Category Archives: financial regulation

The Government Regulations They Love To Hate

The Republicans have catch phrases which have been very handy for their purposes for the last forty years, “burdensome regulations,” are among them. Rarely do they want to identify upon whom the burden rests. Often they are fond of calling the regulations “job killing.”  Nearly always the “regulations” are amorphous, and highly generalized.

Let’s get specific.  Senator Rob Portman will be introducing a bill which, in its present form, would limit the ability of federal agencies to promulgate rules until every last lawsuit against them is completely litigated. In other words, NEVER.  So, what nefarious regulations would people like to have eliminated?

How about eliminating the regulations associated with the Clean Water Act?  One regulation has already fallen — the one limiting toxic sludge emptied into freshwater.  Is this going to make drinking water any safer? Will this encourage the development of tourism based activities in coal country to diversify their economy by adding more hunting and fishing opportunities?  Will elimination of these rules make the drinking water in Flint, MI and other American cities safer for children, and adults?  Do we really want to go back to the not-so-good old days when the Cuyahoga River caught fire in Cleveland, OH?

Or perhaps people would like rules associated with the Clean Air Act eliminated?  What’s wrong with breathing a little smog — other than creating public health issues like an increase in the incidence of asthma? Respiratory diseases? Lung cancer? What’s wrong with creating a country of people walking around with face masks as they do in Beijing?

How about eliminating consumer protection regulations?  Gee, what could go wrong, other than a replication of Wells-Fargo’s egregious practice of opening accounts people didn’t know about and then charging fees on those accounts?  Other than predatory lenders charging unimaginable rates for pay day loans to working people, and even members of the US Armed Forces?  Other than mortgage servicers failing to notify customers who held their mortgages and failing to properly record documents with local governments? Other than obviously dangerous products being available for sale to unwitting customers, customers without the ability to check online to see if products for infants, children, and others are safe and free of deadly defects?  Other than allowing financial advisers being able to tell retirees to purchase financial products which benefit the adviser far more than they would benefit the retirees?  Other than making it easier for the Wolves on Wall Street to indulge in Casino play with investment funds?  Were these the “burdensome” rules of which we wish to be relieved?

It’s interesting, that Republicans are only too pleased to speak of those regulatory burdens in highly generalized terms, but when brought down to cases, they tend to sputter that “No, it’s not Those” regulations of which they speak.

Who is in favor of providing federal funds to schools that allow bullying and discriminatory behaviors in their buildings? Who is in favor of making it more difficult to determine if lending institutions are cheating their customers?  Who is in favor of dirty air and filthy streams?  Who is in favor of making it more likely that food sold to the public won’t be properly inspected? Let’s guess it’s NOT the average American member of the public at large.

Someone is in favor of removing these, and other obstacles, to free wheeling unrestrained and unregulated corporate practices, and in this Congress they are finding significant support.

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Filed under Economy, financial regulation, Politics

Republican Myths and Legends

Good morning, another day another 24 hours of trumpster fires, lit by the tinder of well worn Republican mythology.

The Economy Works In Reverse.  Let’s guess that the whopping increase in defense spending will be covered by an increase in “economic growth.”  I doubt very seriously that my utility company would be much impressed by my assertion that increases in my power bill will be paid for by my getting up an hour and a half earlier every morning.  The argument would go “because I get up earlier I will be more productive, and if I am more productive then my earnings will increase. If my earnings increase then I will have more money to spend, and therefore my bills will ‘pay themselves.'”  Gee, perhaps if I aroused myself two hours earlier I could trade my vehicle in for a Cadillac CTS-V? Somehow, I don’t think my banker will be sufficiently enamored of my presentation to hand over the money.

There’s another facet of the administration’s fantasy economy which we need to discuss, at least two ways in which while waving its firearms it shoots itself in the foot.  Round one into the metatarsal — anti-immigration rhetoric and action.  Before theorizing about economic growth, the GOP might want to look at economic activity in our major urban centers, which depend in no small part on their immigrant communities.

Round two into the navicular bone comes compliments of heavy budget cuts. For the millionth time in this blog, there’s a formula for the gross domestic product.  Once more C+I+G + (Ex-IM) = GDP.  That G stands for government spending, and not just defense spending.  Want to expand the consumer economy? Then remember that every dollar spent on the SNAP program almost doubles in economic activity.

Round three into the phalanges: Seek to limit increases in the minimum wage.  Evidently it has not occurred to GOP economists that people do not spend money they do not have.  They can accumulate debt (which Wall Street is only too happy to securitize) up to a point, but the point is quickly reached. Delinquency happens, leading to defaults, leading to the unraveling of all those beautifully packaged tranches of securities.  We know what happened last time.

Round four into the cuboid, continue the progress of income inequality, the trends of which promote the accumulation of wealth into fewer hands, creating a surplus to be used not for corporate promotion and expansion but for the collection and trading of risk diversion securities or for corporate buy-backs which do NOT generate economic growth in the overall economy but bolster the financial sector.  Have I been railing about Financialism before? Constantly?

