Senate Financial Reform Fight

Radio Appearance in Santa Barbara: The Current State of Financial Reform (And What We Can Do About It)

Richard Eskow — Mon, 31 May 2010 13:16:36 -0400

Here's an audio clip of my appearance yesterday with Hannah-Beth Jackson on Santa Barbara progressive radio to discuss the current state of financial reform and what can be done next:

Hannah Beth Jackson 0530 edited

I edited out about a minute and a half of lead time, mostly commercials, but our conversation has been preserved intact. The audio may be a little rough in the first minute or so, although what I hear may be a problem with the low connection speed at my house that won't affect you.

Traded-In: These "Used" Senators Sold Out the Troops For Auto Dealer Cash

Richard Eskow — Tue, 25 May 2010 10:43:44 -0400

If you have a yellow "Support Our Troops" sticker on your car - or even if you don't - you should know the name of the Senators who just traded in our troops, their families, and our military readiness for the easy cash offered by auto dealers. There's no rational policy reason for this exclusion: It's special interest politics, pure and simple. These Senators acted against the objections of military leaders and Gen. Petraeus' wife Holly. But they're not just voting to hurt soldiers: Every American who buys a car on credit is likely to suffer if this "instruction to Senate negotiators" prevails..

Call it "clunkers for cash." Auto dealers are generous with their campaign contributions, both individually and as a group. And they're usually community leaders, active and influential in local politics (and local campaign giving). The National Auto Dealers Association, the lobbying group for new and used car vendor, called the tune and these solons danced. Take a look at the Association's leadership and then ask yourselves: Would you buy a used Senator from these men?

You know why Americans place car salespeople at the very bottom of the list when asked to rate professions for honesty and ethics? Probably because they've bought a car. And they don't know the half of it. They may not have heard about about the "dealer add-in rate," for example, where dealers are allowed to add points on the interest rate and keep it for themselves (i.e. quoting you 10% interest when the bank's only charging 8%, and keeping the difference.) The Center For Responsible Lending estimates that these markups (which they rightfully call "kickbacks") cost consumers $20 billion a year and added $647 to the price of each vehicle (pdf)

They also may not know about the way dealers handle "gap insurance" for cars, which pays the difference between what your auto insurance covers and the remaining cost of your loan if a car is totaled. Dealers reportedly charge three times as much for this insurance as credit unions.

Then there's the awkward reality of racial discrimination: 54% of African Americans were charged these markups, vs. 31% of whites. This continues a long-standing discriminatory pattern: A six-year study of 300,000 Nissan loans performed in 1991-2000 showed that African Americans in 33 states consistently paid more for their loans, regardless of credit history.

Think about it: If they were acting honorably and fairly, why would auto dealers object to being treated like other lenders? If this resolution prevails, credit unions, community banks, and other responsible lenders will be at a disadvantage when competing with predatory auto dealers who don't have to play by the rules.

Twenty-one Democratic Senators sided with all of the Republicans to back a measure from GOP Sen. Sam Brownback to direct Senate negotiators to exclude auto dealers from the consumer financial protection group that will be created in financial reform. The measure is nonbinding because the bill has already passed, but it increases the momentum for protecting auto dealers from oversight, which the House bill already does.

My Senator, Barbara Boxer, voted in favor of the measure - and her office is going to hear from me about it. So did Sen. Majority Leader Harry Reid, who defied his own President and the Departments of Defense and Treasury. Coincidentally, I received a fundraising email from Sen. Boxer today, asking me to donate money to Sen. Reid's reelection campaign. The title of the email is "Leadership." Barbara Boxer and Harry Reid will have to do better than this in the "leadership" department.

Reid's vote indicated that, when it came to pleasing auto dealers, the Senate's "manager was in a good mood." It probably didn't hurt that Sen. Reid received $16,845 in campaign contributions from auto dealers during the 2004-2009 period, plus another $5,000 from the auto dealers association so far this year. That may not seem like a lot, but auto dealers raise a lot of third-party cash for politicians too. And hey - they may not offer many bargains, but they know how to find one. For her part, Sen. Boxer's only received $4,000 as of last report, but she's up for re-election this year and there's still plenty of time. (2004-2009 contribution info is here; auto dealer association information is here.)

The Brownback resolution is the handiwork of the auto dealers' lobbying group - whose acronym, NADA, happens to be Spanish for 'nothing." The nihilistic ring seems appropriate for a group that would cavalierly ignore the pleadings of military leaders and a General's wife. Holly Petraeus' objections to the auto dealer exemption were widely reported in Stars and Stripes and elsewhere. She has said of all predatory military lenders (a group which includes many auto dealers): "I feel strongly that our service members earn that paycheck, that's not very large, in the most dangerous way possible, and for somebody to pick their pocket is disgraceful."

