing loans? Other loans – such as Student Debts. Again, we have a picture of that from the Federal Reserve:

Student Loan Trends FRED

What we see here is an increase in student loans owned and securitized, which are outstanding: from Q1 2006 at $480.9670 to Q3 2016 at $1,396.3355.  Student loan indebtedness now exceeds credit card debt, auto loans, and other non-mortgage debt. [Slate] What’s happening here?  Perhaps those corporate profits aren’t predicated on the increasing number of consumers flocking to their doors?  Perhaps not when consumers have an annual household credit card debt of $16,000; a $27,000 average of auto loans; and $169,000 in mortgages? [Slate]

Then, there’s the matter of real household income in the US.  In the first quarter of 1999 it hit a high of $57,909 and hasn’t been back since. The current figure is $56,516. [FRED]   Little wonder there’s some “financial engineering” going on in the corporate world.   That “financial engineering” especially in terms of stock buybacks simply doesn’t make any long term sense:

“No matter how low-interest rates get, it is hard to justify the raising of corporate debt to purchase outstanding stock. Longer-term debt should be used for longer-term needs, e.g. capital expenditures. But from a macroeconomic view, raising stock prices does not figure in promoting economic growth or general well-being—it is simply financial engineering serving the interest of only shareholders and management. No new jobs are created and no new capital investment is undertaken in a world of corporate buybacks. Investors are simply bribed with their own money.” [FinSen] (emphasis added)

So, where does Trumpsterism come into play?  First, let’s assume, given the preliminary appointments to Commerce and Treasury, that the emphasis in this administration won’t be on reducing student debt and regulating the securitization of corporate debt.  Let’s also assume that a Corporate Tax Holiday in the form of “re-patriated” corporate earnings will be a feature.  How is that likely to be spent?

The Financial Times reports: “Much of the debt sold by companies in recent years has been used to buy back their own shares, pay out higher dividends or finance big mergers and acquisitions. While these buybacks funded by cheap borrowing have boosted earnings, a missing ingredient has been spending on investment to build their businesses.”

Why not? If the consumers (read the other 99% of the US population) aren’t clamoring to spend more (read creating demand) then the “financial engineers” will boost themselves by … buybacks, higher dividends, and mergers and acquisitions.  Or…

“A tax holiday that prompts repatriation of cash held overseas by global US companies, a move investors expect during the Trump administration, could help boost investment. Mr Milligan says it is unclear whether companies will plough any repatriated profits into capital investment or simply boost buybacks.“Repatriation could flow through fairly quickly and lead to a noticeable rise in share buybacks.” [FinT]

In less diplomatic terms – here we go again.  Corporations, getting tax breaks and subsidies, faced with a market in which there is declining or stagnating consumer capacity, find ways to engineer their financial statements.  Nevada has seen this movie before, and it didn’t end well for us.

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Filed under Economy, financial regulation, Nevada economy

Shuffling the Deck and Hiding the Cards: House Guts Buy American rules

Just in case we all missed it, and I suspect we were supposed to, the House of Representatives recently gutted the rules for Buying American products for federal projects.  [DWT] What was all that palaver about ‘saving American jobs,’ and ‘promoting American manufacturing?’  Evidently it’s meaningless to Nevada Representatives Amodei, Hardy (happily on his way out) and Heck (happily on his way out) – all of whom voted in favor of the Water and Energy bill (H.R. 2028) from which the HOUSE REPUBLICAN LEADERSHIP  had stripped the “Buy American” provisions.

It might also be interesting to hear from Senator Dean Heller on the Russian interference with the 2016 presidential election?  Yes, 17 US intelligence agencies – not just the CIA – said Russia was behind the hacking. [USAT]  There’s no “confusion” over this conclusion. There’s no “false flag” operation – that’s the province of fake news and conspiracy theorists.  There’s just no question – and yet Senator Dean Heller (R-NV) has yet to join the bipartisan call for Congressional investigation of this important matter?   If a foreign country can hack in and seek to manipulate a U.S. election, what’s to say it can’t gather blackmail-bait on the Republicans as well as Democrats?