Four shots into the foot and we’re not walking, much less running, anywhere towards overall economic prosperity.  It’s the return of the old, stale, Trickle Down Supply Side Hoax nurtured and pampered by right wing think tanks and GOP orthodoxy.

And now, we should return to a discussion of why we need an independent commission to investigate the political and economic ties of the Trump-Bannon regime to the Russian government. We might also want to avoid the trap of calling for a special prosecutor, which would only have the authority to investigate outright crimes, when what we need immediately is an investigation into the possibly profound security risks in the executive branch.  But that’s a discussion for another post.

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Filed under conservatism, Economy, financial regulation, Politics, Republicans

Monday Morning and The Press

There are several things of note this morning, probably the least important of which is the Blunder at the Oscars, although that’s one of the more entertaining.  Added to this is the current administration’s rather bombastic squabble with the press, however, this too is of more interest to the media itself than an actual matter of national interest.  In fact, some of the best political reporting is that which is done outside the confines of news conference spin sessions.   For example, in 1902-03 Ida Tarbell didn’t need to attend press conferences to expose the machinations of John D. Rockefeller and Standard Oil. Nor did Upton Sinclair need a gaggle to write about the meatpacking industry in 1906.  In 1953 reporter Murrey Marder followed the serpentine trail of Senator Joe McCarthy and helped expose the duplicity of the Senator’s charges against the Army. Surely, the administration wasn’t applauding David Halberstam’s coverage of the war in Vietnam. Woodward and Bernstein weren’t following White House press gaggle threads to uncover the Watergate story, nor was Dana Priest relying on press releases about black sites in eastern European countries, or when she revealed conditions at Walter Reed Hospital.

In short, some of the very best reporting has resulted from investigations outside the walls of various and sundry executive offices.  There are stories still unfolding which may have an extraordinary effect on American politics and governance, and the information essential to their explication won’t come from anyone’s gaggle, no matter who is invited.

Suggestions?

#1. The Trump Russian connections.  As the Boston Globe opined:

“The issues raised by Trump’s Russia connection are some of the most serious that this country has ever confronted. We could have a president who is vulnerable to blackmail from Moscow and even worse, one who has committed treasonous offenses. As long as these questions go unanswered there will be a permanent black cloud over the White House — and the country.”

We could have a president subject to blackmail? We could have a president whose financial ties to Russian interests impact his decision making? We could have an administration so entangled with Russian financial and political entities that we have allowed an infringement on our own sovereignty?  Investigative journalism is necessary if we are to avoid that “permanent black cloud.”

#2. The rise of white nationalism/supremacism and the nature of Antisemitic acts and the assaults on Muslims and their mosques. If anything tears at the fabric of American civic life it’s the demonization of ethnic and religious minorities, and the tacit support for the demeaning and desecration of religious institutions.  No, the conservative white Christian establishment is not under “attack.” However, synagogues, mosques, and cemeteries  definitely and physically are.  Does the current administration bear some responsibility for emboldening the hateful people who commit these acts?  What steps must the federal government take to discredit and diminish the organizations which seek to perpetrate them?  We know a great deal about the membership, publications, and activities of these organizations, however we’re missing more essential writing on the impact these groups have in terms of radicalizing white nationalists. What motivated the current administration to shift law enforcement focus away from domestic terrorists and pay almost exclusive attention to foreign sources?  We may think we know the answers, but more reporting would be extremely useful.

#3. The impact of anti-immigrant fervor on American economic growth.  As noted in a previous post, the anti-immigrant plus anti-Muslim posture of the current administration could have significant effects on the tourism, agriculture, housing, and food service sectors. It’s going to take some research and analysis from business reporters to fully understand the impact of this posture on our economy.

#4. The assault on the institutions of democracy by those who promote vote suppression and gerrymandering.  Again, we have had more than enough examples of the blatant attempts to restrict the Right To Vote. The story is NOT about vote fraud, it’s about the fraudulent attempts to prevent people from voting.  The story is about a nationwide attempt, to deliberately freeze out qualified voters, eliminate them from the rolls, and prevent them from voting in convenient polling places, by a national political party and its myrmidons.

I need to immediately acknowledge that my list may not be everyone else’s list, and that I’ve left out topics like women’s reproductive health issues, health care access. and climate change, but there’s always room for MORE investigative journalism and more topics of national and international interest. Indeed, investigative journalists could turn the “tennis ball machine” back on the White House, and give the Oval Office a daily dose of its own distraction.  After all, a good offense is often a good defense.  Every session in which the administration has to justify its ties to Putin, has to explain the rise of white supremacists, has to speak to the economic impact of anti-immigrant policies, has to find ways to excuse vote suppression, is a session in which it has less opportunity to promote the Trickle Down Hoax and its embrace of Wall Street.  For that matter, why not add in more reporting about the administration’s efforts to promote Wall Street interests at the expense of Main Street?

Politics is, indeed, a contact sport and the sooner this administration finds out the truth of that old saw the better.

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Filed under Economy, financial regulation, Immigration, Islam, Nativism, Politics, racism, Republicans, Vote Suppression

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

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

Who’s Heck Representing? A Look At The Advertising

Heck Trump Hat

A bit of time spent watching local television in the wilds of northern Nevada yields a real bundle of political advertising – much of which comes from the campaign to elect Representative Joe Heck to the U.S. Senate, but the fine print is almost more interesting than the ads themselves.

