DODD 2 FRANK

maybe premature, but trump era gut (nope, did it), really nope tipping pt

see great recession on redux

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svb signature silvergate crypto fail

~ Eliz, manchin sinema trump regs water down fair to sm bank BS

https://www.alternet.org/dodd-frank/

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AN 1 25

Big Wall Street banks are hoping that President-elect Donald Trump will kill several major regulations imposed on the financial industry — including one set of rules aimed at preventing another 2008-style financial crash.

That's according to a Saturday article in the Guardian, which reported that banks are optimistic about the incoming administration's regulatory agenda. Some bankers are particularly eager about the possibility of Trump taking an axe to the Basel III rules, which were put in place in response to the global banking crisis that preceded the Great Recession of the late aughts.

In a 2024 article, Investopedia described **Basel III as an international set of guidelines developed by 28 countries that established "minimum capital, leverage and liquidity requirements to ensure major banks could survive another upheaval." This was a response to the forced bailouts of banks deemed "too big to fail," requiring an infusion of hundreds of billions of taxpayer dollars to keep financial institutions afloat.

In addition to Basel III, Trump could undo some of the anti-too-big-to-fail provisions in the 2010 Dodd-Frank financial reform act. This includes a mandatory "stress test" from the Federal Reserve imposed on all financial institutions with more than $50 billion in assets. Dodd-Frank also requires banks to put forth a "living will" that serves as a plan in the event a bank should fail.

A.J. Bell investment analyst Dan Coatsworth told the Guardian that big banks are optimistic about their treatment under Trump's second term given his promises to roll back corporate regulations. He said banks' surging stock prices in the wake of the election symbolizes Wall Street's bullish attitude toward the incoming administration, but emphasized that the industry didn't want so much deregulation that it would risk future instability.

“Trump wants to make things easier for banks, but he won’t want to risk any damage to the financial system,” Coatsworth told the Guardian. “That means being more lenient with rules but not having them too loose."

Financial institutions are also excited about Trump's stated opposition to the environmental, social and governance (ESG) movement in which investors are encouraged to hold their wealth in industries deemed to be more sustainable. JPMorgan Chase CEO Jamie Dimon has already suggested he would roll back the company's previous commitments to address climate change, and "use the word ‘commitment’ much more reservedly in the future" in regard to pro-environment pledges.

https://www.wnycstudios.org/podcasts/otm/segments/we-dont-talk-about-leonard-episode-1-part-1-on-the-media

on the media pro pub; singer ~ OLA orderly liq assests post gr recession, lost ; leo boost SG sol gen'l; ~ dodd frank, cfinance eliz w cfpb

leo makes a big push to promote SG sol gen’l , many more cases state scotus than scotus, and former are pipeline to latter

very good, detailled pt 2 Part 1: Leonard Leo Throws a Party | On the Media | WNYC Studios

fed soc sep of powers comm? states rights?

===

no lnx missoulian

Architect of US court shift used Montana as stepping stone

EDITOR'S PICK TOPICAL

Architect of US court shift used Montana as stepping stone

Andy Kroll, Andrea Bernstein and Ilya Marritz - ProPublica Oct 17, 2023 3

Editor's note: ProPublica and WNYC’s “On The Media" reporters investigated the web of money, influence and power behind the conservative takeover of America’s courts — and the man at the center of it all: Leonard Leo.

Historians and legal experts say there is no comparable figure in American jurisprudence. To the extent Leo is known, it’s for his role helping to install the conservative supermajority on the U.S. Supreme Court. But his reach extends far beyond that. Decades ago, he realized it was not enough to have justices on his side. Those jurists needed to decide the right cases, brought by the right lawyers and heard by the right lower court judges. He built a machine to do just that.

Find “We Don't Talk About Leonard” wherever you get your podcasts or read the complete text version here.

The following excerpt covers Leonard Leo’s influence placing Federalist Society-backed lawyers in state attorneys general offices, including Montana’s, to influence the national legal agenda.

In 2013, Mike Black, Leo’s former classmate at Cornell Law, was leading the civil division of the Montana attorney general’s office as a career employee. A new attorney general had just been elected, bringing with him a number of new staffers to the office. Black had a matter to discuss with one of them: a tall, rangy Harvard Law School graduate named Lawrence VanDyke. VanDyke had been hired as solicitor general, the top appellate litigator in the attorney general’s office, responsible for defending state laws.

Standing in VanDyke’s office, Black noticed several bobblehead dolls on a shelf. “There was like Scalia for sure. And I think probably Alito, there were like four or five. And then there was this one younger-looking guy, and I said, ‘Well, who the heck is this?’” Black recalled. “And he goes, ‘Well, that’s Leonard Leo.’”

Black was astonished.

What Black did not know was that by that time Leo had helped to cultivate an entire generation of conservative lawyers on the rise. The system was like a positive feedback loop: Young attorneys could accelerate their own careers by affiliating with the Federalist Society and then prove their worth by advancing bold, conservative doctrines in the courts. Leo himself would suggest candidates to state attorneys general. According to one former Republican attorney general: “He won’t say, ‘Hire this person,’ in a bossy way. He’ll say: ‘This is a good guy. You should check him out.’”

Senate OK's appeals court judge over home-state opposition

In this Sept. 23, 2014, file photo, former Montana Solicitor General Lawrence VanDyke, center, talks with law students Jason Collins, left, and Tyler Dugger before a Montana Supreme Court candidate forum at the University of Montana. The Senate confirmed VanDyke as a federal appeals court judge despite a “not qualified” rating from the American Bar Association and sharp opposition from his home-state senators.

Lido Vizzutti, Associated Press

In 2014, the Republican Attorneys General Association, a campaign group, became a standalone organization. The first 17 contributions were for $350 apiece. Then came a donation of a quarter of a million dollars. It came from JCN (Judicial Crisis Network). Rebranded as The Concord Fund, the group remains RAGA’s biggest and most reliable funder today. (In response to questions for this story, RAGA’s executive director said, “Leonard Leo has done more to advance conservative causes than any single person in the history of the country.”)

Attorneys general are more likely than private plaintiffs to have the ability, or standing, to bring the types of high-impact cases prioritized by Leo and his network. After the federal government itself, state attorneys general collectively are the second-largest plaintiff in the Supreme Court.

National approach to law

VanDyke had been a Federalist Society member since his time at Harvard Law. He was an editor of the conservative Harvard Journal of Law and Public Policy. He worked at a major firm in Washington under Gene Scalia, the Supreme Court justice’s son, before becoming assistant solicitor general in Texas.

Despite his skill and credentials, VanDyke quickly alienated colleagues in the Montana attorney general’s office. Black said VanDyke had little appetite for the bread-and-butter state court cases that came with the job. Instead, emails show, VanDyke was excited by hot-button issues, often happening out of state. For example, he recommended Montana join a challenge to New York’s restrictive gun laws, passed after the Sandy Hook school massacre, adding as an aside in an email, “plus semi-auto firearms are fun to hunt elk with, as the attached picture attests :)” VanDyke persuaded Montana to join an amicus in the Hobby Lobby case, which led to the Supreme Court recognizing for the first time a private company as having religious rights.

For many years, solicitor general was considered a slow-metabolism job. VanDyke, who declined to comment, represented a new generation who had a distinctly aggressive, national approach to the law. Just recently, state solicitors obtained an injunction blocking federal agencies from working with social media companies to fight disinformation, persuaded the U.S. Supreme Court to undo the Biden administration’s student debt relief plan and limited the federal Environmental Protection Agency’s ability to regulate greenhouse gases. Dobbs, the ruling that ended women’s right to an abortion, was argued by Mississippi’s solicitor general.

For VanDyke, state solicitor general was a stepping stone on the judiciary path, especially with Leo’s hand at his back. In 2014, he quit the Montana attorney general’s office to run for state Supreme Court, in what turned out to be a bitter contest inflamed by record independent expenditures. The Republican State Leadership Committee, which received funding from JCN, spent more than $400,000 to support VanDyke. He lost. After that, Leo made at least one call on VanDyke’s behalf to an official who might be in a position to give him a job, a person with knowledge of the situation said. This was not an uncommon move.

Leo said he did not recall making calls on VanDyke’s behalf. He acknowledged nurturing the careers of a whole generation of young conservative attorneys, among them VanDyke; Andrew Ferguson, the Virginia solicitor general; Kathryn Mizelle, the federal judge who struck down the federal mask mandate for air travel; and Aileen Cannon, the federal judge overseeing the Trump Mar-a-Lago documents case.

After Montana, VanDyke landed in Nevada as solicitor general under Adam Laxalt, an ally of Leo’s. In the Trump administration, VanDyke worked briefly for the Justice Department before the president nominated him to be a judge on the 9th U.S. Circuit Court of Appeals. Less than a year later, Trump released a fourth list of potential Supreme Court nominees. More than a third of the names were alumni of state attorneys general offices.

The final name on the list: Lawrence VanDyke.

'Entirely nutty'

In August 2012, the attorney general of Texas, Greg Abbott, had a conference call scheduled with Leo. It was Leo’s third calendar meeting with Abbott that year, records show. (Abbott is now the governor.) This meeting included not only Abbott and Leo, but also hedge fund manager Paul Singer. Two attorneys representing a small Texas bank, which had sued the Obama administration over its rewrite of banking laws, were invited. The meeting, which hasn’t previously been reported, highlights another key lever in Leo’s machine: The ability to bring donors’ policy priorities to public servants who can do something about those priorities.

After the 2008 financial crisis, Congress passed the Dodd-Frank regulatory overhaul, aimed at preventing another meltdown. Singer became one of the law’s biggest critics. In op-eds and in speeches, he argued that the new banking rules were unworkable and that efforts to prevent banks from becoming too big to fail could in fact make the system more fragile. Singer was especially critical of a provision known as “orderly liquidation authority,” which allows regulators to quickly wind down troubled institutions, calling it “entirely nutty.”

Leo took up the cause. According to interviews and meeting details obtained by the liberal watchdog group Accountable.US, Leo spoke with attorneys general in at least three states about a legal challenge to Dodd-Frank. He scheduled conference calls with the Oklahoma and Texas attorneys general at the time, Scott Pruitt and Abbott, respectively, to talk about what they could do about Dodd-Frank.

Oklahoma and Texas joined the bank’s case as co-plaintiffs. Montana joined, too. A person who worked in the Montana attorney general’s office said Leo called its newly elected leader, Republican Tim Fox, about the case. Montana would not have joined the suit, this person said, if Leo had not called Fox. VanDyke, then Montana’s solicitor general, became an attorney of record on the case.

Singer, Fox, Abbott and VanDyke did not comment for this story. Leo told ProPublica he didn’t recall a meeting with Abbott and Singer, and didn’t remember placing a call to Fox. He said he supported a legal challenge to the Dodd-Frank law on the grounds that its creation of the Consumer Financial Protection Bureau was unconstitutional.

In total, 11 states signed on. When they joined, the suit was amended to specifically challenge orderly liquidation authority as unconstitutional — the provision that Singer had singled out for criticism. For two years, the suit advanced through the courts, landing in the U.S. Court of Appeals for the District of Columbia Circuit in 2015. After an adverse ruling there, the attorneys general dropped out.

There had been doubters. A high-ranking attorney in the Texas attorney general’s office thought the suit was likely to fail. One former Republican attorney general from a different state said he didn’t believe the suit was critical to his state’s interests.

Leo’s network made an example of one. After Greg Zoeller, Indiana’s Republican attorney general, did not sign on, The Washington Times ran an opinion piece by JCN’s policy counsel — himself a former assistant attorney general in Missouri — speculating that Indiana’s attorney general may have been motivated by “strong alliances with Wall Street banks.” After two terms, Zoeller chose not to run for reelection in 2016, saying before he left office, “I don’t know if I fit today’s political arena.”

ProPublica is a nonprofit newsroom that investigates abuses of power. See all its reporting at propublica.org

===

https://www.alternet.org/2020/11/perdue-2649059250

roger s salon

Perdue, one of two multimillionaire Georgia Republican senators facing insider-trading scrutinyahead of runoff elections in January, traded hundreds of thousands of dollars in bank stock while passing pro-bank legislation on the Senate Banking Committee, financial disclosures show.

Between 2017 and 2020, while on the committee, Perdue co-sponsored 14 bills that benefited the financial industry, including through deregulation and extended liability protection. In that time he also accepted more than $1 million in political contributions from financial interests, federal filings show...[db]...most active traders in Congress, pushed back against allegations of insider trading in advance of the coronavirus, claiming that outside advisers made the calls without his input.

A bombshell New York Times report on Wednesday has made clear that was a lie: This summer, Justice Department investigators found that Perdue had instructed one of his brokers to offload more than $1 million in a company after the CEO tipped off the senator in a personal email.

This news comes as Perdue faces a Jan. 5 runoff against Democratic rival Jon Ossoff, who battered Perdue on the insider-trading allegations throughout the year. The runoff, along with Georgia Republican Sen. Kelly Loeffler's runoff election held on the same day — Loeffler faces the Rev. Raphael Warnock, a Democrat — will determine which party controls the Senate.

The latest stock news also creates a new context for assessing Perdue's personal involvement in prior trades, such as millions of dollars in transactions while he served on the Banking Committee.

Perdue, one of the wealthiest members of Congress, built his fortune in the style of Mitt Romney — "a turnaround specialist who helps revive brands and reap rewards for investors," as the Atlanta Journal-Constitution put it in a review of his business record.

The AJC ruled that his record was "mixed," in part because of a buyout Perdue helped structure as the CEO of Dollar General, which landed him a $42 million windfall when he stepped down in 2008. The next year, the company had to pay that same amount to settle shareholder claims that Perdue and other execs had shortchanged them in the deal....Perdue, who was elected to the Senate in 2014, has invested millions. A portion of it rests in a Wells Fargo brokerage account and a Georgia holding company called DBP Enterprises, where Perdue has held an ownership stake since 2011.

That DBP stake comprises 130 assets valued anywhere between $12 million and $29 million, according to 2018 Senate financial disclosures. His Wells Fargo account lists 60 assets valued at up to $1.2 million.

Disclosures only provide ranges of value, so we cannot know precisely how much money Perdue has moved in stock trades, or the extent of his profits. But the forms do show that between 2017 and 2020, while he sat on the Banking Committee, Perdue traded at a minimum hundreds of thousands of dollars, possibly millions... The shares earned him up to $204,000 in capital gains and dividends payouts.

But Perdue does not let his stocks sit idle. Between 2017 and 2018, disclosures show, the senator not only sold as much as $135,000 in bank stock, but scooped up as much as $600,000. Over the next two years he cranked up the volume, unloading as much as $1,110,000 in banking shares and buying as much as $480,000.