The Pentagon explained to these Senators why ""soldiers who are distracted by financial issues at home are not fully focused on fighting the enemy, thereby decreasing mission readiness." They didn't care. Researchers explained the abuse and deception that occurs when car dealers lend money. They ignored it. Studies proved that African Americans receive discriminatory treatment from these lenders. They backed them anyway.

Here are the Senators who voted for this resolution, along with their contributions from auto dealers in the years 2004-2009. (There was plenty of money given out before and after those dates, too; and the political clout dealers have in local politics produces a lot more cash than is visible in these numbers).

There are names I respect on this list, and probably some that you do too. All the more reason to take action. Feel free to contact them and let them know what you think of their decision to support auto dealers over soldiers, military families, and you:

Alexander (R-TN) - $47,150
Barrasso (R-WY) - $12,186
Bayh (D-IN) - $15,450
Begich (D-AK) - N/A
Bennett (R-UT) - $15,997
Bond (R-MO) - $13,550
Boxer (D-CA) - $4,000
Brown (R-MA) - $300
Brownback (R-KS) - $14,786
Bunning (R-KY) - $15,500
Burr (R-NC) - $56,541
Cardin (D-MD) - $25,900
Cochran (R-MS) - $8,000
Collins (R-ME) - $21,232
Conrad (D-ND) - $11,000
Corker (R-TN) - $115,900
Cornyn (R-TX) - $133,341
Crapo (R-ID) - $11,000
DeMint (R-SC) - $71,500
Ensign (R-NV) - $18,900
Enzi (R-WY) - $11,000
Graham (R-SC) - $21,950
Grassley (R-IA) - $10,750
Gregg (R-NH) - $7,450
Hagan (D-NC) - $7,100
Hatch (R-UT) - $27,600
Hutchison (R-TX) - $64,993
Inhofe (R-OK) - $20,750
Johanns (R-NE) - N/A
Kerry (D-MA) - $85,334
Klobuchar (D-MN) - $1,500
Kohl (D-WI) - N/A
Kyl (R-AZ) - $101,050
Landrieu (D-LA) - $9,750
Lautenberg (D-NJ) - $2,800
LeMieux (R-FL) - N/A
Lieberman (ID-CT) - $33,000
Lugar (R-IN) - $7,875
McCain (R-AZ) - $622,459
McConnell (R-KY) - $24,700
Menendez (D-NJ) - $17,750
Mikulski (D-MD) - $11,500
Murkowski (R-AK) - $16,100
Murray (D-WA) - $7,500
Nelson (D-FL) - $40,600
Nelson (D-NE) - $11,350
Pryor (D-AR) - $24,350
Reid (D-NV) - $16,845
Risch (R-ID) - $11,000
Roberts (R-KS) - $13,150
Rockefeller (D-WV) - $4,000
Sessions (R-AL) - $27,750
Shaheen (D-NH) - $2,900
Shelby (R-AL) - $2,400
Snowe (R-ME) - $7,700
Specter (D-PA) - $29,950
Thune (R-SD) - $106,898
Vitter (R-LA) - $59,023
Voinovich (R-OH) - $19,650
Wyden (D-OR) - $29,000

Bank Fight Continues, Now it's Lincoln vs. Obama

Mary Bottari — Sun, 23 May 2010 20:59:10 -0400

This week, the U.S. Senate passed a financial reform bill that was far stronger that what had been proposed by the Obama administration and passed by the House. Now it's time to hold President Obama's feet to the fire to ensure the strongest possible bill.

Not long after the financial crisis, it was clear that the "solutions" that would emerge from the administration would be weak. With Tim Geithner and Larry Summers in the driver's seat it was clear that there would be no bold transformative vision, no "New Deal" for the 21st century, but tweaks like a "systemic risk regulator" that would somehow endow failed regulatory bodies with the foresight needed to predict the next crisis and the back bone needed to take decisive action.

The Obama team set such a low bar on structural reform that public interest groups despaired. But a funny thing happened on the path to weak-kneed financial reform, democracy got in the way.

Voters Strengthen the Bank Bill

Two critical elections were held that raised the bar on financial reform. The first was the special election held to replace Massachusetts Senator Ted Kennedy. Republican Scott Brown swept into power in this democratic stronghold with a populist appeal against big bank bailouts. The very next day, Obama declared his support for the "Volcker Rule," a measure to crack down on risky proprietary trading. Even though the rule was opposed by Geithner and Senate leadership, it miraculously worked it's way into the Senate reform bill without a vote.

