Tag Archives: Dodd-Frank Act

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

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

Please stop clapping long enough to check your wallet?

The followers of the Orange Agent of Change applaud his “actions” which they take to mean validating their world view informed by Faux News.  If they have a moment, they might want to stop for a moment and check their wallets.

At the next town hall meeting, if in fact your Republican Representative deigns to have one,  there are some pertinent questions you might want to ask because they relate directly to your very own money.

(1)  Why did the Republican House pass HJ Res 67 on February 15, 2017 which rescinded the Labor Department rule requiring financial advisers for retirement accounts to give YOU advice in YOUR best interest, and instead allowing those advisers to revert to giving you advice that could be based on what was profitable for their own firm?

*Nevada note: Representatives Rosen, Titus, and Kihuen voted against this, Representative Amodei voted in favor of it.

The babble you may get from those Representatives in support of this will almost certainly center on the banksters’ argument that the rule impinges on their profitability, and may thereby reduce their ability to provide service to you. Service like this you could do without.  If your financial adviser won’t agree to provide you with retirement investment suggestions based on YOUR best interests, then it’s time for you to reconsider your relationship with that company. You should expect your adviser to act in YOUR best interests and not use you (and your money) to generate fees and revenue for their own company.

(2) Why do House Republicans want to strip the Consumer Financial Protection Bureau of its power to protect average Americans from predatory lenders and other financial scams?

“Legislation in the works would limit the bureau’s enforcement authority, reduce its ability to make rules and repeal its consumer complaint system.

It would also greatly shrink the enforcement tools at the consumer watchdog’s disposal, blocking it from being able to go after businesses engaged in deceptive practices and restricting its oversight of big publicly traded companies that are already regulated by agencies such as the Securities and Exchange Commission.” [NYT] [The Hill]

This is precisely what H.R. 1031, introduced by Rep. John Ratcliffe (R-TX4) would do.  Please pay special attention to the part wherein the GOP wants to strip out the consumer complaint system.  Without consumer complaints Wells Fargo could have gleefully, and profitably, carried on opening fraudulent accounts and charging fees. Instead, they’ll be paying a $185 million dollar fine. [NYT]  In fact, the CFPB has caused the restitution of some $11 billion for defrauded Americans. [The Hill] The bill looks to be approved by the House Financial Services Committee.  Remember how Republicans are fond of telling you that you deserve to keep your money?  Well, the CFPB is one good way of helping you to keep your very own money out of the mitts of unscrupulous banksters.

Here’s guessing that removing the relative independence of the CFPB is a way to reward the banksters, the predatory lenders, and others who don’t want any restrictions on their actions – no matter the cost to US consumers – and this should not pass unnoticed.  This isn’t exactly helping you keep your money in your wallet or bank account.

Then perhaps the Congressional representative will be willing to hear what you have to say about stripping 320,000 of their health care insurance coverage in the state of Nevada? [previously on DB]

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Filed under consumers, Economy, House of Representatives, Politics, Republicans

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.

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

Contrary to the Image: Joe Heck IS a politician

Heck Trump Hat

Contrary to the nifty images of Brigadier General Doctor Heck – and his advertising campaign – Joe Heck (R-NV03) is a POLITICIAN.

Yes, and he has been for some time now.  Heck served in the Nevada Legislature from 2004 through 2008 as the Senator from District 5.

“….serving on the Natural Resources, Human Resources and Education, and the Commerce and Labor Committees, and as Vice-Chair of the Transportation and Homeland Security Committee.” [Heck]

He was elected to the NV-03 Congressional seat on November 2, 2010, and served in that capacity until his decision to run for the Senate seat being vacated by Senator Harry Reid.

He is  pleased to let one and all know of his committee assignments in Washington, D.C. Armed Services, Education and Workforce Committee, House Permanent Select Committee on Intelligence, but rather than note these connections in D.C. Heck has decided to run as an “outsider?”