In April of this year, Perdue was swept up in the same insider trading scandal that has also damaged Loeffler, when it was revealed that earlier in the year he had bought and sold shares in several companies that were eventually directly affected by the coronavirus pandemic. The scandal, which included Senate veterans Richard Burr, R-N.C., and Diane Feinstein, D-Calif., shook public confidence, raising concerns that elected officials had abused their access to privileged information in order to capitalize personally on the spread of the disease.

The next month, under scrutiny from the public and government investigators, and with the election on the horizon, Perdue pledged to stop trading individual stocks....In September he announced that the Department of Justice, the Securities and Exchange Commission and the Senate Ethics Committee had all cleared him of wrongdoing. He marked the occasion with a new campaign ad, which accused Ossoff of lying to voters about Perdue's involvement.

The Times gave the lie to that defense on Wednesday, indicating that Perdue had acted on a personal tip. The report recalls a moment from an October 2017 hearing, where senators on the Banking Committee grilled Wells Fargo CEO Tim Sloan about the account fraud scandal that had wracked the bank the year before.

The scandal earned the bank a $150 million fine from the Consumer Finance Protection Bureau, an agency Perdue had...sought to defang earlier that same year with a bill that the American Bankers Association called "an effective check and balance on the Bureau's authority."

Perdue, whose Wells Fargo account at the time held up to $1.2 million, teed Sloan up to defend his company, but Sloan, contrite in the face of multiple bareknuckled government investigations, repeatedly declined the exit ramp. Perdue then let slip a reference to a private conversation, before reluctantly admitting that the decade-long scandal — which resulted in..."I think you would agree, we in a private conversation — there is no way to sugarcoat this as a serious issue, and I appreciate your handling it the way that you are," Perdue said.

Over the next three years, Perdue continued to throw softballs to big banks. As he was slinging stock, he cosponsored 14 bills that benefited the financial industry, the majority earning the blessing of the ABA. Five of them were lobbied on by financial institutions where Perdue held hundreds of thousands in stock, including Regions Financial, US Bancorp and JP Morgan.

For instance, in 2017, Perdue cosponsored a bill called the Systemic Risk Designation Improvement Act, which was geared to loosen Dodd-Frank regulations on mid-sized banks. The bill never made it out of committee, but Regional Financial and US Bancorp, where Perdue had stashed $300,000, both lobbied heavily on it.

Perdue went after Dodd-Frank again that year, cosponsoring the Economic Growth, Regulatory Relief and Consumer Protection Act, which the New York Times reported "frees banks from a variety of regulations that were imposed after the financial crisis of 2008," including "innovative measures" that targeted large institutions. That bill never made it out of committee, but was lobbied on by banks where Perdue held up to $465,000 of stock at the time, including Wells Fargo....In two instances, Perdue received tens of thousands of dollars in campaign contributions from financial institutions on the same day he introduced legislation.

On May 21, 2019, Perdue signed on as an original co-sponsor of a bill that postponed compliance with a new accounting standard that some in the financial industry believed would impede lending during an economic downturn. FEC records show that in the days before Perdue co-sponsored the bill and the two weeks immediately afterward, he received nearly $50,000 from employees at the Capital Group, a financial services company, including $5,400 from the CEO.

In October 2017, a few weeks after Sloan's testimony, Perdue co-sponsored legislation that eased regulations on mortgage transfers that cross state lines. That bill was first introduced in August, and in the month before Perdue added his name on Oct. 25, his campaign received $24,000 from employees of the wealth management company SEI Investments, according to FEC filings.

Fourteen of those SEI employees gave $1,000 on Oct. 19, but only one employee donated the same day that Perdue committed to the bill: a maximum donation of $5,400, from CEO Alfred West.

This September, Postmaster General Louis DeJoy was hit with FEC criminal complaints for an alleged "straw donor" scheme, in which he reimbursed employees for political donations to his favored candidates.

Over the course of his career, Perdue has accepted more than $2 million in donations from the investment and securities industry, and half a million from commercial banks. But considering that so few of those bills made it past the committee, and only two became law, it is not clear who got the most out of their investment.

A Perdue campaign spokesperson did not reply to questions for this article.

===

https://www.alternet.org/2020/05/whistleblower-wall-street-has-engaged-in-widespread-manipulation-of-mortgage-funds

no lnx

Pro Publica May 16, 2020

Among the toxic contributors to the financial crisis of 2008, few caused as much havoc as mortgages with dodgy numbers and inflated values. Huge quantities of them were assembled into securities that crashed and burned, damaging homeowners and investors alike. Afterward, reforms were promised. Never again, regulators vowed, would real estate financiers be able to fudge numbers and threaten the entire economy.

Twelve years later, there’s evidence something similar is happening again.

Some of the world’s biggest banks — including Wells Fargo and Deutsche Bank — as well as other lenders have engaged in a systematic fraud that allowed them to award borrowers bigger loans than were supported by their true financials, according to a previously unreported whistleblower complaint submitted to the Securities and Exchange Commission last year.

Whereas the fraud during the last crisis was in residential mortgages, the complaint claims this time it’s happening in commercial properties like office buildings, apartment complexes and retail centers. The complaint focuses on the loans that are gathered into pools whose worth can exceed $1 billion and turned into bonds sold to investors, known as CMBS (for commercial mortgage-backed securities).

Lenders and securities issuers have regularly altered financial data for commercial properties “without justification,” the complaint asserts, in ways that make the properties appear more valuable, and borrowers more creditworthy, than they actually are. As a result, it alleges, borrowers have qualified for commercial loans they normally would not have, with the investors who bought securities birthed from those loans none the wiser.

ProPublica closely examined six loans that were part of CMBS in recent years to see if their data resembles the pattern described by the whistleblower. What we found matched the allegations: The historical profits reported for some buildings were listed as much as 30% higher than the profits previously reported for the same buildings and same years when the property was part of an earlier CMBS. As a rough analogy, imagine a homeowner having stated in a mortgage application that his 2017 income was $100,000 only to claim during a later refinancing that his 2017 income was $130,000 — without acknowledging or explaining the change.

It’s “highly questionable” to alter past profits with no apparent explanation, said John Coffee, a professor at Columbia Law School and an expert in securities regulation. “I don’t understand why you can do that.”

In theory, CMBS are supposed to undergo a rigorous multistage vetting process. A property owner seeking a loan on, say, an office building would have its finances scrutinized by a bank or other lender. After that loan is made, it would be subjected to another round of due diligence, this time by an investment bank that assembles 60 to 120 loans to form a CMBS. Somewhere along the line, according to John Flynn, a veteran of the CMBS industry who filed the whistleblower complaint, numbers are being adjusted — inevitably to make properties, and therefore the entire CMBS, look more financially robust.

The complaint suggests widespread efforts to make adjustments. Some expenses were erased from the ledger, for example, when a new loan was issued. Most changes were small; but a minor increase in profits can lead to approval for a significantly higher mortgage.

The result: Many properties may have borrowed more than they could afford to pay back — even before the pandemic rocked their businesses — making a CMBS crash both more likely and more damaging. “It’s a higher cliff from which they are falling,” Flynn said. “So the loss severity is going to be greater and the probability of default is going to be greater.”

With the economy being pounded and trillions of dollars already committed to bailouts, potential overvaluations in commercial real estate loom much larger than they would have even a few months ago. Data from early April showed a sharp spike in missed payments to bondholders for CMBS that hold loans from hotels and retail stores, according to Trepp, a data provider whose specialties include CMBS. The default rate is expected to climb as large swaths of the nation remain locked down.

After lobbying by commercial real estate organizations and advocacy by real estate investor and Trump ally Tom Barrack — who warned of a looming commercial mortgage crash — the Federal Reserve pledged in early April to prop up CMBS by loaning money to investors and letting them use their CMBS as collateral. The goal is to stabilize the market at a time when investors may be tempted to dump their securities, and also to support banks in issuing new bonds. (Barrack’s company, Colony Capital, has since defaulted on $3.2 billion in debt backed by hotel and health care properties, according to the Financial Times.)

The Fed didn’t specify how much it’s willing to spend to support the CMBS, and it is allowing only those with the highest credit ratings to be used as collateral. But if some ratings are based on misleading data, as the complaint alleges, taxpayers could be on the hook for a riskier-than-anticipated portfolio of loans.

The SEC, which has not taken public action on the whistleblower complaint, declined to comment....

Some lenders interviewed for this article maintain they’re permitted to alter properties’ historical profits under some circumstances. Others in the industry offered a different view. Adam DeSanctis, a spokesperson for the Mortgage Bankers Association, which has helped set guidelines for financial reporting in CMBS, said he reached out to members of the group’s commercial real estate team and none had heard of a practice of inflating profits. “We aren’t aware of this occurring and really don’t have anything to add,” he said.

The notion that profit figures for some buildings are pumped up is surprising, said Kevin Riordan, a finance professor at Montclair State University. It raises questions about whether the proper disclosures are being made.

Investors don’t comb through financial statements, added Riordan, who used to manage the CMBS portfolio for retirement fund giant TIAA-CREF. Instead, he said, they rely on summaries from investment banks and the credit ratings agencies that analyze the securities. To make wise decisions, investors’ information “out of the gate has to be pretty close to being right,” he said. “Otherwise you’re dealing with garbage. Garbage in, garbage out.”

The whistleblower complaint has its origins in the kinds of obsessions that keep wonkish investors up at night. Flynn wondered what was going to happen when some of the most ill-conceived commercial loans — those made in the lax, freewheeling days before the financial crisis of 2008 — matured a decade later. He imagined an impending disaster of mass defaults. But as 2015, then 2017, passed, the defaults didn’t come. It didn’t make sense to him.

Flynn, 55, has deep experience in commercial real estate, banking and CMBS. After growing up on a dairy farm in Minnesota, the youngest of 14 children, and graduating from college — the first in his family to do so, he said — Flynn moved to Tokyo to work, first in real estate, then in finance. Jobs with banks and ratings agencies took him to Belgium, Chicago and Australia. These days, he advises owners whose loans are sold into CMBS and helps them resolve disputes and restructure or modify problem loans.

He began poring over the fine print in CMBS filings and noticed curious anomalies. For example, many properties changed their names, and even their addresses, from one CMBS to another. That made it harder to recognize a specific property and compare its financial details in two filings. As Flynn read more and more, he began to wonder whether the alterations were attempts to obscure discrepancies: These same properties were typically reporting higher net operating incomes in the new CMBS than they did for the same year in a previous CMBS.

Flynn ultimately collected and analyzed data for huge numbers of commercial mortgages. He began to see patterns and what he calls a massive problem: Flynn has amassed “materials identifying about $150 billion in inflated CMBS issued between 2013 and today,” according to the complaint.

The higher reported profits helped the properties qualify for loans they might not have otherwise obtained, he surmised. They also paved the way for bigger fees for banks. “Inflating historical cash flows creates a misperception of lower current and historical cash flow volatility, enables higher underwritten [net operating income/net cash flow], and higher collateral values,” the complaint states, “and thereby enables higher debt.”

Flynn eventually found a lawyer and, in February 2019, he filed the whistleblower complaint. The complaint accuses 14 major lenders — including three of the country’s biggest CMBS issuers, Deutsche Bank, Wells Fargo and Ladder Capital— and seven servicers of inflating historical cash flows, failing to report misrepresentations, changing names and addresses of properties and “deceptively and inaccurately” describing mortgage-loan representations. It doesn’t identify which companies allegedly manipulated each specific number. (Spokespeople for Deutsche Bank and Wells Fargo declined to comment on the record. The complaint does not mention Barrack or his company. )

The SEC has the power to fine companies and their executives if fraud is established. If the SEC recovers more than $1 million based on Flynn’s claim, he could be entitled to a portion of it.

When Flynn filed the complaint, the skies looked clear for the commercial mortgage market. Indeed, last year was a boom year for CMBS, with private lenders in the U.S. issuing roughly $96.7 billion in commercial mortgage-backed securities — a 27% increase over 2018, which made it the most successful year since the last financial crisis, according to Trepp. Overall, investors hold CMBS worth $592 billion.

Flynn’s assertions raise questions about the efficacy of post-crisis reforms that Congress and the SEC instituted that sought to place new restrictions on banks and other lenders, increase transparency and protect consumers and investors. The regulations that were retooled included the one that governs CMBS, known as Regulation AB. The goal was to make disclosures clearer and more complete for investors, so they would be less reliant on ratings agencies, which were widely criticized during the financial crisis for lax practices.

Still, the opinion of the credit-ratings agencies remains crucial today, a point reinforced by the Fed’s decision to hinge its bailout decisions on those ratings. That’s a problem, in the view of Neil Barofsky, who served as the U.S. Treasury’s inspector general for the Troubled Assets Relief Program from 2008 to 2011. “Practically nothing” was done to reform the ratings agencies, Barofsky said, which could lead to the sorts of problems that emerged in the bailout a decade ago. If things truly turn bad for the commercial real estate industry or if fraud is discovered, he added, the Fed could end up taking possession of properties that default.

CMBS can be something of a last resort for borrowers whose projects are unlikely to qualify for a loan with a desirable interest rate from a bank or other lender (because they are too big, too risky or some other reason), according to experts. Underwriting practices — the due diligence lenders do before extending a loan — for CMBS have gained a reputation for being less strict than for loans that banks keep on their balance sheets. Government watchdogs found serious deficiencies in the underwriting for securitized commercial mortgages during the financial crisis, just as they did in the subprime residential market.

The due diligence process broke down, Flynn maintains, in precisely the mortgages he was worried about: the 10-year loans obtained before the financial crisis. What Flynn discovered, he said, was that rather than lowering the values for properties that had taken on bigger loans than they could pay off, their owners instead obtained new loans. “Someone should have taken the losses,” he said. “Instead, they papered over it, inflated the cash flow and sold it on.”

For commercial borrowers, small bumps in a property’s profits can qualify the borrower for millions more in loans. Shaving expenses by about a third to boost profit, for instance, can sometimes allow a borrower to increase a loan’s size by a third as well — even if the expenses run only in the thousands, and the loan runs in the millions.

Some executives for lenders acknowledged to ProPublica that they made changes to borrowers’ past financials — scrubbing expenses from prior years they deemed irrelevant for the new loan — but maintained that it is appropriate to do so. Accounting firms review financial data before the loans are assembled into CMBS, they added.