The second election is still underway. On June 8th, U.S. Senator Blanche Lincoln (D-Ark.) faces a run-off election against Lt. Governor Bill Halter in the democratic primary. Halter was inspired to enter the race because of Lincoln's destructive role in the health care debate, where she blocked progressive reforms. Halter's meteoric rise in the polls and his successful fund raising among unions, MoveOn and other progressive groupings demonstrated that he was a serious contender. And when he took to the airwaves pounding Lincoln on her cozy relationship with the big banks, the Lincoln campaign needed a compelling response.

She canceled fundraisers and denounced Goldman Sachs. More importantly, she used her position as chair of the Senate Agriculture Committee to put forward the most radical reform to the banking bill yet proposed. Lincoln decided that the best way of separating big bank gambling from the taxpayer guarantee is to force the big banks that are responsible for most derivatives trades, to spin off their trading desk into a separate corporate entity. They can continue to gamble, but the taxpayers will not be on the hook for their bad bets. In one fell swoop, her language restores much of the firewall between Wall Street gambling and Main Street banks, reins in reckless derivatives trading and shrinks the size of behemoth banks.

Lincoln herself said she thought her proposal would get stripped out in the Senate, but it stuck due not only to her tenacity but also to the fact that she and Halter were engaged in a tight primary. (In the end Lincoln won by a narrow margin of 44-42 forcing a run off). If her proposals survive conference committee, it will be due in large part to the fact that she is still facing the voters. Win or lose, Halter's legacy may well be the best financial reform measure put forward by any nation in response to the crisis that devastated the lives of so many.

The Obama Administration Wants to Kill the Best Provisions

Lincoln's proposal has come under fire from all fronts. Big bank lobbyists went ballistic of course and they will admit that getting her language pulled from the bill is still their top priority. Behind the scenes, it is also the top priority of the administration and the Federal Reserve. Believe it or not the administration is fighting to preserve its ability to bailout any financial institutions that gets in trouble, not just commercial banks. Yep that is right. Instead of clamping down Wall Street gambling, the administration wants to keep reckless institutions on the teat of the Federal Reserve.

The battle lines are drawn. The biggest threat to the Lincoln language now is the Obama administration and the Federal Reserve. There will no doubt be a move to strip out the strong Lincoln language in conference committee where the House and Senate versions of the bank reform bill now go to be aligned.

On the surface, Congressional leadership is making all the right noises. "This is one of those rare occasions when the two bills really are very close to each other," said Mr. Dodd, a Connecticut Democrat. "There's not a great deal of difference. We need to take the best parts of both bills and marry them together and present our colleagues in both chambers with our final product." Great, perfect. The easy way forward of course is to take the best provisions in both bills and advance the measure for a final vote, but this will not happen if the Obama administration continues to oppose the Lincoln language.

Taxpayers must refuse to back the Wall Street casino and tell Congress in no uncertain terms that a bank bill without strong derivatives reform is not a bank bill worth having. We need to make sure that the conference committee is televised and every change is subject to a roll call vote. With all eyes on financial reform, we may yet achieve structural reforms worth celebrating.

Six Key Fights For Wall Street Reform's Next Phase

Zach Carter — Fri, 21 May 2010 11:59:08 -0400

Thursday night's passage of Wall Street reform by the U.S. Senate is an event to be celebrated, but several key issues remain in play as the House and Senate seek to iron out differences between their respective versions of the legislation. And while the final bill will provide regulators with important new tools to fight financial excess, many of the most critical issues facing our economy will simply not be addressed, leaving the next Congress with plenty of work to do.

Here's a list of key issues to watch as Congress moves to the conference committee between the House and Senate:

1. The Volcker Rule

The best version of President Obama's signature Wall Street reform was an amendment written by Sens. Jeff Merkley, D-Ore., and Carl Levin, D-Mich. It was never voted on in the Senate, and the House bill contains no version of any ban on proprietary trading by commercial banks. The Senate bill does include a weak version of the Volcker Rule that bank-friendly regulators can easily defang if they choose. Watch to see if negotiations lead to a concrete ban on gambling with taxpayer money.

2. The Consumer Financial Protection Agency

The House version of this agency is generally stronger than the Senate version, with more independence and broader authority. But the House version also exempts auto dealers from CFPA oversight, which the Senate version does not.