During his political tenure in Washington Heck has, indeed, made some connections:

“Heck’s record show he has been anything but (independent); in reality, he has joined his fellow Republicans in Congress to consistently advocate for a special interest, self-serving agenda at the expense of Nevadans. This point is exemplified by Heck consistently voting for the Koch Brothers agenda in Congress, where in 2013 alone Heck voted with the Kochs 100% of the time.” [SM.com]

There’s more:

“Heck’s alignment with the Republican Congress and its special interest agenda is best exemplified by one metric in specific: the percentage of times he votes with the Koch brothers. This year he has voted with the Kochs nearly 90% of the time, and in 2013 he voted with them 100% of the time.  The Republican billionaires, who have spent heavily on Heck’s campaigns, are now seeing a significant return on their investment with Heck voting for their agenda in Congress. Heck voted for billions in taxpayer-funded subsidies for big oil companies and even voted to protect tax breaks for companies that outsource American jobs.” [SM.com]

Full PDF report here.  As a reminder – the Koch Brothers do have an agenda, and supporters of Senator Bernie Sanders are probably aware of this information on the Koch Brothers’ wish list.

Heck has voted WITH the Koch Brothers 90-100% of the time – so where does he stand on abolishing Medicare and Medicaid? On repealing Social Security? On eliminating the minimum wage? On abolishing the capital gains tax? On abolishing the Food and Drug Administration?  Getting rid of the Consumer Product Safety Commission? The Occupational Safety and Health Act?

And then there’s the more recent Dodd Frank Act, regulating the banking sector – Heck demonstrated his allegiance to the bankers – here’s a trip down memory lane:

“Marching back to July 26, 2012 we find Representative Heck voting in favor of the interestingly titled HR 4078 “Red Tape Reduction and Small Business Job Creation Act.”  The title was commonplace, everything in those days had “small business” and “job creation” attached to the title, perhaps to obscure the fact that the Congress had done exactly diddly to create jobs or help really small businesses.  The effect would not have been small, or particularly creative.

HR 4078 would have prohibited any federal government agency from promulgating or taking “significant regulatory action,” unless the employment rate dropped below 6%, defining  “significant regulatory action” as any action that is likely to result in a rule or guidance with a fiscal effect of $50 million or more as determined by the Office of Management and Budget, or to adversely affect one of the following, including, but not limited to (Sec. 105) [PVS]  Now why would this bill illustrate Representative Heck’s allegiance to the banking sector?

Answer: Because the Dodd-Frank Act regulating the financial sector was enacted on July 21, 2010 – that would be the Wall Street Reform and Consumer Protection Act – and the agencies were in the rule making process when HR 4078 was considered in the House.  Now, what sector of the economy was going to see a $50 million dollar effect?  Here’s a clue: It’s not family owned bodegas and gas stations.  The banking industry did NOT want to see any regulation, any restraint, any inconvenience to their consumer gouging practices and HR 4078 was the result.  (And, the law if enacted would have prevented any more attempts to contain climate change – a bonus in GOP eyes.)”

Compare this action in allegiance to the banking sector with what’s been going on recently.   Several thousand customers of Wells Fargo Bank would have received no justice at all had Heck had his way and abolished the rule making authority of the Consumer Financial Protection Bureau, or abolished the agency completely —   September 8, 2016:

“For years, Wells Fargo employees secretly issued credit cards without a customer’s consent. They created fake email accounts to sign up customers for online banking services. They set up sham accounts that customers learned about only after they started accumulating fees.

“On Thursday, these illegal banking practices cost Wells Fargo $185 million in fines, including a $100 million penalty from the Consumer Financial Protection Bureau, the largest such penalty the agency has issued.

Federal banking regulators said the practices, which date back to 2011, reflected serious flaws in the internal culture and oversight at Wells Fargo, one of the nation’s largest banks. The bank has fired at least 5,300 employees who were involved.

In all, Wells Fargo employees opened roughly 1.5 million bank accounts and applied for 565,000 credit cards that may not have been authorized by customers, the regulators said in a news conference. The bank has 40 million retail customers.” [NYT]

And Representative Heck doesn’t think the CFPB needs to exist? Tell that to the 1.5 million bank customers who were ripped off.  Representative Heck isn’t a politician? Tell that to the Koch Brothers for whom he’s been a reliable ally? Tell that to the Wall Street Bankers for whom he’s carried so much water?