For example, during one broadcast of one network show, we’re treated to advertising from (1) the National Republican Senate Committee, two ads, (2) the U.S. Chamber of Commerce, (3) the National Rifle Association, (4) two ads from the American Chemistry Council, (5) two ads from the State Leadership Fund, (6) the National Association of Realtors, and 7) one ad from Heck’s campaign.

There’s nothing unusual about the NRSC running ads in a battle ground state, especially this season.  The others raise some questions.  For example, the US Chamber of Commerce isn’t a bit shy of publicizing its policy priorities.

There’s some interesting rhetoric therein, but the translations are fairly simple.  The Chamber wants:

“Regulatory Overreach—Guard against senseless regulations that wrongly attempt to eliminate all risk taking and innovation from the capital formation process. Work with regulators and Congress as they implement the Dodd-Frank Act and other regulations to ensure a more prudent approach to oversight and enforcement.”

Notice that the “risk” part of the equation isn’t clear – whose risk?  In the case of the Dodd Frank Act the idea was to reduce the risk to the American tax payer who was previously on the hook for Wall Street transgressions.  And that “innovation in capital formation” were those very creative, if highly dubious, financial ‘products’ Wall Street created in the run up to the last big collapse.   If we want a more ‘prudent approach’ to oversight then we need to keep to the spirit of the Dodd Frank Act and oppose any efforts on behalf of Wall Street casino operators who wish a return to the bad old days of rampant financialism.  Let’s look at something else the Chamber would like Representative Heck to support:

“Executive Compensation and Corporate Governance—Ensure careful and sensible rulemaking and implementation by the Securities and Exchange Commission (SEC) where needed and preserve the state-based system allowing decisions to be made through directors and shareholders. Reasonable policies must permit pay for performance and promote long-term shareholder value and profitability but not constrain reasonable risk taking and innovation.”

Shorter version:  Let the states with the least corporate regulation set the standards for determining the process for corporate management pay.  Notice the part about promoting “long term shareholder value?”  It’s not too hard to decipher this one.  Let the states with the lowest standards of regulation be the models, and executive compensation should be based on “shareholder value,” – the model which gets us pharmaceutical executives explaining blooming increases in drug prices – and “profitability,” not necessarily corporate investment in research and development.   Even shorter version: Let the corporations do what they want about executive compensation.   Let’s look at another source of support for Representative Heck.

The American Chemistry Council.  The ALEC associated trade organization is worried that Americans will take environmental warnings entirely too seriously.  Like having the Toxic Release Inventory not compiled or reported to the public as often – after all what we don’t know won’t hurt us?

“While promoting the chemical industry as vital to the economic health of the nation the ACC simultaneously lobbied against the Toxics Release Inventory (TRI), a public right-to-know program. Under TRI, the U.S. Environmental Protection Agency annually reports on what industries release into the air, water and land. The ACC “has urged less frequent reporting since 1999.” ACC’s Michael Walls said, “Just because we’re used to doing something doesn’t mean we should accept the inherent high costs or burden of doing it.” The Bush administration supports changing the TRI so that fewer releases are reported, less frequently. EPA officials say they will “likely spend another year weighing the pros and cons” of the proposed changes, after the public comment period ends on December 5. According to federal records, the EPA “previously solicited comments from industry groups.” [SWatch]

In essence, the ACC is telling Nevada voters — “Vote for Joe Heck, and you won’t have to worry about toxic releases into our air and water – because you won’t know about them, and as a bonus, you can keep on using those plastic shopping bags to your heart’s content.”  And now we have the …

National Association of Realtors, who would like to remove:

“Overly stringent lending standards have continued to limit the availability of affordable mortgage financing for credit worthy consumers. Federal policymakers are weighing a number of proposals aimed at creating healthier housing and mortgage markets.”

Remember that time when lending companies were writing mortgages hand over fist over elbow, often to very tenuously credit worthy customers? The NAR would like very much to return to that scenario.   The result was the Housing Bubble, and we don’t need a repetition  of that debacle in Nevada.  We’re barely past the last version of exploding ARMs.

And then there’s the ubiquitous NRA, what more can we say but that any regulation of firearms is anathema to these radicals – even question One in Nevada which merely calls for the implementation of background checks to every gun sale. No, it doesn’t apply if your girl friend want to borrow a gun. No, it doesn’t apply to trading guns with your hunting partner! No, it doesn’t mean you can’t share your arsenal with family members! And, no it doesn’t mean the downfall of the democracy… that’s NRA hyperbole and most Nevadans know it.  The NRA hysteria is costing Americans 30,000+ lives every year, countless injuries, untold tragedy, and more suicides than we’d care to consider.  Who’s NOT in favor of limiting access to firearms to felons, fugitives, the adjudicated mentally ill, domestic abusers, and unsupervised juveniles??

So, the next time there’s a wave of Pro-Heck advertising on the TV screen, read the small print at the end …. Who is supporting Representative Heck and what do they want?

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Filed under financial regulation, Heck, Nevada politics

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