And, what’s the Senator’s stance on GOP plans to cut Social Security? Here’s the first draft of that plan.   The basics:

Those measures include gradually raising the retirement age for receiving full benefits from 67 to 69 and adopting a less generous cost of living index than the current one. The proposal would also inaugurate means testing by changing the benefits formula to reduce payments to wealthier retirees. It would also eliminate the annual COLA adjustments for wealthier individuals and their families. [Financial Times]

It would be easier to sit back and pretend this is a normal political season but it isn’t, and when Teen Vogue does a better job of explaining the Gaslighting of America than the D.C. press, then we ought to figure we’re in trouble – from lies about manufacturing jobs to lies about election hacking to lies about Social Security —

“To gas light is to psychologically manipulate a person to the point where they question their own sanity, and that’s precisely what Trump is doing to this country. He gained traction in the election by swearing off the lies of politicians, while constantly contradicting himself, often without bothering to conceal the conflicts within his own sound bites. He lied to us over and over again, then took all accusations of his falsehoods and spun them into evidence of bias.”  [Teen Vogue]

And that sums up the beginnings of the Trumpster’s administration.

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Filed under Amodei, Economy, elections, Heck, Heller, Nevada politics, Politics

Trump’s Conflicted Interests

Trump Favorite Picture There is little more chilling today than this piece of information from Mother Jones concerning The Trumpster’s conflicts of interest:

That concern exists with Trump, but he presents a unique problem when it comes to conflicts of interest: He and his companies have borrowed hundreds of millions of dollars. These are loans that potentially afford his lenders leverage over Trump. This creates the possibility that Trump may find himself in the position of choosing between US interests and his lenders’ interests. There’s no better example of this than the $364 million Trump owes the struggling Deutsche Bank, which is staggering under fierce pressure from US financial regulators who want the bank to pay for its misdeeds during the run-up to the 2008 mortgage crisis. (Trump is in a real estate partnership that borrowed $950 million from a group of banks including a subsidiary of Deutsche Bank and the state-owned Bank of China.) (emphasis added)

The entire article is well worth the time it takes to read it.

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Filed under Economy, Politics

Capitalism Won’t Be Saved By Republicans

For the sake of this argument let’s assume that while capitalism may not be the most egalitarian system of resource management and allocation, it’s the best one we have to date.  It’s a bit like the definition of democracy – it isn’t perfect, but no one’s come up with anything better.  So, with this in mind we can propose that capitalism is worth saving.  But, saving from what?  And here I climb back on the hobby horse – we need to save free market capitalism from Financialism.

What is Financialism?  If you’ve just tuned in, I’ve been operating with the Armistead definition:

“Financialism is an economic system where the primary activity consists of creating and manipulating financial instruments.  Financial instruments…are in their original form firmly linked to economic reality.  However, when financialism sets in, financial instruments become progressively further removed from their role in supporting commerce in the real world and develop a life of their own.”  [Armistead]

When this “life of its own” comes in to play there are some serious problems for the underlying economy.  Michael Konczal summarizes the issue as succinctly as anyone:

“If you want to know what happened to economic equality in this country, one word will explain a lot of it: financialization. That term refers to an increase in the size, scope, and power of the financial sector—the people and firms that manage money and underwrite stocks, bonds, derivatives, and other securities—relative to the rest of the economy.

The financialization revolution over the past thirty-five years has moved us toward greater inequality in three distinct ways. The first involves moving a larger share of the total national wealth into the hands of the financial sector. The second involves concentrating on activities that are of questionable value, or even detrimental to the economy as a whole. And finally, finance has increased inequality by convincing corporate executives and asset managers that corporations must be judged not by the quality of their products and workforce but by one thing only: immediate income paid to shareholders.”

That second paragraph is a summation of what we’ve been looking at for the last 20 years.   If we were discussing capitalism we’d be talking about economic growth predicated on development in manufacturing, housing, infrastructure, energy, agriculture, primary industries, transportation, etc.  However, we’ve not been talking about capitalism, especially in the media. We’ve been lathered up and shaved by financialism.