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Filed under financial regulation, Heck, koch brothers, Nevada politics

Trump’s Economic Siren Song

Siren Song The words “Trump” and “plan” should really never be used in the same sentence. Witness the speech to the Detroit Economic Club.  Here’s what the Reuters News Service gleaned from Trump’s speech:

“Republican presidential nominee Donald Trump on Monday proposed tax breaks for working families and for corporations as he outlined economic plans in an effort to regain momentum lost during a damaging spate of controversies.

Trump said his plan would include imposing a temporary moratorium on new federal regulations and a reduction to the tax burden on working parents with childcare costs.

He proposed cutting the number of federal income tax brackets from seven to three and reducing the top rate to 33 percent from 39.6 percent. He had previously said he would drop that rate to 25 percent, an idea many tax experts said would dramatically reduce government income and balloon deficits.”

First, notice in the second line of the article quoted above that Mr. Trump “outlined economic plans,” NOT offered any specifics —  those will come later, just as every other suggestion made by the Republican nominee will come later, if at all.  If ever.

The Rich Get Richer and 88.7% Get Nothing

Secondly, those “tax breaks for working families” aren’t for all working families just some of them – even the Wall Street Journal noticed:

“It wasn’t clear how such a tax break might be structured and whether it would be available to tens of millions of families that don’t pay income taxes because they have lower incomes. Making child-care expenses fully deductible would provide much larger benefits to the wealthiest families that have larger tax bills.”

Nice.  However, we can clarify this to some extent.  The Tax Policy Center offers this information about working families, tax bills, and who needs the help the most:

“Only 11.3 percent of households in the bottom income quintile will pay federal income tax in 2015. In contrast, 59.3 percent of households in the lowest income quintile will owe payroll taxes. Combined, 60.3 percent of households in the lowest income quintile will owe federal income or payroll taxes.

In many cases, low-income households owe no income tax. That’s because, in 2015, a married couple with two children can exempt $28,600 from income using the standard deduction and personal and dependent exemptions. Generally, smaller amounts can be exempted from smaller households and larger amounts from larger households.”

The arithmetic is simple. Only a bit over 11% of households in the bottom income quintile owe federal income taxes – and these are the ones which would benefit from Trump’s “deduction.”  What the other 88.7% of the families in that quintile get from Mr. Trump’s “plan” is nothing.

Deregulation

We’ve heard this song before.  More specifically, a campaign aide told the Wall Street Journal, this means Trump wants to slash EPA regulation on carbon pollution, and halt the preservation of wetlands and waterways.  Nothing new here.  It’s the same GOP rhetoric of old, conflating all regulation with EPA and conservation rules.  This, while 1/3rd of the residents of California still lived in areas as of 2014 which did not meet Clean Air standards. [LA Times]

Reporters slid by deregulation of the financial sector (read: Wall Street Casino) However, this past May the Republican candidate called for dismantling the Consumer Finance Protection Bureau, and reversing the regulations in the Dodd Frank Act.  [Fortune]  There’s nothing new here either, just more generalized GOP talking points.

Jolly Little Trade Wars?

“At the same time, Mr. Trump has promised to aggressively use executive power to renegotiate trade agreements, to label foreign countries as currency manipulators and to apply tariffs and other penalties to trading partners.”  [WSJ]

Lovely.  First, China is our Number One import partner.  Mexico is second, and Canada third.  [Census FT]  We’ve imported $212.2 billion worth of stuff from China thus far this year; $145.2 from Mexico; and, $137 billion from Canada.  Not surprisingly these three are also our top three export partners, in order: Canada, Mexico, and China. [Census FT] Is Mr. Trump truly suggesting that we get into economic battles with our top three economic partners?  Are we really going to benefit from practicing Hoover-ian Protectionism in relation to our top three partners?

Trump said:

“At the center of my plan is trade enforcement with China. This alone could return millions of jobs into our economy.

China is responsible for nearly half of our entire trade deficit. They break the rules in every way imaginable. China engages in illegal export subsidies, prohibited currency manipulation, and rampant theft of intellectual property. (65 66) They also have no real environmental or labor protections, further undercutting American workers.”