The financial data that ProPublica examined — a sample of six loans among the thousands Flynn identified as having inflated net operating income — revealed potential weaknesses not readily apparent to the average investor. For those six loans, the profits for a given year were listed as 9% to 30% higher in new securities than in the old. After they were issued, half of those loans ended up on watch lists for problem debt, meaning the properties were considered at heightened risk for default.

In each of the six loans, the profit inflation seemed to be explained by decreases in the costs reported. Expenses reported for a particular year in one CMBS simply vanished in disclosures for the same year in a new CMBS.

Such a pattern appeared in a $36.7 million loan by Ladder Capital in 2015 to a team that purchased the Doubletree San Diego, a half-century-old hotel that struggled for years to bring in enough income to satisfy loan servicers, even under a previous, smaller loan.

The hotel’s new loan saddled it with far greater debt, increasing its main loan by 60% — even though the property had landed on a watchlist in 2010 because of declining revenue. Analysts at Moody’s pegged the hotel’s new loan as exceeding the value of the property by 40.5% (meaning a loan-to-value ratio of 140.5%).

Filings for the new loan claimed much higher profits than what the old loan had cited for the same years: The hotel’s net operating income for two years magically jumped from what had previously been reported: 21% and 16% larger for 2013 and 2014, respectively.

Such figures are supposed to be pulled from a property’s “most recent operating statement,” according to the regulation governing CMBS disclosures.

But, in response to questions from ProPublica, lender Ladder Capital said it altered the expense numbers it provided in the Doubletree’s historical financials. Ladder said it wiped lease payments —$700,608 and $592,823 in those two years — from the historical financials, because the new owner would not make lease payments in the future. (The previous owner had leased the building from an affiliated company.)

Ladder, a publicly traded commercial real estate investment trust that reports more than $6 billion in assets, said in a statement, “These differences are due to items that were considered by Ladder Capital during the due diligence process and reported appropriately in all relevant disclosures.”

Yet when ProPublica asked Ladder to share its disclosures about the changes, the firm pointed to a section of the pool’s prospectus that didn’t mention lease payments, or explain or acknowledge the change in income.

The Doubletree did not fare well under its new debt package. Revenues and occupancy declined after 2015 and by 2017, the hotel’s loan was back on the watch list. The hotel missed franchise fee payments. Ladder foreclosed in December 2019, after problems with an additional $5.8 million loan the lender had extended the property.

The Doubletree loan was not the only loan in its CMBS pool, issued by Deutsche Bank in 2015, with apparently inflated profits. Flynn said he was able to track down previous loan information for loans representing nearly 40% of the pool, and all had inflated income figures at some point in their historical financial data.

There was also a noticeable profit increase in two loans Ladder issued for a strip mall in suburban Pennsylvania. The mall’s past results improved when they appeared in a new CMBS. Its 2016 net operating income, previously listed as $1,101,207 in one CMBS, now appeared as $1,352,353 in another, data from Trepp shows — an increase of 23%. The prospectus for the latter does not explain or acknowledge the change in income. The mall owner received a $14 million loan.

Less than a year after it was placed into a CMBS, the loan ran into trouble. It landed on a watchlist after one of its major tenants, a department store, declared bankruptcy.

Ladder said it excluded $203,787 in expenses from the new loan because they stemmed from one-time costs for environmental remediation of pollution by a dry cleaner and a roof repair. Ladder did not explain why the previous lender did not exclude the expense also.

The pattern can be seen in loans made by other lenders, too. In a CMBS issued by Wells Fargo, a 1950s-era trailer park at the base of a steep bluff along the coast in Los Angeles reported sharply higher profits — for the same years — than it previously had.

The Pacific Palisades Bowl Park received a $12.9 million loan from the bank in 2016. The park reported expenses that were about a third lower in its new loan disclosures when compared with earlier ones. As a result, the $1.2 million in net operating income for 2014 rose 28% above what had been reported for the same year under the old loan. A similar jump occurred in 2013. (Edward Biggs, the owner of the park, said he gave Wells Fargo the park’s financials when refinancing its loan and wasn’t aware of discrepancies in what was reported to investors. “I don’t know anything about that,” he said.)

Flynn said he found that for the $575 million Wells Fargo CMBS that contained the Palisades debt, about half of the loan pool appeared to have reported inflated profits at some point, when comparing the same years in different securities.

Another of the loans ProPublica examined with apparently inflated profits was for a building in downtown Philadelphia. When the owner refinanced through Wells Fargo, the property’s 2015 profit appeared 23% higher than it had in reports under the old loan. Wells bundled the debt into a mortgage-backed security in 2016.

The building, One Penn Center, is a historic Art Deco office high-rise with ornate black marble and gold-plated fixtures, and a transit station underneath. One of the primary tenants, leasing 45,000 square feet for one of its regional headquarters, happens to be the SEC. The agency declined to comment

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https://theintercept.com/2020/05/08/coronavirus-republicans-bank-deregulation-loans/

lee f

rEPUBLICAN LAWMAKERS and finance industry lobbyists are using the coronavirus pandemic to press regulators into rapidly waiving financial safeguards for community banks.

And so far, banking regulators have obliged, lifting rules imposed after the 2008 crisis that limit risk-taking and require banks to undergo more strenuous audits.

But experts are warning that the deregulatory blitz, sold as a fix to stimulate business by encouraging more lending, raises the potential for a flood of small bank failures, potentially lengthening economic woes and risking the need for future bank bailouts.

In a recent academic paper, Kress observed that out of the 489 banks that failed and were resolved by the federal government from 2008-2013, all but nine were community banks. The failures of community banks during this period cost taxpayers nearly $50 billion. In contrast to the bailouts of large Wall Street banks, which were eventually paid back with interest to the federal government, the small bank bailouts only incurred significant costs.The flurry of advocacy began in March just as the imminent threat of the pandemic seized headlines. That month, several GOP lawmakers contacted regulators at the Federal Reserve and the Federal Deposit Insurance Corporation to urge officials to adjust the threshold at which community banks may qualify for exemption from all risk-based capital requirements.

“We strongly urge you to use the full measure of discretion afforded by Congress to maximize capital simplification and regulatory relief for the greatest number of community banks,” wrote Rep. Denver Riggleman, R-Va., in a letter signed by eight other House Republicans, obtained via a Freedom of Information Act request by The Intercept. In addition to Riggleman, the letter was signed by Reps. Scott Tipton, R-Colo.; Bill Huizenga, R-Mich.; Ann Wagner, R-Mo.; Frank Lucas, R-Okla.; David Kustoff, R-Tenn.; Barry Loudermilk, R-Ga.; John Rose, R-Tenn.; and Blaine Luetkemeyer, R-Mo.

The letter asked that the Federal Reserve and FDIC lower the Community Bank Leverage Ratio from 9 percent to 8 percent, a move that would qualify about 400 banks for special exemption from scrutiny over the level of risk taken on by a bank. The lower leverage ratio, the lawmakers argued, would “support credit in thousands more communities across the country.”

Ordinarily, a complete revision of federal regulation would require months of deliberation, an open comment period, and an agency justification backed by evidence. But the Covid-19 emergency short circuited the process, and within weeks, the leverage ratio was lowered.

The demands in the congressional letter were slipped into the CARES Act, the $2.2 trillion bailout legislation.The legislation waived a number of regulations on banks, from accounting standards to loan limits, and temporarily lowered the Community Bank Leverage Ratio to 8 percent through the duration of the public health crisis.

Banks must maintain a certain risk-based capital requirement, meaning banks with riskier assets must have higher levels of capital to contain potential losses. Bank stability is also measured by a leverage ratio, which is simply the percentage of capital held of total bank assets.

Lowering the Community Bank Leverage Ratio means hundreds of banks can hold onto less capital while avoiding standards that restrict the types of risk they take on.

“The industry and regulators love to use jargon and impenetrable language but the leverage ratio is nothing but a capital buffer that a bank has to have to absorb losses itself so it won’t have to be bailed out by taxpayers,” said Dennis Kelleher, president of the financial reform group Better Markets.

“It would really turn logic on its head to now say the banks should not have to comply with those other rules and they should get a lower leverage ratio,” added Kelleher.

“The whole idea of lowering capital requirements to respond to a pandemic is wrong,” said Jeremy Kress, an assistant law professor at the University of Michigan School of Business.

Kress noted that while public attention was focused largely on “too big to fail” mega-banks, hundreds of community banks failed during the crisis that started with the 2008 financial collapse.

The failure of small banks during the last crisis also created a cascading effect of economic damage, as small businesses and entrepreneurs around the country were cut off from credit, driving one of the slowest economic recoveries in U.S. history, Kress argues.

If the current pandemic leads to a wave of defaults, more community bank failures could be on the horizon. The deregulatory push to reduce capital requirements could hasten the level of bank failures, said Kress, exacerbating the current economic crisis.

“When we see a bunch of small institutions failing simultaneously,” said Kress, “that leaves a lot of communities and small businesses and individuals without needed access to credit.”

“The efforts that we are seeing today to weaken the Community Bank Leverage Ratio is only going to make the community banking sector more fragile and increase the likelihood of another collapse of small banks,” he added.

The leeway for regulators to exempt the community banks from risk-related assessments came from special authority granted by the Economic Growth, Regulatory Relief, and Consumer Protection Act, a law passed in 2018, the largest bank deregulation measure ushered in by Trump.

The measure removed proprietary trading restrictions from banks with $10 billion or less in assets imposed by the so-called Volcker Rule following the 2008 crisis. It also instituted the Community Bank Leverage Ratio rule, allowing small banks to skirt regulatory standards known as Basel III capital rules if they maintain a leverage ratio between 8 and 10 percent. The FDIC set the rate at 9 percent following the law.

The Congressional Budget Office, the independent body that analyzes legislation, suggested at the time that the deregulatory push would threaten the stability of community banks, which would likely use the exemption to chase higher returns by taking on more volatile loans and securities. The CBO noted that even a Community Bank Leverage Ratio of 9 percent could raise FDIC costs by increasing the probability of bank failures and FDIC bailouts.

After winning passage of the 2018 law, the industry went to work lowering the Community Bank Leverage Ratio well before the pandemic. Over the last year, representatives from the Mortgage Bankers Associations and the Independent Community Bankers Association, have pressed for the 8 percent standard, a push that was renewed in recent months, lobbying disclosures show.

Rep. Jodey Arrington, R-Texas, a former FDIC official under President George W. Bush, was one of the lawmakers pushing to loosen the standard.

In a separate letter to bank regulators, Arrington asked for “ample time” for community banks to comply with the new 8 percent Community Bank Leverage Ratio and for the change to be made permanent. “Furthermore,” the congressman wrote, “in order to maintain long-term economic growth, the CBLR should be maintained at the minimum eight percent threshold, allowed by P.L. 115-174, beyond the COVID-19 pandemic.”

The Texas lawmaker dismissed concerns that reducing regulations could raise the risk of bank failures.

“Relaxing regulations in a reasonable way including lowering reserve requirements by 1% for community banks during the immediate crisis as well as our longer term economic recovery will provide greater access to much-needed capital for small businesses, which, in turn, will help keep people employed and strengthen our overall recovery efforts,” said Arrington in a statement to The Intercept.

“Lenders of all sizes will certainly have an increase in risk to their loan portfolios; however, banks have an incentive to operate responsibly in order to stay solvent and community banks who operate on a thinner margin need some targeted relief to continue serving rural communities like mine,” the lawmaker added.

Bank industry advocates have long argued that capital requirements have curbed lending. But banking industry watchdogs have pointed out that a growing body of empirical research shows the exact opposite and that well-capitalized banks make more loans and more high-quality loans.

Research from the Bank for International Settlements found that “higher bank capital is associated with greater lending.” Morris Goldstein, a former fellow at the Peterson Institute for International Economics, in a review of economic literature, similarly found that “better capitalized banks lend more, not less, than weakly capitalized ones.”

Still, community banks have won a series of deregulatory measures in part by leveraging their relative popularity in contrast to the big banks. Despite the economic risks of lifting bank rules, small banks have been at the tip of the spear in weakening financial safeguards.

“Everybody loves community banks, right?” said Kress. “They’re the most sympathetic industry in Congress because every member has a community bank in their district. They do a lot of residential and small business lending, they sponsor your kids’ kickball team, they seem far removed from the financial engineering of Wall Street.” “Community banks, motherhood, and apple pie,” chuckled Kelleher.

The lofty reputation held by community banks, however, has concealed the danger they pose to the economic system.

“The bank industry pushes in a lot of different ways,” Kelleher noted. “They do it directly against the regulators, they do it indirectly through their legislative allies. It’s really pretty sad how many are using the pandemic as nothing but a pretext for their deregulation agenda that they’ve been asking for for years.

”

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https://www.alternet.org/2020/02/big-banks-ticking-time-bomb-could-cause-the-next-recession/

no lnx

Big banks’ ticking time bomb could cause the next recession

Written by Maureen Nevin Duffy / DC Report February 12, 2020

The art of hiding multi-trillions of dollars of debt has found an eager accomplice, the businessman who once proudly proclaimed, “I love debt”: Donald J. Trump.

The King of Debt is now in control of an obscure federal watchdog agency intended to prevent derivatives—complicate financial instruments that billionaire businessman Warren Buffett once described as “Weapons of Mass Destruction”—from causing the Great Recession of 2008. Intended is the keyword. The agency, the Commodity Futures Trading Commission (CFTC), was hog-tied by big money interests long before the first whiff of bank failure could drift from Wall Street’s canyons.

This December, Trump’s hand-picked CFTC members marked a decade of financial recovery by voting 3-2 in favor of leaving a giant hole in the regulatory framework known as Dodd-Frank. The vote leaves the Big Four—Too Big to Fail—U.S. banks free to slip the riskiest of their debt-deferring derivative trades through that defensive wall at will. And, this sleight of hand pushes an unsuspecting public onto the firing line of another possible multi-trillion-dollar U.S. taxpayer bailout.

As in the 2008 meltdown, the weapon of choice for manipulating and moving piles of bank-owned debt around the world is a type of derivative called a “swap.” A swap can be as simple as a contract between two parties or a contingency laden nightmare, such as a “naked” credit default swap (CDS) for trading unfunded payment obligations, some of which are used as “insurance” guarantees. That guarantee is what banks can continue now to switch on and off at will.

The Usual Suspects

Instead of home mortgages, this time consumer debt holds our fate. Outstanding balances keep ballooning for car and tuition loans and credit cards—greatly enlarged by exotic trading on the debt itself. During 2016, banks opened 110 million new credit card accounts about 50% more than in 2010. Citigroup, JPMorgan Chase, Bank of America and Wells Fargo reported a combined loss of $12.5 billion from credit card loans in 2017. In June that same year, the Federal Reserve valued outstanding credit card loans at $1.02 trillion. Yet banks continue to shower subprime borrowers with fresh lines of credit.