3. Derivatives

The Senate's language on derivatives is much stronger than that produced in the House, with one major exception. The Senate bill contains fewer and narrower loopholes than the House version, in addition to a requirement that banks spin-off their derivatives dealing operations into an independently capitalized unit. But both versions of the bill have weaknesses related to actually enforcing the new derivatives rules, and the problems in the Senate version are much deeper than those in the House (this is why Sen. Maria Cantwell, D-Wash., voted against the bill). Barney Frank has said he wishes the House had better derivatives language, so watch for this to be strengthened.

4. Capital and Leverage

Thanks to Sen. Susan Collins, R-Maine, the Senate bill contains the strongest language to toughen capital requirements at big banks, forcing them to have more money on hand to cushion against losses. There is no corresponding language in the House bill, but the House legislation does contain a related provision capping bank leverage--the amount of borrowed money banks can use to place bets in the capital markets casinos. How these good amendments fare in the conference committee will significantly impact how the financial system functions over the next decade.

5. Rating agencies

Sen. Al Franken pushed through an amendment that substantively changes the corrupt business model at rating agencies. Right now, rating agencies do not get paid by the investors who use their ratings, but by the very banks who are issuing those securities. Franken would end this system, having regulators to select which rating agencies rate which securities, rather than the banks who issue the securities. The House bill largely leaves the rating agency business model unchanged.

6. Swipe fees

When you buy something at a store with a credit or debit card, Visa and Mastercard charge that store a fee. The store, in turn, charges you more for its products, making everything everybody buys more expensive. Sen. Dick Durbin, D-Ill., pushed through language cracking down on debit card fees, but there is no language addressing swipe fees of any kind in the House.

How Did The Senate Do?

The fact that many of these issues are even in play marks a surprise victory for progressives and other reform advocates. Nobody expected Franken's rating agency bill to make it through, nor were swipe fees considered to be in play. Even better, we know with certainty that the Federal Reserve's multi-trillion-dollar bailout operations will finally be subjected to public scrutiny, no matter what happens in the conference committee. Progressives like economist Dean Baker and conservatives like Rep. Ron Paul, R-Tex., have been pushing for an audit of the Fed for years, with little progress. The fact that the Fed's most secretive and controversial programs will finally be revealed to the public is a major event, one that should fuel calls for further reform.

There were also several disappointments in the Senate. The fact that Merkley-Levin never came up for a vote is a major embarrassment to the Democratic leadership, especially Majority Leader Harry Reid, D-Nev., Chris Dodd, D-Conn., and Obama himself. The fact that the derivatives language contains serious loopholes is also unacceptable, as are the depth of Dodd's concessions on the Consumer Financial Protection Agency, and the measures the Senate adopted to impede state regulators who try to crack down on predatory lending.

Nevertheless, the bill really will establish some important new economic tools. The new resolution authority to shut down complex banking conglomerates will not end too-big-to-fail, but it will give regulators the ability to cope with some failing institutions that it currently cannot handle. Regulators already have the authority to shut down boring commercial banks, but they do not always invoke it when those boring banks are big enough, and we can expect a similar pattern for more complex institutions. Similarly, whatever concessions bank lobbyists ultimately get in committee, Congress will also create new infrastructure to bring this multi-trillion-dollar market out of the shadows, and an agency that will give Elizabeth Warren an avenue to go after predatory lending.

The Next Step

Of course, it has been clear for some time that this bill will not address many of the deepest problems plaguing the financial system. The only way to end the political and economic domination of our too-big-to-fail banking behemoths is to break them up into smaller firms that can fail safely. The bill does not do that. It also does not reform the corrupt structure of the Fed, in which banks are allowed to choose their own regulators. No serious action will be taken against hedge funds, private equity vultures, Fannie Mae or Freddie Mac. Nothing will be done to treat the foreclosure epidemic that is still hammering homeowners. The hard, clear division between boring commercial banking and risky investment banking that protected our economy from bailouts for over fifty years still needs to be restored.

In short, the Senate's passage of Wall Street reform legislation is a critical step in the right direction. But there is still important work to be done in the coming weeks, and even more important work for the next legislative cycle.

A Financial War With Two Fronts ... And One Wrong General

Richard Eskow — Wed, 19 May 2010 21:14:11 -0400

Things have been moving pretty quickly lately in the interlocking worlds of politics and financial reform. While there is a lot we don't know, here are three statements we can probably make with a high degree of certainty:

1. If the banks had been on the ballot yesterday voters in both parties would've voted them down.
2. A couple of determined Senators can make a difference.
3. If you want to rally the troops, don't use Larry Summers as your general.