[…] Trade has big benefits, and I am in favor of trade. But I want great trade deals for our country that create more jobs and higher wages for American workers. Isolation is not an option, only great and well- crafted trade deals are.” [Time]

Yes, Chinese manufacturing policies are heinous.  However, what Mr. Trump has on offer IS protectionism and isolation; no matter how politely it’s phrased.   Or how vaguely it’s expressed, as on Trump’s website explanation.  Missing from the Detroit address and the website mentions are the 35% tariffs Mr. Trump proposed last May. [National Review]

Further, Mr. Trump appears to be operating on the happy delusion that simply declaring China to be a currency manipulator will force them to re-negotiate our trade deals.  Not. So. Fast.  Manipulation is in the eye of the beholder.

“Reasonable people can and do disagree about how countries conduct their monetary policies: what price should the central bank fix, or at what pace should that fix evolve. But to label as manipulation the conduct of monetary policy itself betrays a fundamental confusion about the operation and goals of central banks. If Zhou Xiaochuan,governor of the People’s Bank of China, is a currency manipulator, then Janet Yellen is an interest-rate manipulator.” [WSJ]

As is becoming all too noticeable, Mr. Trump’s understanding of the monetary policies involved is essentially shallow. The Wall Street Journal continues:

“Movements in the nominal yuan exchange rate have almost no long-term impact on global flows of exports and imports or on broader considerations such as average wages. The exchange rate that matters for trade flows is the real exchange rate, i.e., the nominal exchange rate adjusted for local-currency prices in both countries.

The real exchange rate, in turn, reflects the deep forces of comparative advantage such as technology and endowments of labor and capital. These forces drive trade regardless of monetary policy.”

Sorry, Mr. Trump, it seems as though a bit more sophisticated understanding of exchange rates is necessary – and, no, merely declaring China a “currency manipulator” isn’t likely to do much, and certainly not much in terms of wages for American workers.  It really would do Mr. Trump some good if he’d check out the article by the Dean of the Tuck School of Business at Dartmouth in the WSJ. [ Also WPO Blog, CFR, and then of course there are the Federalists]  Little wonder Republican economists are jumping ship.

Bottom Line Towards the Bottom of the Barrel

It isn’t hard to summarize Trump’s “Economic Plan,” – first, it’s not a plan.  It is an aspirational outline of economic ideas, none of which are anything new. Romney suggested declaring China a “currency manipulator” during his campaign, and the anti-regulation rhetoric goes back to the 1971 Powell Memo. It’s rather more a laundry list of Republican wishes – deregulate, repeal the Affordable Care Act, bash China, and ‘act strong.’   In this, Mr. Trump seems to be unable to differentiate between acting and posturing.  The speech was all pose in bad prose.

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Donald The Destroyer Aims at the Dodd-Frank Act

Trump 1 Nothing will set the DB flashing quite like a threat to deregulate the financial sector.  And  Donald the Destroyer has done it.

“The presumptive Republican presidential nominee told Reuters in an interview published Tuesday that in two weeks he’ll release a financial regulation platform that includes repealing most of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“I would say it’ll be close to a dismantling of Dodd-Frank,” Trump said. “Dodd-Frank is a very negative force, which has developed a very bad name.” [TheHill]

Let’s be very clear at this point.  Here’s what the Dodd-Frank Act contains:

“Taxpayers will not have to bear the costs of Wall Street’s irresponsibility: If a firm fails in the future it will be Wall Street – not the taxpayers – that pays the price.

Separates “proprietary trading” from the business of banking: The “Volcker Rule” will ensure that banks are no longer allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. Responsible trading is a good thing for the markets and the economy, but firms should not be allowed to run hedge funds and private equity funds while running a bank.