Despite the efforts of a severely hobbled CFTC, the swaps markets continue to grow and without the depth of transparency promised. Consider that the four big U.S. bank holding company swaps dealers: Citibank, JPMorgan Chase, Goldman Sachs and Bank of America handle close to 90% of U.S. swaps trades, representing a combined notional value of $300 trillion, while consumers stagger under debt and defaults mount higher than pre-2008. The big picture reveals “a financial infrastructure that mimics the failed financial engineering created in the mortgage markets leading up to the 2008 financial crash,” says Professor Michael Greenberger, former deputy to the Clinton-era CFTC Chair Brooksley Born.

‘Dark Swaps’

Greenberger, a former director of the Division of Trading and Markets, and current law school professor at the University of Maryland Carey School of Law, contends that “dealers have engineered a way to evade Dodd-Frank, by helping banks transfer trillions of dollars in liability in risky unfunded trading, by turning the regulations off at will.” The world’s debt burden is being “financialized,” he says, as were mortgages in 2007. The tool this time is “dark swaps”‘ sold by the banks’ foreign subsidiaries, into increasingly complex instruments. These are the very exposures from which the CFTC and Dodd-Frank were charged with protecting us.

“The CFTC is totally controlled by Trump,” Greenberger tells DCReport.org. Until another administration takes office the only recourse may be a state by state solution. Greenberger means the state attorneys general, “since the president can’t fire them,” he says. Short of that, since a chain of attempts to plug the loophole have been tried, undermined or overturned, Greenberger’s last hope is the new administration, whose CFTC board could vote to close the loophole and spare the world another multi-trillion meltdown the U.S. taxpayer will suffer to pay.

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transparency vs corruption/ failed state cf conflict mineral dodd-frank

https://www.theatlantic.com/international/archive/2012/04/why-natural-resources-are-a-curse-on-developing-countries-and-how-to-fix-it/256508/

https://theintercept.com/2019/12/03/wall-street-house-democrats-financial-regulations-cftc/

https://www.alternet.org/2019/05/why-the-untamed-finance-industry-is-almost-certain-to-bring-us-to-the-brink-of-crisis-again/

Judging from the public conversation we’re having as we head into the early stages of the 2020 presidential election, bankers no longer appear to be public enemy number one. Big tech appears to have that title. Still, let’s not forget that the actions of several large financial institutions in the run-up to 2008 were largely responsible for catastrophic job losses of millions of households, the repossession of their houses, the destruction of their retirement savings, the collapse of a multitude of businesses, an ongoing stranglehold into myriad forms of debt, and a relentless lobbying machine that exonerates it from any kind of oversight with real teeth.

The legislative response to this fiasco, the Dodd-Frank Act, is being undermined every which way, and wasn’t all that strong to start with. It was passed in order “to ‘promote financial stability,’ ‘lift our economy,’ and ‘end too big to fail,’” argued financial observer Tyler O’Neil, “and the bill has achieved none of those goals.” In fact, it created a host of perverse incentives that have likely made our problems a whole lot worse. Financial reform might be yesterday’s news, but we are inching closer to another economic crisis, in which the “old news” might very well become new and relevant again.

Why is that? For one thing, Dodd-Frank did not structurally alter the banking system (in contrast to the aftermath of the Great Depression via Glass-Steagall). The big “too big to fail” (TBTF) banks got bigger. And by bigger, we’re talking about a sizable ownership stake over 60 percent of GDP.

One prominent example is the newly established Consumer Financial Protection Bureau (CFPB—an Elizabeth Warren proposal that actually initially proved to be one of the few effective reforms introduced by the new banking legislation). The CFPB has been largely gutted by “acting” head, Mick Mulvaney. Likewise, the oversight provisions for big banks have been watered down by the appropriately named Crapo Bill, and Dodd-Frank’s detailed rule-making injunctions have largely been left to the discretion of bank-friendly executive agencies, such as the Federal Reserve, Office of the Comptroller of the Currency (OCC), and Securities and Exchange Commission (SEC), all of which have historically shown themselves to be prone to regulatory capture.

Even one of Dodd’s contributing architects, Lawrence Summers, in a piece co-authored with Harvard Ph.D. candidate Natasha Sarin, found no evidence “that markets… regard banks as substantially safer today than they were in the pre-crisis period.” Many of the same practices that led to the collapse of the financial system in 2008 are as prevalent today as they were in 2007. These include the revival of some of the most toxic products that contributed to the last crash, such as the synthetic collateralized debt obligation (CDO) and the related collateralized loan obligation (CLO), along with an ongoing regulatory culture that still expresses itself in policy preferences that favor industry interests over those of ordinary citizens.

Given the Democrats’ renewed enthusiasm for antitrust (at least as it applies to big tech), the question is whether “break ’em up” to foster greater competition is the way to go with banks, or whether a more “function-centric” approach to regulation makes more sense going forward. On big tech, I’ve written before that size per se may not be the best benchmark to establish optimal regulation. The same might be true for banks.

Simply mandating a breakup in the sector, married to “free market” competition and other market-based reforms, is unlikely to do the trick (that criticism applies as much to GOPers as it does to Democrats). As professors Marc Lavoie and Mario Seccareccia have observed, “greater competition could be a good thing in industries producing, say, ‘widgets,’ since the lower the price that could potentially ensue as a result of lower profits and greater productivity that would be impacted by the competition would have positive welfare benefits for the community at large.” But Lavoie and Seccareccia also recognize that banking is not only about profit for profit’s sake or competitive free markets; therefore, “applying these principles of competition to the banking sector, where there exists tremendous externalities, could be disastrous.”

One of those “externalities” arises from the fact that the banking sector has a unique social dimension that in many respects does not readily lend itself to all of the dictates of a competitive free market system. There is a reason why our government made a conscious policy decision after the Great Depression to guarantee the liabilities of the banking system via the Federal Deposit Insurance Corporation (FDIC). It was to protect the integrity of the payments system, the lifeblood of an economy, as well as the businesses and consumers who relied on the provision of credit provided by the banks.

A controlled oligopoly that disincentivizes banks from embracing risky speculation is one way to go (it works reasonably well in Canada, for example) because it focuses the regulatory thrust on function and outcome, rather than size alone. However, the U.S. banks are much bigger in asset size. “Too big to fail” (TBTF) is relevant here because Dodd-Frank has done nothing to stop the banks from getting bigger, even though they pursue many of the same reckless policies that caused their banks to blow up in the last cycle. In fact, the implicit TBTF safety net has virtually guaranteed that bankers would continue to take on excessive “tail risk” (i.e., too high a risk of ruin), argues Professor Edward Kane.

It is in that sense that size matters: much as the costs of a massive environmental cleanup increase in proportion to size, so too are the social and economic externalities much higher when associated with a big bank. But at the core, it is function married to TBTF that creates the root problem; simply using antitrust to foster competition is unhelpful if all such competition does is to drive banks, regardless of size, to embrace increasingly reckless activities that augment their respective bottom lines, and do so in a way that ultimately compromises the integrity of the payments system. There are some things banks should not be allowed to do, period.

So what’s the right approach: do high levels of concentration in the banking sector promote greater financial instability, or is it a question of function? In truth, they are interrelated, but function matters more.

Ask any neutral observer today whether Goldman Sachs or the Japan Post Bank (the world’s biggest deposit holder) poses a greater threat to financial stability and virtually all will agree that it is the former. That is because systemic risk is largely engendered via function, and “interconnectedness,” rather than asset size. In contrast to Goldman Sachs (or virtually any large American commercial or investment bank), the range of activities of the Japan Post Bank is limited to a fairly mundane roster of traditional banking functions—it is primarily a savings institution. As its Wikipedia page notes, “its only loan products are overdraft lines secured by time deposits and Japanese government bonds on deposit with the bank.” This makes it highly stable, despite its massive size.

Nobody is realistically suggesting that we restrict our banks’ functionality to the degree of the Japan Post Bank. We can’t turn back the clock that far. But the Japan Post Bank example is an important illustration that a simplistic focus on size isn’t enough.

The corollary also applies: a group of relatively small institutions that act in a correlated fashion can be just as dangerous to the payments system as one large entity if the underlying activity in which they engage collectively is unsafe. Lehman Brothers’ activities were being replicated elsewhere (the “interconnectedness” problem), by others. Had it just been one small bank, the problem could have been better contained. Again, function supersedes size in terms of regulatory priority.

By the same token, it’s too pat a conclusion to argue that the collapse of a small institution such as Lehman Brothers somehow absolves the big banks. The root cause of Lehman’s failure was that it was a relatively small institution struggling to compete with the TBTF banks, whose massive balance sheets gave them a built-in advantage over the smaller competitor. Working to match the returns of the bigger banks, Lehman’s smaller balance sheet forced management to undertake further riskier activities (as well deploying dangerous levels of leverage). The resultant toxicity of their balance sheet made Lehman unsalvageable, leading the government to let it go bust.

“Let it go bust” is harder to do with a bigger bank. The externalities can be catastrophic. At the same time, the public instinctively understands the benefits of the implicit TBTF backstop accorded to big banks and hence continues to “vote” with its deposits. Which is to say that banking customers have increasingly migrated to these very same behemoth institutions precisely because the government has repeatedly shown that it will not let them go under (in contrast to smaller institutions like Lehman). America’s three largest banks by assets—JPMorgan Chase, Bank of America, and Wells Fargo—“have added more than $2.4 trillion in domestic deposits over the past 10 years, a 180% increase,” according to an analysis of the regulatory data conducted by the Wall Street Journal in 2018. (In the case of Wells Fargo, this ongoing deposit growth is truly incredible, given that the bank has seen its already low reputation decline further, in light of the scandals that have recently been uncovered.)

The same WSJ report goes on to note that this deposit growth represents “an increase from 20% of the country’s total deposit base in 2007 to 32%, an amount [that] exceeds what the top eight banks had in such deposits combined in 2007.” Add Citi to this group, and you have four banks holding almost half of America’s total deposit base.

The WSJ article also points out that “45% of new checking accounts were opened at the three national banks, even though those lenders had only 24% of U.S. branches… [whereas] regional and community banks… had 76% of branches but got only 48% of new accounts.” That matters because “new checking customers, who tend to be younger, are valuable to banks because they often provide more business later on by, for instance, taking out a mortgage or opening a brokerage account.”

Rapid, unchecked business expansion, combined with regulatory laxity and TBTF bailouts, has therefore given banks an enormous incentive to get as big as possible. Dodd-Frank hasn’t changed that. In fact, a working paper commissioned by the Federal Reserve Bank of Philadelphia by authors Elijah Brewer III and Julapa Jagtiani has furnished multiple examples of banks paying significant premiums to ensure that they would be over the asset sizes commonly viewed as the requisite thresholds to become too big to fail.

But TBTF is even worse than that, because in many cases, it can actually sustain the lifespan of an otherwise insolvent bank, what Professor Ed Kane calls “zombie” banks: “Insolvent Living-Dead firms whose creditors would force them into bankruptcy were it not for various governments’ implicit TBTF guarantees” (Deutsche Bank is one example that immediately springs to mind). That matters because if you’re a bank CEO and you know that in reality your bank is already insolvent, what’s the disincentive from continuing to speculate with the bank’s balance sheet? TBTF enhances reckless moral hazard.

Although banks consistently lobby the government when an attack is made on their “profit-making activities,” the focus of those lobbying efforts obviously shifts to bailouts, the minute they are about to blow up. All of a sudden “government-led socialism” doesn’t seem so pernicious. It is not unreasonable to restrict the banks’ activities, especially when deposit-taking institutions are in a position unique to virtually any other business. The government underwrites their main liabilities—i.e., their deposit base—via the FDIC. No other business is afforded this level of protection.

Likewise, regulation has become increasingly complex and cumbersome in direct proportion to the complexity of the activities undertaken by the banks themselves. That’s often used as an excuse to minimize regulation, when in fact it should provoke a different response: namely, restricting the range of systemically dangerous activities/financial innovations, so that the regulation accordingly can be simplified, and easier to enforce. (Parenthetically, a function-centric approach is better here than simply focusing on boosting capital buffers, which many bank reformers have advocated. To be sure, capital buffers do constitute an important insurance policy for a bank in the event of a financial calamity, but regulation optimally should tackle the activities that give rise to the need for the “insurance policy” in the first place.)

If banks persist in undertaking a proscribed activity via regulatory arbitrage, or some other form of legerdemain, the challenge for policy makers/regulators is to contain the resultant fallout so that it does not endanger the financial system as a whole (as well as jailing the offending bankers so that “too big to fail” doesn’t morph into “too big to jail,” as clearly occurred in the 2008 crisis aftermath). At a bare minimum, the goal should be, as Keynes argued in Chapter 12 of the *General Theory*, for finance to act as a handmaiden of industry (or productive “enterprise”) rather than the other way around, since the latter condition results in an overly financialized system that is dominated by largely unfettered rentier speculative activity.

Unfortunately, Keynes’ aspirations remain unfulfilled. Banks dominate industry and work in ways that derogate from broader public purpose. The tolerance of TBTF doctrine illustrates that we don’t yet have the political will to curb the speculative activities of the large deposit-taking institutions (again, another byproduct of their size, as it gives the banks more lobbying muscle to resist such changes). But if we don’t come to grips with this problem, there will inevitably be another crisis. In fact, it’s almost certainly too late to avoid that eventuality. But at a minimum, let’s hope we do better when the next banking crisis hits, as it surely will, much as night follows day.

Marshall Auerback is a market analyst and commentator.

This article was produced by Economy for All, a project of the Independent Media Institute.

https://www.c-span.org/video/?457500-1/bankers-bailouts-struggle-tame-wall-street

2/19

Bankers, Bailouts, and the Struggle to Tame Wall Street

Kathleen Day talked about her book, Bankers, Bailouts, and the Struggle to Tame Wall Street, in which she provides a history of the federal government’s oversight of the financial sector.

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https://www.alternet.org/news-amp-politics/trump-economy-path-another-financial-crisis-and-its-likely-be-even-worse-time

Path for Another Financial Crisis — And It's Likely to Be Even Worse This Time

Ten years after Lehman Brothers’ collapse, the Wall Street casino is running amok.

By Lynn Parramore / Institute for New Economic Thinking

In summer’s end, the U.S. economy looks to be sizzling. Unemployment is low. Growth is higher than expected. Consumer confidence is soaring and Wall Street just set a record bull run.

“We are crushing it,” Trump’s economic advisor Larry Kudlow recently boasted.