I liked Zach Carter's framing of today's Senate action as a "war on Wall Street reform," which I suppose makes anybody covering this conflict a war correspondent. So excuse me while I throw on this little dust-colored field jacket, the one with the shiny buckles and military-style epaulets, to summarize the action on these two fronts.

Nate Silver's overall conclusion about the key races seems right -- the conventional wisdom about what these races "mean" isn't necessarily all that accurate. That said, there does seem to be a through-line, at least in the Rand Paul and Joe Sestak races, of repudiation for insider Washington politics and its 'centrist' assumptions. And what's more 'centrist' in Washington than the assumption that we need to shy away from major reform of the banking system? (The 61/33 vote against the Brown/Kaufman amendment to break up the big bank - the single most important reform we need - represented the most 'bipartisan' endorsement of Wall Street and its campaign dollars that we've seen in some time.)

Nevertheless, less than 24 hours after the polls closed the Senate leadership moved to end debate on financial reform, without even discussing some of the most critical remaining initiatives. Maybe they weren't watching the election returns, which showed that clubby insider politics is pretty unpopular right now. Whatever the reasons, the cloture vote failed and (at least for now) the amendments will be discussed and voted on. Not that they can't be voted down or killed by fiat (in conference or through a "manager's amendment"). But for now, those amendments live.

Maybe the Republican leadership didn't get the memo. They used procedural tricks to stall the Whitehouse amendment, which would allow states to set interest rates for their citizens. (Funny how that "states' rights" talk goes out the window when somebody flashes a few Benjamins.) They gave big gimmes to the predators in the payday loan industry by blocking the Hagan Amendment. And their parliamentary shenanigans forced Merkley and Levin to attach their amendment - which prevents banks from gambling with publicly-backed cheap money - to Sam Brownback's giveaway to auto dealers.

What an opportunity for Democrats to capitalize on the populist surge and use public anti-bank sentiment to enact real change! Unless, of course, they do .... what they did, which is yield to the GOP and try forcing the bill through as is. It's understandable, in one way -- if Republicans are paralyzing the Senate to protect the banks, many Democratic Senators no doubt felt they should get what they can. Senators like Levin and Dorgan, who threatened to oppose this vote, were no doubt promised some improvements in the bill. So they're not "bad guys" -- but they did miscalculate: They assumed that progressive Senators would eventually cave. They won over their two favorite Republicans, Sens. Snowe and Collins, but lost Feingold and Cantwell.

Feingold and Cantwell did the right thing. Snowe and Collins are the same two Republicans who held healthcare reform hostage for weeks and eventually provided no meaningful support. By forcing the leadership to negotiate with the left as well as the slightly more moderate right, these two senators may have changed the future of financial reform for the better.

How important is Merkley/Levin? Now that Brown/Kaufman has gone down, it's the most important provision left. Without it the entire system remains at risk, as giant banks continue to engage in high-risk trading on their own behalf. That's the kind of activity that could cause another disaster, and which probably explains how four mega-banks went an entire quarter without losing money on trades ... while the clients that take their advice fared far worse. The Hagan and Whitehouse Amendments are also important, and they deserve a full vote in the Senate.

As for Larry Summers, the Administration sent him to the Senate yesterday to make a patently false claim: "If you vote for cloture right now and don't add any more amendments, we will have solved the issues that led to (the last) crisis." The bill improves upon the status quo, but Summers is making a much broader claim, which he then repeated: "Had this been law, as is, in 2007, we would not have had the crisis." Nobody really believes that - least of all Nouriel Roubini, who said the reform bill's changes were "cosmetic" and that "there is a risk of ending up in another crisis, as the world found itself in the Depression of 1933."

Summers recently defended his miscalculations during the Clinton Administration by saying "Credit default swaps were in their infancy in the 1990s. There was no large market in them ..." In other words, all the animals were inside the barn when I opened the door. How could I know they'd get loose?

Quick overview: Larry Summers - wrong about the risks; didn't see the last crisis coming. Nouriel Roubini - right about the risks; predicted the last crisis. Who are you gonna believe? Besides, if there's one thing you could probably get Rand Paul voters in Kentucky and most Joe Sestak voters in Pennsylvania to agree upon, it's lack of confidence in Larry Summers (along with Geithner et al.)

With that choice of general, no wonder the Administration and the Senate leadership lost today's battle. The question now is, can they find the strategy ... and the generals ... needed to win the war? Here are the names of two officers who might deserve a field promotion: Russ Feingold and Maria Cantwell.

Liveblogging The War On Wall Street Reform

Zach Carter — Wed, 19 May 2010 15:16:39 -0400