We barely know what capitalism is anymore.  What’s the first thing that comes to mind when someone says, “business news?”  If you said, “stock market report” that would reflect what the evening news gives you. Usually the Dow Jones Industrial Average comes first, and then ‘what drives it’ comes in commentary purporting to be analysis.  Consider the following reaction to inquiries about the strength of the economy in 2012:

“The stock market in the past has been a leading indicator, but that leading quality has weakened in recent years. Stock prices are driven by profits and profit growth. During the Great Recession, corporations have been able to maintain profitability by slashing employment to reduce costs. They have streamlined their operations and have squeezed more productivity out of their remaining workers. Thus, higher stock prices don’t necessarily mean a stronger economy, especially in terms of employment growth. That said, I do think the economy is on an upward path, with job growth of about 2 million expected for the national economy in 2012.” [SDUT]

And here we have an illustration of the third point Konczal was making:  Corporations are judged not by the quality of their products, the character of their work forces, the direction of their research and development – but by the immediate income paid to shareholders.

Couple this with the Shareholder Theory of Value, which Jack Welch once referred to as the “dumbest idea in the world,” and the financialist  incentive is to maximize productivity, prioritize immediate results, and ignore the stakeholders for the benefit of the shareholders.  Now, view the Epi Pen issue from the perspective of the shareholders – the object was to increase immediate shareholder value, but:

“While individual consumers may not have had a voice or recourse, the market did. Mylan may have improved its margins and ultimately driven higher returns and shareholder value, but within a week the price increase cost the company $3 billion in market cap and a stock tank of over 12% in 5 days.” [Fortune]

Ethics do matter, especially to stakeholders.  If there is a silver lining in this cloud it is that the stakeholders (individual consumers, school districts, emergency responders, local fire departments…) can place significant pressure on shareholders.  Breach the bounds of acceptable human behavior and the amorphous market will take a bit out of the corporate hide; illustrating former CEO Welch’s point precisely.

Now, let’s enter the political phase.  Republicans would love to dismantle the financial regulation structure which has curtailed some of the excesses of Financialism which precipitated the last Great Recession.  Out with Sarbanes-Oxley, Out with Dodd Frank, out with “excessive regulation.”   This is a recipe for disaster.  Regulation restrains, and restraint is what is needed to prevent capitalism from degenerating into financialism.

Again, a summation from Konczal:

“…the most important change will be intellectual: we must come to understand our economy not as simply a vehicle for capital owners, but rather as the creation of all of us, a common endeavor that creates space for innovation, risk taking, and a stronger workforce. This change will be difficult, as we will have to alter how we approach the economy as a whole. Our wealth and companies can’t just be strip-mined for a small sliver of capital holders; we’ll need to bring the corporation back to the public realm. But without it, we will remain trapped inside an economy that only works for a select few.”

Income inequality on steroids? More Bubbles? More volatility? And, more economic problems associated with those issues.  It will be up to Democrats to resist the financialization of the American system of capitalism because the Republicans are either trapped in its web or ignorant of its consequences.

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Filed under Economy, financial regulation

Warning: Republicans Are Hazardous to Your Bank Account, and this includes Rep. Heck

Dem Rep Job Creation These are some of the most dangerous words ever spoken – with regard to your bank account:

“After eight years of the Obama economy, Americans are struggling with stagnant wages, reduced hours, and decreased economic opportunity. The policies of this Administration, from the Affordable Care Act to the Dodd Frank financial reform legislation, have hurt economic growth and make it more costly and burdensome for businesses to expand and add workers.” [Heck]

Heck tries to waffle a bit in the last segment: “I will continue to support reasonable regulations that protect the consumer, employees, and the environment while working to reduce burdensome federal regulations so that businesses can thrive and create good-paying jobs.”

First, it’s fact check time. As the chart above indicates the ACA and the Dodd Frank Act have not “decreased economic opportunity,” (whatever that might mean) and in light of what’s been happening with Wells Fargo Bank we need to talk about the “burdens of regulation.”  We also need to talk about a piece of legislation that just passed the House Financial Services Committee.

The “Financial Choice Act” —

“The Financial Choice Act split the banking panel with a vote of 30 to 26, with just one Republican, Representative Bruce Poliquin of Maine, siding with the committee’s Democrats against it.