The euphoria feels a bit like… just before the crash of 2007-8. Does that worry you? It should.

Hold onto your 401(k)s, because the Wall Street casino that nearly tanked the global economy ten years ago is up and running amok again.

But what about the much-touted safeguards in place today? It’s true that in 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act was passed to ensure that taxpayers would never again be on the hook to bailout of big financial institutions.

Alas, according to Michael Greenberger, a law professor at the University of Maryland and one the key voices to raise alarms a decade ago, you can’t trust that promise. In new research for the Institute for New Economic Thinking, hewarns that bankers are wriggling right out of Dodd-Frank’s rules.

If something goes wrong it could be even worse than last time. So we need to clearly see the game that’s being played.

A Boom That Went Bust

First, let’s recap what happened last time to knock millions out of their jobs and homes and send peoples’ savings down the tube.

The late nineties real estate boom made people think, wow! Housing prices are going to keep going up. Let’s get a mortgage! Banks got excited and created investment vehicles to sell loans bundled together as Collateralized Debt Obligations (CDOs), which promised higher returns to investors. Credit ratings agencies gave the CDOs high ratings and investors snapped them up.

CDOs became so hot that banks wanted to make more of them, so they started giving mortgage loans to just about anybody, even if they were broke. More than a few became famous as “Ninja” loans — no income, no job (see Thomas Herndon’s recent discussion of that fraud-fueled nightmare).

Banks said no problem: housing prices will keep rising, so people can just refinance their homes to pay off the loans. They sold these dodgy bundled mortgages to investors, and the credit ratings agencies cheered them, too, because banks paid them.

A few people said, wait; maybe the value of these CDOs will collapse if people default on the underlying mortgages. They wanted to insure the CDOs in case that happened—even though they had made none of the underlying loans! Banks and other financial institutions at first thought these people were stupid, but they were happy to sell them insurance for a hefty fee, using a financial product called a “naked” credit default swap.

The naked credit default swap is a problem. Picking out sets of mortgages that you have no financial relationship to and betting that they won’t be paid off is like seeing a sick neighbor who you think is going to die and taking out insurance on their life. For centuries insurance law said no, you can’t insure risk that is not your own.

If you take out insurance on mortgages you don’t own, you sure as heck don’t want the debtor getting out of debt, through bankruptcy for example, do you? No way: then you don’t get your insurance pay out. Incentives get very shady.

But the banks and big financial institutions, including insurance companies like AIG, sold the naked credit default swaps anyway, saying they weren’t really insurance. Which was nonsense.

By federal statute, transactions on all this stuff were unregulated and undisclosed, so nobody had a clue how much they were worth and who had them. Investors kept on betting trillions that people would fail to pay off their mortgages even though they didn’t own them. Some of these actual home mortgages were bet on as many as nine times!

Then everything spun out of control. Too many houses got built that people couldn’t afford and prices started coming down. Folks started to default, so CDO values collapsed, too, and banks like Goldman Sachs bought “insurance” on the very products they sold to investors. That’s kind of like selling cars and betting they will blow up as you drive home.

Greenberger points out that if we had just had regular defaults on mortgages, without all the crazy side bets, we would have had economic problems, sure, but nothing like a Great Recession.

Instead, banks ended up with heaps of bad loans they couldn’t sell. Everybody who had taken out “insurance” on CDOs demanded their money, but nobody could pay.

The rest is history. Lehman Brothers imploded. The Federal Reserve bailed out AIG so that it could pay off at full value the naked credit default swaps of big banks. Taxpayers shelled out trillions—first a $7 billion bailout package, then trillions more in the form of a special Federal Reserve magic called quantitative easing, to keep the banks afloat. The guys who ran the firms that made this disaster got gold-plated bonuses and retirement packages.

History Repeating Itself?

So here we are in 2018. Jerome Powell, the Chairman of the Federal Reserve, says the economy is wonderful and we won’t have too-big-to-fail banks anymore. Everybody can relax and trust the financial system.

Now, Dodd-Frank did do some good things. The riskiest stuff—like naked credit default swaps—was supposed to be overseen, principally by the Commodity Futures Trading Commission (CFTC), and the markets were meant to become more transparent. When you trade credit default swaps, somebody — a clearing facility — has to be between you and the other party to the swap to guarantee that the underlying obligation is paid off. Exchanges were created to make these transactions transparent.

Both clearing facilities and exchanges would hit the alarm bell if a company like AIG started to lose a lot of money on swaps. The government would also be told who is making all the bets. If a firm didn’t have the money to cover the bets, then the clearing facility would close out the transaction before losses started to pile up.

So we’re all good, right? Wrong, says Greenberger.

The banks may have turned away from the business of insuring bundles of mortgages, but now they’re bundling and betting other kinds of debt, like credit card debt, student loans, auto loans, corporate loans — you name it. It’s the same casino games: they make asset-backed securities which turn into CDOs, then come the “naked” credit default swaps, and so on. Once again, people who are not making the loans are betting that those loans won’t be paid off.

And guess what? While everybody was relaxing, the banks figured out a way to do their swaps deals outside of the jurisdiction of Dodd-Frank. They snuck the risky business overseas where the U.S. regulators can’t watch them.

One thing they didn’t move overseas: the risk to you.

The shady scheme went down like this: In 2013, the CFTC put out guidelines about how Dodd-Frank would apply to swaps executed outside the U.S. The CFTC said that “guaranteed” foreign subsidiaries to U.S. bank holding companies that traded swaps were subject to Dodd-Frank regulation. Since the standard swaps agreement for over two decades included a guarantee that the U.S. bank would back the deal if things went south for a foreign subsidiary, there was no reason to worry if risky swaps were traded by that subsidiary. Everybody understood if you were the counterparty to one of these deals, you counted on the bank to stand behind the foreign subsidiary.

So far, so good. Except for the matter of a tiny footnote.

Deep in the fine print of hundreds of footnotes in the CFTC guidelines, the major swaps dealer trade association found a little item saying that in a contract, you could, if you really wanted to, choose not to guarantee deals made in a foreign subsidiary. If you did not guarantee them, then Dodd-Frank would not apply.

The swaps dealers association pounced. They said to their members, like Bank of America and Citigroup: Let’s do it! Just put a note in the contract that you won’t stand behind the subsidiary if it fails. We’ll move as many swaps as we want to our newly “deguaranteed” foreign offices so we can forget all about Dodd-Frank. Under cover of darkness, without notifying the CFTC, they got rolling. The banks got so cocky that some swaps dealers just started doing their deals in New York and then, after they were done, “assigning” them to foreign subsidiaries. Presto! No more pesky regulation.

Some customers wanting to buy swaps complained that this was too risky. But then they said to themselves, wait: if the foreign subsidiary fails and Goldman or JP Morgan won’t cover the loss, does it really matter? After all, we know from 2008 that big banks get big bailouts from U.S. taxpayers if they fail. (Ed Kane, a finance professor at Boston College, has warned about this implicit guarantee, which actually inflates bank stocks and supports prices of their bonds). So the customers shrugged and kept on betting with these foreign subsidiaries.

Greenberger explains that the CFTC caught up to the shenanigans in 2016 and made proposals to stop them. The four biggest banks, JP Morgan Chase, Goldman Sachs, Citigroup, and Bank of America, which do 90% of all the swaps deals in the U.S., argued that it’s really not a problem because if the trades get assigned to London or Frankfurt, for example, the European Union (EU) has lots of regulations to make sure everything is safe and sound.

To this, Greenberger says, “Who are they kidding? Just look at the EU. Deutsche Bank is hanging on by its fingernails. Many Italian banks are failing. Turkey is in terrible trouble. The financial markets in those countries are teetering, and we’re going to rely on them to regulate this stuff?”

There’s another catch: U.S. regulators can’t get information on these “foreign” deals, so nobody knows the full extent of the trading. But you can think in terms of many trillions of dollars. Basically, we’re right back to a non-transparent market with boatloads of money sloshing around everywhere. Just like last time.

The CFTC regulators told the banks that their “deguarantee” argument was baloney and vowed to stipulate that Dodd-Frank applied to these deals. Then Trump got elected.

“Deregulation” is one of Trump’s favorites words, so closing this loophole now is about as likely as a bank CEO going to jail. Not happening.

Consider this: Right now, American students are amassing huge piles of debt. If students stop paying off their loans, there will be a lot of defaults. Actually, it’s already starting to happen. On Wall Street, people have been betting on these defaults and buying naked credit default swaps to guarantee that they will be paid if the students can’t pay.

By the way, wonder why it’s so hard to get out of student debt once you’ve got it? Because the Wall Street casino guys with the naked credit default swaps want their insurance money, that’s why.

Casino games are also rolling with credit card debt. Same thing with auto loans. Corporate-debt, too. We’re talking trillions of dollars in defaults. Sound familiar?

If this continues, what happens to the credit defaults swaps that have been assigned to an office in Frankfurt? Who pays if the foreign subsidiary goes under? Not the citizens of Germany, says Greenberger. You can be sure of that.

This hasn’t happened yet, but there was a red flag back in 2012. The London Whale scandal, which reared its ugly head when a trader at a London subsidiary of JP Morgan lost $6 billion in a swaps deal, came after Dodd-Frank passed, but before it went into effect (and before the loophole was discovered). The bank had enough in cash reserves to take that enormous hit, but most banks would not. JP Morgan CEO Jamie Dimon called it a “tempest in a teapot.” Others were not convinced: Forbesmagazine put out an article about it called, “How Jamie Dimon and JPMorgan Chase Endanger the Public Safety.”

(By the way, JP Morgan and other big banks, along with bank-friendly regulators, have been arguing that they should be able to keep less money on reserve).

Greenberger notes that the London Whale was the result of trading by just one guy. If you had ten of these, the banks probably wouldn’t be able to pay off their obligations and the counterparties wouldn’t be able to pay off theirs, either.

It’s 2007 all over again.

Greenberger says that if big financial firms fail because they can’t pay each other off, it’s not going to be a recession, but more like the Great Depression. A worldwide economic meltdown with everybody trying to get their money out of the banks and institutions failing everywhere you turn. The only way to stop it would be to bail the banks out.

But American taxpayers hate that idea. Greenberger doesn’t believe they’d go for it. Even if the Federal Reserve stepped in to do some behind-the-scenes magic like quantitative easing instead of an upfront bailout that Congress would have to approve, he thinks that the public would still mobilize to fight it.

“Besides that,” he notes, “I think we can subjectively say that Trump’s federal regulators are not as skilled as those who handled the last crisis. So it’s going to be total havoc.”

Political Chaos on the Horizon

It would be hard to exaggerate just what a political crisis this would be. The Tea Party, you’ll recall, emerged as a response to anger at the bank bailouts. Bitterness over the injustice of what happened in 2008 may well be a key reason why Trump is president.

“Everybody else went through trauma, except the big banks,” Greenberger observes. “Dick Fuld of Lehman has got houses all over the world, sitting pretty. The head of Merrill Lynch got a golden multi-million dollar parachute. The rest of us were losing jobs or flipping hamburgers at McDonald’s. If something goes wrong again and there’s wind that these four big banks are somehow going to be rescued in spite of their recklessness, there will be political hell to pay for that.”

Remember, another systematic bank failure leaves two ugly possibilities: a bailout or a depression, with perhaps a third of the country out of work.

Faced with this choice, the public might be even more enraged than last time. Trust would break down completely. If you sit down and start thinking about that, you begin to get very, very worried.

A Way Out?

There’s one avenue of relief, says Greenberger. Not an easy one, but a possibility.

State attorneys general have a statutory right to bring actions in federal district court on behalf of their citizens to enforce Dodd-Frank. Because the banks are clearly evading the law, he says it’s an open and shut case: “The law says that if these transactions could imperil the US economy, Dodd-Frank applies wherever they take place.”

The trouble is finding attorneys general with the will to fight. Greenberger says that unfortunately, many of them, while otherwise first rate, just don’t understand the swaps market. “They tremble and panic over the idea that they might have to bring a lawsuit concerning swaps,” he says.

The Democratic Party, he reminds us, is pretty much split between those who are sympathetic to the banks (and enjoy taking political contributions from them) and those who want to fight this stuff out. It’s far from certain that the second group will be heeded.

Trump assures Americans that there’s only smooth sailing ahead. Everybody will be employed and banks will no longer be dangerous. The economy is “the greatest ever,” he claims.

...

dodd req corps post ceo pay ratio,mattell some huge # 5k%? mcD 3100:1? (that sector #1)

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https://www.vox.com/policy-and-politics/**2018/3/6/**17081508/senate-banking-bill-crapo-regulation

Republicans and Democrats in Congress have finally found something they can agree on, and it’s not immigration, or gun control, or health care. They’re easing some rules for banks.

The Senate passed on Wednesday legislation sponsored bySenate Banking Committee Chair Mike Crapo (R-ID) that would rewrite parts of the 2010 Dodd-Frank Act, the landmark financial regulation overhaul enacted in response to the 2008 financial crisis. The bill cleared the Senate with ease, 67 to 31, earning support from 16 Democrats and Sen. Angus King (I-ME) in addition to 50 Republicans.

The Senate bill would adjust the size at which banks are subject to certain regulatory scrutiny and exempt small banks from some requirements for loans, mortgages, and trading, among other measures.

The Economic Growth, Regulatory Relief, and Consumer Protection Act, S.2115, was passed out of the Senate Banking Committee last year after the panel reached a bipartisanagreement on the legislation.Crapo huddled with Democratic committee members Joe Donnelly (IN), Heidi Heitkamp (ND), Jon Tester (MT), and Mark Warner (VA) to craft legislation that would mark one of the most significant rewrites of financial industry rules in nearly a decade.

The House passed its own banking deregulation bill, an even more severe rollback of Obama-era banking rules. If both houses agree upon and pass a final bill, it would mean that the first major piece of bipartisan legislation to come out of Congress this year would be one to help the banks.

The bill’s proponents say it is an example of bipartisanship at its best. But progressives say it goes too far and that it purports to help small community banks when its changes really benefit large financial institutions.

The bill changes what size banks regulators scrutinize

The Dodd-Frank bill, which was passed in 2010 in response to the financial crisis, aimed to decrease various risks across the financial system and increase regulatory oversight to prevent such a meltdown from happening again. Republicans have wanted to unravel Dodd-Frank essentially since it became law, and President Donald Trump vowed to “do a big number” on it soon after taking office.

At the core of the Crapo bill is the assumption that the Dodd-Frank financial overhaul was overly aggressive and harmed smaller banks in attempting to rein in the larger financial institutions that caused the 2008 financial crisis.