Ending bailouts: Reform will constrain the growth of the largest financial firms, restrict the riskiest financial activities, and create a mechanism for the government to shut down failing financial companies without precipitating a financial panic that leaves taxpayers and small businesses on the hook.” [Link for more information]

So, let’s review.  What Donald the Destroyer is proposing is that in repealing the Dodd-Frank Act – taxpayers WILL be on the hook for Wall Street debacles, and there will be NO mechanism by which a failing financial institution can be shut down without damaging taxpayers and small business.  What Mr. Trump is advocating is essentially more taxpayer secured bailouts, more financial system insecurity, and more games played by bankers/hedge fund managers with depositors money.  Like that?

Dodd-Frank is a very negative force?  Says whom?  Certainly not the writers at Fortune magazine

“The U.S. economy has recovered since the financial crisis, and it’s impossible to know how much lending would have increased without Dodd-Frank. Indeed, the amount of cash that banks hold collectively is up nearly $700 billion in the same time. At least some of the jump has to do with the fact that Dodd-Frank was passed after lending had dropped considerably. But even factoring in that plunge, there are now $800 billion more in bank loans outstanding than there were before the financial crisis, when everyone seems to agree there was less financial regulation.”

What “negative force?”  With $800 billion more in outstanding bank loans than there were before the crash and smash of 2007-2008, the provisions of the bill obviously haven’t diminished lending.  But wait, as they say in the infomercials, there’s more:

“Recently, business lending—the kind that Donald Trump says Dodd-Frank has hurt the most—has increased rapidly. Lending to commercial and industrial companies, which often referred to as C&I lending, jumped $71 billion in the first quarter, and it is up 60% since Congress passed Dodd-Frank. In the first quarter, C&I lending eclipsed residential mortgage lending for the first time since the 1980s.”  [Fortune] (emphasis added)

But, why take Fortune’s word for it? Let’s take a look at the Federal Reserve’s tracking of C&I loans for the last ten years.

FRED C&I lending

Does the line on this chart indicate to you that anything (the Dodd-Frank Act included) has a “negative impact” on commercial and industrial lending by all commercial banks?  As of April 2016 all commercial banks in this country had loaned $2,047.4917 Billion in U.S. dollars.  The current level is a 72.36% increase over the commercial lending level of $1187.9395 in August 2010.  So, the Dodd-Frank Act was signed into law on July 21, 2010 and now we see a 72.36% increase in C&I lending by commercial banks.   Only by turning the FRED chart upside down, could we remotely conclude that the Dodd-Frank Act has been a negative force on commercial bank lending.

Perhaps he’s talking (through his hat) about mortgage lending?  FRED has some handy data in its Make-A-Chart system for that too.

FRED Mortgage lending

The direction of the line on the chart since August 2010? UP.  Not quite up all the way to the $13,830,587.23 million level of the 4th Quarter of 2010 as the housing bubble fizzled, but close enough to call it a recovery, i.e. a decrease of 0.2513%.

The one chart that is “down” is that for residential mortgage holders in one to four family housing units.

FRED Family mortgage lending

At the height of the housing bubble (Q1 2008) the total was $11,320,563.29 million; as of Q4 2015 the total was $9.986,024.00 million.  However, before attributing that to the “negative force” of the Dodd-Frank Act there are some other factors which ought to be considered:

  1. Some of the loans made during the Housing Bubble should never have been made in the first place.  That was the era in which Wall Street demanded, and got, subprime and other faulty loans from mortgage lenders who were anxious to sell them to those banking institutions which wanted to securitize them.
  2. Wage growth hasn’t increased to an extent that families can afford to purchase new homes, which in turn puts some pressure on the housing marker. [BusInsider]
  3. The 2016 “spring housing season” kicked off with a record low supply. [cnbc]

In short, Mr. Trump is simply parroting some line he heard on the golf course?  Some quote he got from the American Enterprise Institute, the American Bankers Association? The Heritage Foundation? From an amalgam of opponents of Wall Street regulation?  He’s certainly not done any serious thinking about the state of commercial and mortgage lending in this country.

Let’s save a discussion of what dismantling the Dodd-Frank Act would do to the average American in terms of personal financial products, student loans, and consumer loans for another post – which I’m sure will yield the same result – Donald the Destroyer doesn’t have a clue what he’s talking about.

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Filed under Economy, financial regulation, Republicans