Mr. Hensarling has been a prominent critic of Dodd-Frank and other changes after the 2008 financial crisis, including the creation of the Consumer Financial Protection Bureau to regulate the consumer finance industry.

“It has been six years since the passage of Dodd-Frank. We were told it would lift our economy, but instead we are stuck in the slowest, weakest, most tepid recovery in the history of the Republic,” said Mr. Hensarling at Tuesday’s session. “The economy does not work for working people.”

The legislation, which was unveiled in June, calls for numerous changes to Dodd-Frank. One provision would allow some of the largest banks to exempt themselves from some regulatory standards if they maintained an important ratio of capital to total assets at 10 percent or more.” [NYT]

There’s more. The Financial Choice Act (comprehensive summary pdf) reads like the American Bankers Association Christmas Wish List and Birthday Party requests combined with everything a banker would want from a Financialist Santa Claus.

However, let’s start with the Consumer Financial Protection Bureau about which the House Republicans have several complaints:

“The Consumer Financial Protection Bureau is not accountable to Congress or the  American people. The Bureau’s policies often harm consumers or exceed its legal authority because the Bureau is not subject to checks and balances that apply to other regulatory agencies.” [House pdf]

This is another iteration of the initial whine the GOP wheezed out when the idea of a Consumer Financial Protection Bureau was suggested which would not be subject to the corporate/financialist tastes of Republican Congressional representatives.  The ones who want government so small it can be drowned in a bathtub – and the CFPB along with it.   At this point it might be instructive to ask: What harm has been done to consumers of, say, Wells Fargo Bank, by the CFPB?

“When news first broke that Wells Fargo would pay the largest fine in Consumer Financial Protection Bureau history for routinely opening unauthorized accounts that clients didn’t want or need, CEO John Stumpf put blame squarely on his worst-paid workers.

He’s changed his tune since, as political pressure over the years-long scandal mounted and evidence depicting the high-pressure sales culture at the bank got more attention.

And now, the bank’s board is reaching into Stumpf’s own pocket to discipline him. The CEO will forfeit $41 million in past compensation — all of it in the form of investment holdings that hadn’t vested yet — and the woman who ran his firm’s retail banking unit will give back $19 million of her own.” [TP]

What harm was done by this agency in fining Wells Fargo for its “cross selling scam” that created phony accounts to boost sales figures?  And, what is wrong with this result?

“By clawing back a large chunk of Stumpf’s roughly $100 million in compensation over the past decade, though, the board is hoping to signal that it’s taking the scandal seriously. The day news of the $185 million fine broke, Stumpf portrayed it as an issue of some bad apples at junior positions and said responsibility started and stopped with the 5,300 people fired in response.

That holier-than-thou response first started to crack in front of the Senate Banking Committee last week, when senators including Elizabeth Warren (D-MA) bounced the bank head off the walls of a hearing room for hours.

Wednesday’s announcement of clawbacks comes a day before Stumpf returns to Capitol Hill to face the House’s version of the same inquisition.

Clawbacks are a hot-button concept for finance watchdogs and Wall Street critics. Many of the industry’s sins stem from compensation policies that incentivize executives to break whatever rules they have to keep the company stock rising, knowing they’ll walk away rich even if the company gets caught. Clawbacks, observers and policymakers say, are an important tool in reversing that deviant cycle.” [TP]

So, how do the House Republicans mean to “improve” the CFPB? The CFPB that caught Wells Fargo? Made the Bank pay fines and restitution? Made the Board of Directors claw back the ill-gotten gains of the bank executives and not lay the whole scam on the lower level employees?

The House Republicans want to (1) replace the head of the CFPB with an awkward “bipartisan” board; that should facilitate logjams and obstructionism. (2) Make the CFPB budget subject to specific Congressional control – meaning the Congress can cut the budget until there is no way the agency can do its job. (3) Require a cost benefit analysis of every rule promulgated by the agency – which means if the regulation “costs too much” for the preservation of bank profits the rule dies. (4) Prohibit the CFPB from cutting off “access” to fraudulent or abusive bank practices and products.  In other words, the bankers have the CHOICE to offer any product they wish and if you buy in and get scammed that was your choice as a consumer.