The provision of the bill that has garnered the most attention is one that would raise the threshold at which banks are subject to certain federal oversight, including stress tests that measure a bank’s ability to withstand an economic downturn. Under current law, banks with assets of $50 billion or more are considered systematically important financial institutions (often referred to as SIFIs) and are therefore subject to stricter oversight from the Federal Reserve.

The Senate bill would increase the SIFI threshold to $250 billion. Banks with assets of less than $100 billion would be freed of current oversight requirements, and those between $100 billion and $250 billion would no longer be subject to tougher rules after 18 months, although the Fed could determine periodic stress tests and other tailored oversight measures. That would free up a lot of regional banks from the heightened regulatory scrutiny they face today, including BB&T, SunTrust Banks, Key Bank, and American Express. The bill could affect about two dozen banks in total.

A number of regulators and lawmakers on both sides of the aisle have said that Dodd-Frank’s $50 billion threshold should have been set higher. Former Federal Reserve Gov. Daniel Tarullo, a Democrat, said in his “departing thoughts” in April 2017 that the $50 billion cutoff was “too low.” Even Barney Frank, the former Massachusetts Democratic representative who helped craft Dodd-Frank, has admitted that the $50 billion number was a “mistake.”

But the new $250 billion threshold has raised some eyebrows. In a recent CNBC op-ed, Frank said that were he still in Congress, he would vote against the bill because of the $250 billion mark. (He has suggested a threshold in the $125 billion range.) He pointed out that the failure of two or three such institutions would put us in “Lehman Brothers territory,” referring to the investment bank that filed for bankruptcy in September 2008, precipitating the financial crisis. Countrywide Financial, one of the country’s largest subprime mortgage lenders that was at the center of the 2008 mortgage crisis, had assets in the $210 billion range before it failed.

But the bill’s proponents say it provides targeted regulatory relief and that banks in the $100 billion to $250 billion range won’t be off the hook entirely. They’ll still face periodic stress tests, and the Fed can enact enhanced supervision if it wants.

Federal Reserve Chair Jerome Powell said during his nomination hearing before the Senate Banking Committee in November 2017 that he would continue to have “meaningful” stress tests for banks in that range. In a hearing last week, he said the bill gives the Fed “the tools that we need” to apply enhanced standards to banks in the $100-$250 billion range.

But exactly what those enhanced standards would be, or whether the Fed would actually apply them, is unclear.

Frank also criticized a provision in the bill that he said weakens anti-discrimination standards in housing by raising the number of loans a bank can make before it’s required to report on the issue. Another provision that he singled out allows foreign megabanks, such as Deutsche Bank and HSBC, to put their American assets into a separate holding company to avoid US regulatory scrutiny.

What sort of relief big foreign banks would get from the bill has been up for debate. A fact sheet put together by moderate Democrats backing the bill says such institutions will still be subject to stress-tests requirements. Powell, in a Senate Banking Committee hearing last week, said he doesn’t think the bill would weaken supervision for foreign banks when asked about the matter by Sen. Sherrod Brown (D-OH). But Treasury Secretary Steven Mnuchin in a January hearing told Brown that he believed the Senate bill would lighten foreign bank regulations.

There’s a lot in the bill for community banks and credit unions

Community banks and credit unions are entities that have smaller volumes of business than Wall Street firms and derive most of their funds and lending operations in the local areas where they operate. Those backing the Crapo bill say its main purpose is to relieve community banks and credit unions — generally those with $10 billion or less in assets — from some of Dodd-Frank’s requirements that may be onerous for smaller institutions.

Tarullo, the former Fed governor, said in November that “the fact that community banks are subject at all to some of the Dodd-Frank Act rules seems unnecessary to protect safety and soundness, and quite burdensome on the very limited compliance capabilities of these small banks.”

Paul Merski, who heads congressional relations at the Independent Community Bankers of America, an industry group, told me there is a lot of relief in the mortgage-lending space in the bill specifically. The legislation would deem certain mortgages held by lenders with $10 billion and under “qualified mortgages,” which would allow small banks and credit unions to expand the types of mortgages they offer. It also eases appraisal requirements on certain mortgage loans and exempts small banks from certain disclosure rules.

“A lot of community banks that don’t do large volumes but do some mortgage lending have to comply with complex, onerous rules, and many of our community banks have dropped out of the mortgage lending market,” Merski said. “One component is really to make sure there’s competition in the mortgage lending business so that community banks can maintain mortgage lending as part of their business.”

The bill also exempts small banks from the Volcker Rule, which prohibits them from making certain kinds of speculative investments with their customers’ money. And it adjusts leverage ratios — the measure of a bank’s financial sustainability — for such entities.

Proponents of the legislation note that the number of community banks in the United States is dwindling, an important issue for rural communities. Community banks are four times more likely to operate in rural counties than larger institutions, according to a study from the FDIC.

Critics, however, say that exempting small banks from certain requirements is risky and could be harmful to consumers. The progressive Center for American Progress said the bill’s elimination of escrow requirements for banks under $10 billion removes an “essential borrower protection.” It also criticized the qualified mortgage loan change as a dramatic expansion that “gives lenders a major safe harbor for nontraditional underwriting practices reminiscent of those that caused the crisis.”

It is also worth noting that community banks aren’t exactly suffering financially: According to the FDIC, community banks reported increases in net income from the year before in every quarter of 2017.

Beyond asset threshold adjustments and community bank relief, the bill also throws in some marginal consumer protection provisions. It includes free credit freeze and year-long fraud alerts, largely a response to last year’s Equifax data breach, and some new protections for veterans, seniors, and members of the military.

A lot of Democrats don’t love the bill — but it might be the best deal they’re going to get

The politics behind the bill have exposed fault lines within the Democratic Party. Progressives and many 2020 presidential hopefuls in the Senate have lined up against the legislation, while some moderates and those from rural states support it and seek to hold it up as an example of their ability to work in a bipartisan manner.

Sen. Elizabeth Warren (D-MA) in an email to supporters last week, per BuzzFeed, slammed her colleagues over the legislation. “Republicans AND Democrats are gutting the rules on Wall Street,” she declared.

Lobbying groups have upped efforts to influence the bill. “There are many different interests in financial services that are looking at this and saying, ‘Oh my god, there’s finally going to be reform to Dodd-Frank that may move, let me throw in this issue and this issue,” Sen. Chris Coons (D-DE), a co-sponsor of the bill, told the Intercept. “There are a dozen different players who decided this is the last bus out of town.”

The Financial Times pointed out that banks that stand to benefit from the legislation — namely, those with assets within sight of the $50 billion range — appear to have increased donations to Senate Democrats who support the bill. Individuals connected to Signature Bank, a regional bank, have donated $112,000 to senators so far in the 2017-’18 election cycle, eight times as much as it did during the entire 2015-’16 election cycle. Sens. Heitkamp and Donnelly, two of the bill’s co-sponsors, have been the biggest recipients of the Signature-linked Democratic donations.

Ian Katz, an analyst at the Washington research firm Capital Alpha Partners, told me it’s possible the Crapo bill could introduce some risk, as certain banks will now get less supervision, but the scenario won’t be dire. “It doesn’t look to me like it introduces new significant risk into the system,” he said.

And to be sure, the largest entities — JPMorgan Chase, Bank of America, Goldman Sachs — will generally be subject to most of the same regulations they face today if the bill is passed. The Consumer Financial Protection Bureau, one of the key components of the Dodd-Frank bill, will remain intact. Former Rep. Frank in November 2017 wrote that “well over 90 percent” of Dodd-Frank would be unchanged.

Given where many progressives feared banking deregulation would go a year ago, when Trump signed a directive ordering the restructuring of Dodd-Frank, the Crapo bill could have been much worse. As Katz pointed out, “I honestly think that if Democrats broadly were told a year ago that this would be the extent of what Trump had referred to as ‘doing a number’ on Dodd-Frank, they would probably take this deal.”

ref

S.2155 - Economic Growth, Regulatory Relief, and Consumer Protection Act115th Congress (2017-2018)126 amednmentshttps://www.congress.gov/bill/115th-congress/senate-bill/2155Sen. Donnelly, Joe [D-IN]* 11/16/2017Sen. Heitkamp, Heidi [D-ND]* 11/16/2017Sen. Tester, Jon [D-MT]* 11/16/2017Sen. Warner, Mark R. [D-VA]* 11/16/2017Sen. Corker, Bob [R-TN]* 11/16/2017Sen. Scott, Tim [R-SC]* 11/16/2017Sen. Cotton, Tom [R-AR]* 11/16/2017Sen. Rounds, Mike [R-SD]* 11/16/2017Sen. McCaskill, Claire [D-MO]* 11/16/2017Sen. Perdue, David [R-GA]* 11/16/2017Sen. Manchin, Joe, III [D-WV]* 11/16/2017Sen. Tillis, Thom [R-NC]* 11/16/2017Sen. King, Angus S., Jr. [I-ME]* 11/16/2017Sen. Kennedy, John [R-LA]* 11/16/2017Sen. Kaine, Tim [D-VA]* 11/16/2017Sen. Moran, Jerry [R-KS]* 11/16/2017Sen. Peters, Gary C. [D-MI]* 11/16/2017Sen. Risch, James E. [R-ID]* 11/16/2017Sen. Bennet, Michael F. [D-CO]* 11/16/2017Sen. Heller, Dean [R-NV] 12/06/2017Sen. Coons, Christopher A. [D-DE] 12/06/2017Sen. Blunt, Roy [R-MO] 12/06/2017Sen. Carper, Thomas R. [D-DE] 12/06/2017Sen. Sasse, Ben [R-NE] 02/15/2018Sen. Jones, Doug [D-AL] 02/15/2018Sen. Inhofe, James M. [R-OK] 03/19/2018

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https://bigthink.com/brandon-weber/economists-second-longest-economic-boom-in-u-s-history-ends-in-2020-with-a-recession

60 private-sector economists were recently surveyed by the Wall Street Journal, and their prediction is somewhat dire. 59% of them say the economic expansion that began in 2009 after the Great Recession of 2008 took the wind out of the world’s economic sails will end in 2020. Another 22% pegged the year 2021. What lies beyond that is probably another recession, the depths of which will likely become apparent as things progress — or, rather, regress.

“The current economic expansion is getting long in the tooth by historical standards, and more late-cycle signs are emerging,” said Scott Anderson, chief economist at Bank of the West, who was among those economists predicting a 2020 recession.

...

https://www.alternet.org/ex-wall-street-banker-sounds-alarm-ten-years-after-financial-crisis-were-going-end-same-situation

Ex-Wall Street Banker Sounds the Alarm: Ten Years After the Financial Crisis, 'We're Going to End Up In the Same Situation'

William Cohen warns next time, it might even be worse.

By Elizabeth Preza / AlterNet August 5, 2018, 4:46 PM GMT

William Cohen—a former senior-level mergers and acquisitions banker on Wall Street who is now a special correspondent for Vanity Fair—on Sunday spoke about the ten-year anniversary of the 2008 financial crisis, warning the practices that prompted the economic collapse have not substantially changed in the past decade.

In an interview with CNN’s Ana Cabrera, Cohen warned the United States has not made the necessary changes to prevent another devastating recession.

“I wish I could say that we had, but we haven’t,” Cohen said.“The main driver of bad behavior on Wall Street is the compensation system, what people get rewarded to do. People are pretty simple—they do what they are rewarded to do. Wall Street is still rewarded to take big risks with other people's money. They are not rewarded to take prudent risks. We're going to end up in the same situation again. I'm afraid it's going to happen much sooner than anyone would like and it will be just as bad as the last one, if not worse.”

“We need to change what bankers are rewarded to do so they are not rewarded to to swing for the fences as if it were somebody else's money, because it is, as opposed to their own money where they will be prudent about their risk taking,” Cohen explained. “That's the single biggest thing we should change if we want to change this kind of an outcome from happening again.”

Cohen also described the “very short-term psychological damage” stemming from the 2008 financial crisis.

“Institutions that we once had a lot of faith in the banks, Wall Street, were completely shattered,” Cohen explained. “A lot of faith was lost in Congress because they voted down the TARP (Troubled Asset Relief Program) the first time and only passed it the second time. I mean, honestly, if you look at the economy now and the spirits that are raging now, I think it was sort of a short-term frightening and scary effect, but now ten years later, I bet most people don't even remember it. Most people who are young on Wall Street couldn't even tell you what had happened.”

Watch below:

https://www.democracynow.org/2018/5/23/we_are_lurching_toward_plutocracy_rep

dodd frank rollback (33 dems rolled, in trump states up for re-elect?

In a rare bipartisan effort Tuesday, House lawmakers voted 258 to 159 to exempt banks with less than $250 billion in assets from many of the 2010 Dodd-Frank Act regulations, even though banks’ profits are soaring. The Dodd-Frank Act was passed after the 2008 economic crisis, which was provoked by years of risky lending by Wall Street banks. Thirty-three Democrats joined their Republican counterparts in voting for the financial regulation rollback, which, if signed into law, would leave less than 10 banks in the U.S. subject to stricter federal oversight. For more, we speak with Minnesota Democratic Congressmember Keith Ellison. He is the first Muslim member of Congress and the deputy chair of the Democratic National Committee,

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https://www.alternet.org/economy/democrat-dozen-senators-help-trump-gop-gut-dodd-frank

As if to maximize the possibility of another major financial crisis, the Trump administration and the GOP have recently been busy undercutting the limited safeguards established a decade ago via Dodd-Frank.

The latest example of this stealth attack on Wall Street reform is the Economic Growth, Regulatory Relief, and Consumer Protection Act, appropriately sponsored by Republican Senator Mike Crapo of Idaho, chairman of the Senate Banking Committee. Appropriate, because this is literally a “crapo” bill. It provides a few “technical tweaks” to Dodd-Frank in the same way in which protection payouts to organized crime provide businesses with “insurance” against property damage. In reality, it is an act of regulatory vandalism, which highlights everything that is corrupt about our political system.

We have grown to expect no less from the GOP, whose sole raison d’etre these days seems to be filling the trough from which America’s fat cats can perpetually gorge themselves. What is truly disturbing, however, is that the Republican effort is being given bipartisan cover by more than a dozen Democratic senators: Doug Jones (Ala.), Joe Donnelly (Ind.), Heidi Heitkamp (N.D.), Jon Tester (Mont.), Mark Warner and Tim Kaine (both from Va.), Claire McCaskill (Mo.), Joe Manchin (W.Va.), Gary Peters (Mich.), Michael Bennet (Colo.), Chris Coons (Del.), and Tom Carper of Delaware. To this esteemed group, we should also add Senator Angus King (ME), an Independent who regularly caucuses with the Democrats. So, in reality, it’s a filibuster-proof “Baker’s Dirty Dozen.” Digging into the details, perhaps this is what Senator Mitch McConnell had in mind when he predicted more bipartisanship in Congress this year. In co-sponsoring this bill, the 13 senators are providing cover for the GOP when the inevitable fallout comes, dissipating the Democrats’ political capital with the electorate in the process.

Yes, we get it: some of these senator incumbents are in red states that voted heavily for Donald Trump in the last election. And the latest polls suggest many are vulnerable in this year’s elections. But the last time we checked, there didn’t seem to be an overwhelming wave of populist protest demanding regulatory relief for banks. All 50 states—red and blue—suffered from the last financial crisis, and it’s hard to believe voters in Montana, West Virginia, North Dakota, Indiana or Missouri would be more likely to support Senators Tester, Manchin, Heitkamp, Donnelly or McCaskill because they backed a bank deregulation bill (which in reality goes well beyond helping small community banks). Nor do the 2018 races factor as far as Senators Warner, Coons, or Bennet are concerned, given that none are up for re-election this year. No, the more likely answer is money, plain and simple. The numbers aren’t in for 2017, but an analysis of the Federal Election Commission data from the 2016 election appears to explain what is driving this newfound solicitousness toward the banks. The Center for Responsive Politics (CRP) points out that “nine of the twelve Democrats supporting the deregulatory measure count the financial industry as either their biggest or second-biggest donor.” (At least now we have a better understanding as to why Hillary Clinton’s "responsibility gene" induced her to select running mate Tim Kaine, who received “large contributions from Big Law partners that represent Wall Street,” as opposed to a genuine finance reformer, such as Senator Elizabeth Warren. Senator Warren is vigorously opposing the new bill.)

We also know (courtesy of the CRP) that Mark Warner’s last campaign in 2014:

“included among his 20 largest donors the mega Wall Street banks Goldman Sachs and JPMorgan Chase. Goldman’s employees and PACs gave Warner’s campaign $71,600 while JPMorgan Chase gave the Warner campaign committees $50,566… Senator Heidi Heitkamp is also up for reelection this year and her number one contributor at present is employees and/or PACs of Goldman Sachs which have contributed $79,500 thus far.”

Naturally, all of the senators claim their motives are pure. With no hint of irony, a spokesman for Tim Kaine suggested that, “Campaign contributions do not influence Senator Kaine’s policy positions.” Likewise, an aide for Mark Warner vigorously contested the idea that campaign donations from Wall Street ever influenced the Virginia senator’s decision-making on policy matters. Sure, and it was shocking to find out that gambling took place in Rick’s Café.

It is true, as Senator Jon Tester (another co-sponsor) notes, that the proposed changes introduced in the Crapo bill (notably the increase in the asset size from $50 billion to $250 billion of those banks that are considered “systemically important” and therefore subject to greater oversight and tighter rules) do not affect the likes of Wall Street banks such as Citigroup, JP MorganChase, Bank of America, Goldman Sachs and Morgan Stanley, all of which are still covered by the most stringent oversight provisions of Dodd-Frank. But the increased asset threshold does exempt the U.S. bank holding companies of systemically significant foreign banks: Deutsche Bank, UBS and Credit Suisse, all of whom were implicated in multiple violations of both American and international banking laws in the aftermath of the 2008 crisis.

Deutsche Bank alone has paid billions of dollars for its role in perpetuating mortgage fraud, money-laundering and interest rate manipulation (the LIBOR scandal), which ideally should invite more regulatory scrutiny, not less. Instead, a new law ostensibly crafted to provide a few “technical fixes” for Dodd-Frank is now reducing the regulatory oversight of a bank that has been cited in an IMF report as one of Germany’s “global systemically important financial institutions.” Translating the couched-IMF-speak, the report suggests that Deutsche Bank on its own has the potential to set off a new global contagion, given the scale of its derivatives exposure. Not only too big to fail, but evidently too big to regulate properly either, aided and abetted by members of a party who claim to be appalled at the level of corruption in the Trump administration.

Another side-effect of raising the regulatory threshold to $250 billion in assets is that it diminishes the chance of obtaining an early warning detection signal from somewhat smaller financial institutions. As the experience of Lehman Brothers or Bear Stearns illustrated, smaller problems that remain hidden in the shadows can ultimately metastasize if left alone, and become much bigger—and more systemically dangerous—later.

So when Senator Kaine nobly suggests that he is merely providing relief for “small community banks and credit unions” in his home state, or Jon Tester argues that he is only helping local banks suffering from Dodd-Frank’s regulatory overkill, both are being extraordinarily disingenuous. The reality is that increasing the oversight threshold by 500 percent does not just help a few “small community banks and credit unions” crawl out from a thicket of onerous and costly regulation. Even former Fed Chairman Paul Volcker, who favored some regulatory relief for community banks, felt that $250 billion threshold was excessively lax.

In fact, (per the Americans for Financial Reform), the increase “removes the most severe mandate for 25 of the 38 largest banks,” which together “account for over $3.5 trillion in banking assets, more than one-sixth of the U.S. total.” Additionally, as Pat Garofalo writes: “The bill also includes an exemption from capital standards—essentially the amount of money that banks need to have on hand in case things go south—that benefits some big financial firms, and even more are lobbying to be included.” In other words, this isn’t just George Bailey’s friendly neighborhood bank that is getting some regulatory relief here.

All of this newfound regulatory laxity comes at a time when many of the largest Wall Street banks have again resurrected the same practices that almost destroyed them a decade ago. Bank credit analyst Chris Whalen observes: “The leader of this effort is none other than Citigroup (NYSE:C), which has surpassed JP MorganChase (NYSE:JPM) to become the largest derivatives shop in the world. Citi has embraced the most notorious product of the roaring 2000s, the synthetic collateralized debt obligation or ‘CDO’ security, a product that fraudulently leverages the real world and literally caused the bank to fail a decade ago.”

Let’s be honest here: even in its original form, Dodd-Frank was the bare minimum the government could have done in the wake of the 2008 disaster. But lobbyists, paid-for politicians and co-opted bank-friendly regulators have been busy “applying technical fixes” to the bill virtually from the moment it was passed a decade ago. The upshot is that the much-trumpeted Wall Street reform is a joke when compared to the comprehensive legislation passed in the aftermath of the Great Depression (which set the stage for decades of relative financial stability). Under Dodd, the banks are purportedly subject to “meaningful stress tests” (in the words of Federal Reserve Chair Jerome Powell), but the tests are neither particularly stressful, nor do they adequately reflect today’s twin dangers of off-balance sheet leverage and the concentration of big banks’ on-balance sheet assets in relatively low-return loans.Another example: Trump and his henchman, Mick Mulvaney, have also joined the big banks in attacking the Consumer Financial Protection Bureau, which by virtue of the Crapo act, will be blocked “from collecting key data showing when and where families of color are being overcharged for home loans or steered into predatory products.”

What should have been done after the global financial crisis? Professors Eric Tymoigne and Randall Wray proposed the following:

“Any of the ‘too big to fail’ financial institutions that needed funding should have been required to submit to Fed oversight. Top management should have been required to proffer resignations as a condition of lending (with the Fed or Treasury holding the letters until they could decide which should be accepted—this is how Jessie Jones resolved the bank crisis in the 1930s). Short-term lending against the best collateral should have been provided, at penalty rates. A comprehensive ‘cease and desist’ order should have been enforced to stop all trading, all lending, all asset sales, and all bonus payments until an assessment of bank solvency could have been completed. The FDIC should have been called-in (in the case of institutions with insured deposits), but in any case, the critically undercapitalized institutions should have been dissolved according to existing law: at the least cost to the Treasury and to avoid increasing concentration in the financial sector.”

A number of conclusions can be drawn from this whole sordid episode. An obvious one is that our model of campaign finance is completely broken. While it is encouraging to see some Democratic politicians increasingly adopting the Sanders model of fundraising, swearing off large corporate donations, not enough are doing so. Democrats are united in their concern pertaining to foreign threats that pose risks to the integrity of U.S. elections, but the vigorous opposition to Vladimir Putin and the Russians isn’t extended to the domestic oligarchs destroying American democracy (and the economy) from within.

The whole history behind Senator Crapo’s bill shows how quickly bank lobbyists can routinely exploit their financial muscle to turn a seemingly innocuous bill into something which pokes yet more holes into the Swiss Cheese-like rules already in place for Dodd. The Baker’s Dirty Dozen have accepted donations from Wall Street that not only constrain their ability to implement genuine reforms in finance (and other areas) but also discourage the mobilization of voters, who see this legislative horror show, and consequently opt out of showing up to vote at elections because they know that the system is rigged and dominated by corporate cash (making their votes irrelevant).

Ironically, no less a figure than Donald Trump exploited that voter cynicism in 2016. In striking contrast to every other Republican presidential nominee since 1936, he attacked globalization, free trade, international financiers, and Wall Street (and made effective mockery of Hillary Clinton’s ties to Goldman Sachs) and thereby mobilized blue-collar voters in marginal Rust Belt states, giving him his path to the presidency. Of course, we now know that this was all bait-and-switch politics, likely facilitated by forces outside the U.S., along with large corporation donations from domestic elites. We’ve probably reached the endgame as far as this "investment approach to politics" as it disintegrates into a cesspool of corruption and further financial fragility. It may take another crash before this problem is truly fixed.

In the meantime, this bipartisan subversion of Wall Street reform not only risks making the next crisis at least as bad as 2008, but also reinforces the notion that both parties are equally corrupt, catalyzing the collapse of the American political order. In a further sick twist of fate, the twin corrosive forces of “golden rule politics” (i.e., he who has the gold rules) and a rapidly deflating “bubble-ized” economy could all come to a head under the watch of Donald the Unready. But he won’t own this disaster alone, thanks to the help of compromised Wall Street Democrats. Marshall Auerback

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https://www.alternet.org/news-amp-politics/dems-team-gop-weaken-bank-rules-which-critics-say-may-lead-more-bailouts

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https://www.alternet.org/news-amp-politics/warren-refuses-play-dead-big-banks

Thanks to the help of 16 Senate Democrats and Sen. Angus King (I-Maine), a Wall Street deregulation measure disguised as a "community banking" bill is barreling toward passage—but Sen. Elizabeth Warren (D-Mass.) vowed Wednesday to not let the bill sail through without forcing votes on a series of amendments aimed at showing Americans whose side their lawmakers are really on.

"The fight over the Bank Lobbyist Act isn't over yet," Warren wrote on Twitter, unveiling 17 amendments that, if approved, would uphold strict oversight of big banks and shield consumers from Wall Street fraud and abuse. "I'm not going to roll over and play dead for the big banks."

First introduced last November by Sen. Mike Crapo (R-Idaho), the officially named "Economic Growth, Regulatory Relief, and Consumer Protection Act" (S.2155) could hit the Senate floor for a final vote as soon as Thursday after it easily cleared a procedural hurdle earlier this week.

Far from what its title suggests, progressive lawmakers and independent analysts argue the legislation would dismantle many consumer protections, provide huge gifts to Wall Street firms, and—according to the Congressional Budget Office (CBO)—significantly increase the likelihood of future taxpayer-funded bank bailouts.

In an effort to let the American people know whether their senators are on the side of "working families or the big banks," Warren announced her plan on Wednesday to push for votes on amendments to the bill that, if implemented in its current form, would "turn over the keys to our economy to the same people who crashed it ten years ago."

"The Senate is expected to pass the #BankLobbyistAct—with Democratic support. But I'm not going down without a fight," Warren declared.

Below is a full list of the amendments accompanied by a short summary of their contents. The full amendments can be viewed on Warren's Twitter page.

1. (#2056) BAILOUTS: This amendment ensures that banks that received more than $1 billion in bailout money during the 2008 financial crisis are still subject to tougher federal oversight.

2. (#2064) DEFERRED PROSECUTION AGREEMENTS: This amendment ensures that banks that are currently operating under a deferred prosecution agreement or a consent order are not deregulated by the bill.

3. (#2063) FINES:This amendment ensures that big banks that have been assessed more than $10 million in fines in the last ten years remain subject to stricter federal oversight.

4. (#2061) OUTSOURCING: This amendment ensures that banks that have outsourced more than 50 jobs in any of the last five years remain subject to stricter federal oversight. The Communications Workers of America support this amendment.

5. (#2060) STOCK BUYBACKS: This amendment prohibits any big bank that gets deregulated under the bill from buying back its stock for the next five years. If the purpose of this bill is to promote lending and economic growth, the banks that benefit from it should not be permitted to funnel any savings into additional stock buybacks.

6. (#2058) MERGERS: This amendment prohibits any big bank that gets deregulated under the bill from merging with or acquiring another bank for five years. Supporters of the bill claim it is intended to reduce consolidation in the banking industry, but experts agree that the bill, as currently written, will spark a wave of new mergers. This amendment will limit that consolidation.

7. (#2067) FREE CREDIT FREEZES:This amendment amends section 301 of the bill to include the full text of Senator Warren's FREE Act. The FREE Act provides for a more consumer-friendly free credit freeze process than the current bill and prohibits credit bureaus from selling data to third parties when a freeze is in effect.

8. (#2065) MANDATORY PENALTIES FOR CREDIT BUREAU DATA BREACHES:This amendment inserts the Warren-Warner Data Breach Prevention and Compensation Act of 2018 into the bill. The bill imposes large, mandatory penalties on credit bureaus that allow personal consumer data to be accessed or stolen.

9. (#2057) NO CREDIT REPORTS IN JOB APPLICATIONS:This amendment inserts Senator Warren's Equal Opportunity for All Act into the bill. The bill prohibits employers from requesting a job applicant's credit report.

10. (#2069) GLASS-STEAGALL: This amendment inserts Warren-McCain-Cantwell-King 21st Century Glass-Steagall Act into the bill. The bill would re-establish the divide between commercial and investment banking.

11. (#2062) CARD ACT EXPANSION: This amendment expands the CARD Act to include other financial products marketed on college campus, including debit cards and checking accounts.

12. (#2059) STUDENT LOAN ARBITRATION: This amendment bans the use of mandatory arbitration clauses in contracts for private student loans.

13. (#2066) DISCLOSING SEXUAL HARRASSMENT:This amendment inserts Senator Warren's Sunlight in Workplace Harassment Act into the bill, which would require publicly-traded companies to disclose the number and dollar amount of workplace harassment and discrimination settlements.

14. (#2070) STUDENT LOAN SERVICING: This amendment grants student borrowers a private right of action against student loan servicers, lenders, and holders, and adds additional requirements for loan servicers to support borrowers throughout the repayment process.