Now it’s time to return to Representative Heck’s own words: “…Dodd Frank financial reform legislation, have hurt economic growth and make it more costly and burdensome for businesses to expand and add workers.” 

Does Representative Heck believe that they current structure of the CFPB as an independent agency is a weakness?  Does he believe that it should be subject to Congressional pressure to weaken its enforcement activities?  Is CFPB protection from fraudulent practices and products really denying Americans “choices” in financial products?

If the “Financial Choice Act” (essentially a repeal of Dodd Frank) came up for a vote in the House today would Representative Heck vote in favor of it?

And how does he feel about the House GOP charges that the CFPB was late to the game and didn’t handle the Wells Fargo case adequately?

“Where was the CFPB? Why did they come in so late to the game?” he continued. “They have immense powers and this is their job to enforce these basic consumer laws and it appears they were asleep at the switch.”

Hensarling also has criticized regulators for the $185-million settlement with the bank, which allowed Wells Fargo to avoid admitting any wrongdoing. 

The controversy over the San Francisco-based financial institution has become the latest flash point in a bitter battle between Republicans and Democrats over the fate of the CFPB, which was created by the 2010 Dodd-Frank overhaul of financial regulations.

The legislation passed with almost no GOP support. Ever since, House and Senate Republicans have been trying unsuccessfully to reduce the power of the bureau, arguing it was designed to avoid congressional oversight and has limited consumer’s access to credit through over-regulation.” [LATimes]

Interesting that the very Republicans who were trying to reduce the power and capacity of the CFPB to regulate lending practices are now trying to blame the agency for not doing enough, fast enough.

“Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, said Republicans are pushing “a false narrative” about the CFPB’s role in the Wells Fargo case in order to discredit the agency.

“The fact is the CFPB and OCC were investigating before the L.A. Times story came out,” he said. “But that does not mean that the leading congressional opponent of the CFPB won’t try to pitch that narrative again at this hearing because it plays to his base. But it’s simply false.” [LATimes]

Nice try, Rep. Hensarling, but there’s an ample record of Republican opposition to the creation, organization, and implementation of the CFPB to make any contention that the 1,600 man/woman agency wasn’t trying to do its job in regard to the egregious practices of Wells Fargo. As the old saw goes: That dog won’t hunt.

So, the next question to Representative Heck (and Hardy and Amodei too) is: In light of the Wells Fargo scandalous behavior and the bilking of its own customers, what are you advocating to increase the power of the Consumer Financial Protection Bureau to actually protect PEOPLE and not the bankers who have been scamming them?  No one chooses to get bilked, and no one should have to tolerate banks who chose to bilk their customers.  Period.

** On the other hand Nevadans who want adequate protection from illegal, illicit, and otherwise unethical banking practices have an advocate running for the U.S. Senate – Catherine Cortez Masto, who has a track record of taking on the big banking interests on behalf of us “little people who pay taxes.”   A candidate with an endorsement from the woman who fought for the CRPB, Elizabeth Warren:

“I’m so grateful to have Senator Warren’s support,” said Cortez Masto. “Senator Warren and I are both committed to taking on the big banks, protecting consumers, homeowners and helping to grow the middle class – issues I championed as Attorney General and hope continue doing in the U.S. Senate with her. Unlike my opponent Joe Heck who has voted to keep tax breaks for big corporations and billionaires like the Koch brothers, I will fight for policies that help hard working Nevadans, not hurt them.”

“Catherine’s race is critical to restoring our Democratic majority,” said Senator Warren. “During her two terms as Nevada’s Attorney General, Catherine held big banks accountable and fought predatory lending, cracked down on sex trafficking and got tough on elderly, child, and domestic abusers. Catherine knows who she’s fighting for and I need her fighting alongside me in the Senate.” [Link]

And there’s the choice – let the banks make the choices? Or, protect people from the banks’ bad choices.

Comments Off on Warning: Republicans Are Hazardous to Your Bank Account, and this includes Rep. Heck

Filed under Economy, financial regulation, Heck, koch brothers, Nevada economy, Nevada politics, Politics, Republicans