15. (#2068) PRIVATE STUDENT LOANS: This amendment offers consumer protections for private education loan borrowers, including servicing transfer protections, fee prohibitions and protections, and private student loan discharge for borrower death or disability.

16. (#2054) LIMITING IMMUNITY: This amendment amends section 303 of the bill to limit the immunity provided to bank personnel so that they do not receive immunity for violations unrelated to the reporting of financial exploitation of seniors.

17. (#2055) CLOSING WALL STREET LOOPHOLE: Section 165 of Dodd-Frank currently states that the Fed "may" tailor the enhanced prudential standards depending on the size, risk, complexity, and activities of specific banks or categories of banks. Section 401 of S. 2155 says the Fed "shall" tailor these requirements - which, under the bill, now only apply to banks bigger than $250 billion in assets. That one word change gives the biggest Wall Street banks a massive legal hook to challenge Fed requirements and systematically weaken the rules. This amendment would strike the "may" to "shall" change.

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cfpb mole mork

Washington, D.C. — The Consumer Financial Protection Bureau’s Acting Director Mick Mulvaney announced today that he has named Kirsten Sutton Mork chief of staff for the agency. Ms. Sutton Mork has been serving as staff director of the House Financial Services Committee under Chairman Jeb Hensarling.

"I am pleased to announce Ms. Sutton Mork as the new chief of staff at the Bureau of Consumer Financial Protection," said CFPB Acting Director Mick Mulvaney. "I worked with Kirsten during my tenure as a member on the House Financial Services Committee and can attest to her in-depth financial policy expertise, proven track record of developing and implementing strategic initiatives, and ability to manage a team. Kirsten brings with her more than a decade of invaluable experience that will advance the mission of the Bureau and make it more efficient, effective, and accountable."

Ms. Sutton Mork’s tenure on Capitol Hill spans the financial crisis and post-crisis legislative response. She staffed Hensarling during House Financial Services Committee, House and conference committee consideration of the legislation that established the Bureau, the Dodd-Frank Act, and she is intimately familiar with the Bureau’s statutory mission and obligations. She was appointed deputy staff director to the House Financial Services Committee in 2013 and became staff director in early 2017. Ms. Sutton Mork attended Wheaton College where she received a B.A. in communications.

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http://www.slate.com/blogs/moneybox/2017/06/09/house_republicans_voted_to_gut_dodd_frank_for_no_good_reason.html

House Republicans’ Vote to Gut Dodd-Frank Is the Wall Street Giveaway That Wall Street Doesn’t Need

By Daniel Gross

On Thursday, the House of Representatives passed the Financial Choice Act, which is aimed at reducing the regulatory burden on banks imposed by the 2010 Dodd-Frank law. As the Wall Street Journal noted, the Financial Choice Act would “subject new financial rules to cost-benefit analysis, boost penalties for financial wrongdoers and repeal the Volcker rule restricting banks from speculative trading.” The general thrust is to free banks from oversight. Some banks would be exempt from the federal stress tests, and the legislation would scale back the ability of the Consumer Financial Protection Bureau to ride herd on abusive bank practices.

Of course, it’s only the House. Similar legislation in the Senate would have to beat a filibuster, and hence require some Democratic votes. So it’s not likely the Choice Act will become law in its current form. Which is a good thing. The idea that banks and the broader financial system need relief from today’s regulatory regime is belied by reality, including their balance sheets. The case for repeal of Dodd-Frank would be more compelling if banks were suffering—failing to make money, failing to attract deposits, failing in general. But they’re not.

Which highlights an important historical truth. Sure, deregulating an industry can supercharge growth for a few years. But it often ends up in a crash. That’s what happened with the savings and loan industry in the 1980s, and with Wall Street in the 2000s. Setting and enforcing standards, on the other hand, is actually quite good for a sector’s long-term health. Wall Street and the banking system only got back on their feet in the 1930s after the passage of sweeping New Deal reforms. Insurers and many areas of the health care economy have thrived under the Affordable Care Act. Just so, the U.S. banking system—which was in shambles in 2009—has thrived since the passage of Dodd-Frank. In fact, it’s hard to recall a point in recent history when banks were as safe and as profitable as they are right now.

The Federal Deposit Insurance Corporation provides a handy reading of the sector’s health with its voluminous Quarterly Banking Profile. Dodd-Frank became law on July 27, 2010. In the quarter before its passage, the banking industry was licking its wounds and getting back on its feet after the financial crash, the housing bust, and the credit crisis. Twenty percent of the nation’s 7,830 banks were losing money, and 45 banks failed that quarter. The nation’s insured banks collectively charged off $49 billion in bad debt—loans they had made but now concluded they had no hope of collecting. Some 829 banks, with total assets of $403 billion, were on the FDIC’s “problem list.” Collectively, the industry eked out a profit of $21 billion.

The successive quarterly reports tell a tale of recovery and profitable growth—with vastly lower rates of failure and significantly higher profits.

Now, Dodd-Frank contained a lot of regulations. And while it did explicitly ban some practices—like using government-insured deposits to engage in proprietary trading—the most important thing it did was to set higher standards. Want to be part of the Federal Deposit Insurance program? Then you’ve got to hold more capital, you have to submit to annual stress tests, and you must operate with the knowledge that the CFPB is going to be watching you to make sure you aren’t abusing your customers.

While banks grumbled and lobbied for changes, they generally complied with Dodd-Frank. As a result, they became more careful and choosy about how they lent. Many smaller institutions that were struggling to survive decided it made more sense to merge or being acquired. Thanks to consolidation and failure, there were 5,856 banks in the first quarter of 2017, 25 percent fewer than in early 2010.

The pace of lending abated from the frenzied tempo of the bubble years. But lending today is far more effective—and profitable—than it was before Dodd-Frank.It helps that the economy and jobs have been expanding consecutively for the last several years. But we haven’t seen the type of reckless lending from banks that tend to take place as expansion lengthen.

Bank failures have fallen virtually every year. Last year, only five small banks failed. The number of banks on the problem list has fallen to 112, and they’re mostly very small. The combined assets of today’s troubled banks is $24 billion—a decline of 94 percent from before the passage of Dodd-Frank. The Federal Deposit Insurance Fund, which was $20 billion in the hole in the spring of 2010, is at a record high of $83 billion. Only 3 percent of the banks in the U.S. reported a less in the most recent quarter. Banks charged off $11.5 billion in bad loans in the quarter—a decline of 75 percent from the second quarter of 2010. After making a combined—and record—$170 billion in profits in 2016, banks regulated by the FDIC earned $44 billion in the first quarter of 2017.

Does this really look like an industry that is struggling mightily in the face of zealous regulation?

https://www.nytimes.com/2017/06/08/business/dealbook/house-financial-regulations-dodd-frank.html

no link

House approved legislation on Thursday to erase a number of core financial regulations put in place by the 2010 Dodd-Frank Act, as Republicans moved a step closer to delivering on their promises to eliminate rules that they claim have strangled small businesses and stagnated the economy.

The vote is a significant step for a measure that still faces long odds of becoming law because of the slim majority that Republicans hold in the Senate.

Even Wall Street lobbyists and lawyers were pessimistic about the chances of the bill, the Financial Choice Act.

“There is zero chance that the Choice Act survives” in its current form in the Senate, said Matthew Dyckman, a lawyer in the financial services practice at Goodwin.

Yet the bill’s passage in the House, by 233 to 186, keeps alive the Republican Party’s dream of unwinding one of President Barack Obama’s signature accomplishments. The vote quickly drew the ire of Democrats who argued that Republicans were giving a handout to Wall Street while putting everyday investors at risk.

The bill has maintained a low profile compared with Republican plans on health care and taxes, but rolling back Dodd-Frank represents a major part of the Republican agenda. The Trump administration hopes that by unshackling businesses from burdensome regulations, renegotiating trade deals and cutting tax rates, it can help the economy grow faster and well-paying jobs will become more plentiful.

“Ultimately the Financial Choice Act is a jobs bill,” Speaker Paul D. Ryan said on the House floor on Thursday. “It is why we were sent here, to look out for the people who work hard and do the right thing.”

The House vote comes before a Treasury Department report due in the coming days that will detail the Trump administration’s plans for easing financial regulations. And a lighter regulatory touch is already expected as a result of the administration’s appointments of banking industry veterans to serve as financial regulators.

The bill passed the House with only Republican support. But it is possible that bipartisan backing could emerge for parts of the legislation or for fixes to Dodd-Frank that could eventually become law.

The Choice Act would exempt some financial institutions that meet capital and liquidity requirements from many of Dodd-Frank’s restrictions that limit risk taking. It would also replace Dodd-Frank’s method of dealing with large and failing financial institutions, known as the orderly liquidation authority — which critics say reinforces the idea that some banks are too big to fail — with a new bankruptcy code provision.

In addition, the legislation would weaken the powers of the Consumer Financial Protection Bureau. Under the proposed law, the president could fire the agency’s director at will and its oversight powers would be curbed.

The bill would also eliminate the Labor Department’s fiduciary rule, which requires brokers to act in the best interest of their clients when providing investment advice about retirement. The first parts of the rule are scheduled to go into effect on Friday. The rule was completed last spring under Mr. Obama after years of development.

According to an analysis by the Congressional Budget Office, the Financial Choice Act would reduce federal deficits by $24.1 billion over a decade. The budget office cautioned, however, that there was considerable uncertainty in its estimates because it was difficult to predict when a “systemically important” financial firm might fail.

Business lobbyists and conservative think tanks have been largely supportive of the plans, which they argue will ease lending and help small companies create jobs.

“The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act is among the most inappropriately named laws ever enacted in the U.S.,” said Norbert Michel, a Heritage Foundation research fellow. “It neither reformed Wall Street nor protected consumers, and it imposed massive new regulations on banks far away from Wall Street.”

Optimism about big changes remains tempered, however.

While expressing polite, if restrained, gratitude to RepresentativeJeb Hensarling, the Texas Republican who championed the dismantling of Dodd-Frank for years, banking lobbyists were realistic about actual changes the Senate Democrats would be willing to swallow.

The Senate, they said, is expected to preserve the Consumer Financial Protection Board and the Volcker Rule, which restricts profitable forms of trading by investment banks. A Senate version would probably keep in place most of the rules dictating how much capital lenders have to hold in case of losses.

The most significant relief that Wall Street institutions can expect from Congress is tweaking a rule in Dodd-Frank to allow them to charge higher rates on mortgages that they hold, as opposed to the loans they package and sell in securitizations.

In short, the rules governing the nation’s largest banks, like J.P. Morgan Chase and Bank of America, are not expected to change very much. Some of those banks have been cool to the Choice Act anyway, since they have invested large resources to comply with Dodd-Frank.

“It’s an important first step,” Robert Nichols, president and chief executive of the American Bankers Association, said of the vote. “We are seeking targeted, narrow changes and adjustments to a law that is seven years old, and even the authors admit openly that there are parts of it where we missed the mark and we overshot.”

The nation’s community banks, on the other hand, hope to see some significant easing of regulations on their lending and capital levels.

These vocal and typically conservative-leaning bankers have complained for years that Dodd-Frank has strangled their business with needless paperwork and data collection.

“These rules were meant to placate some bureaucrat in an ivory tower in Washington, D.C.,” said John M. Barrett, chief executive of Citrus Bank in Tampa.

Among progressive groups and Democrats in Congress, the passage of the Choice Act was painted as nothing more than a gift to rich bankers. They said Republicans’ support for the legislation was evidence that their populist promises on the campaign trail were empty.

“It’s a bill that’s so harmful to vast swaths of the American public if it became law,” said Lisa Donner, executive director of Americans for Financial Reform. “It would make it easier for predatory lenders to rip people off. It would make it easier for Wall Street to keep taking $17 billion out of retirees’ pockets by repealing the fiduciary rule. It would make it easier for big Wall Street banks to take the kind of risks in pursuit of short-term gains that go directly to the pockets of the tiny handful of people at the top that led to the financial crisis.”

Democratic political organizations such as American Bridge are hoping to make vulnerable House Republicans pay for their votes at the polls in the 2018 midterm elections. The group is rolling out digital advertisements in 14 congressional districts on Friday to assail lawmakers who voted to change Dodd-Frank.

“Just like with Trumpcare, every Republican who supports the Choice Act is acting on behalf of the wealthiest Americans at the rest of the country’s expense, and the public will hold them accountable,” said Andrew Bates, a spokesman for American Bridge.

On the floor of the House on Thursday, as Democrats in lock step expressed their opposition to the bill they have nicknamed the Wrong Choice, they argued that Republicans had forgotten the lessons of the 2008 financial crisis.

“These are not the choices that the American people want,” said Representative Nancy Pelosi, Democrat of California, the minority leader. “House Republicans are feeding American families to the wolves on Wall Street.”

https://theintercept.com/2017/02/17/a-corporate-defender-at-heart-former-sec-chair-mary-jo-white-returns-to-her-happy-place/

MARY JO WHITE, whose tenure as chair of the Securities and Exchange Commission under President Obama bitterly disappointed those who hoped she would aggressively enforce banking laws, is rejoining the corporate defense team at Debevoise & Plimpton, marking her sixth trip through the revolving door between various government jobs and the white-collar defense law firm she calls home.

Debevoise represents numerous major financial institutions under federal investigation, and White will now help those corporate clients manage their legal exposure.

White got the call to return to Debevoise on Inauguration Day, her last day at the SEC. As Debevoise presiding partner Michael Blair told the Wall Street Journal, “We had been waiting to make that phone call for several years.”

This latest trip through the revolving door is particularly disturbing because White declared in ethics disclosure forms before becoming SEC chair that she was retiring from her partnership at Debevoise, receiving a lump sum retirement payment of over $2 million. Instead of staying retired, she immediately went back to Debevoise after her government service ended, pocketing the money.

It is not, however, surprising.

White auditioned for the job promising to police Wall Street aggressively, and be “bold and unrelenting.” But once installed, she spent her time at the SEC operating like she still worked for Debevoise. Her tenure was marked by persistent delays on finalizing rules mandated by the Dodd-Frank Act, including those on corporate political spending and disclosure of the CEO pay ratio. One anti-corruption rule requiring oil and gas companies to disclose payments to foreign governments got finalized so late that Republicans had the opportunity to scrap it earlier this month with a special review procedure.

Critics have charged that White continued the SEC’s tradition of light enforcement. James Kidney, a former SEC trial lawyer, attacked the agency in a scathing retirement speech in 2014, saying that it “polices the broken windows on the street level and rarely goes to the penthouse floors.”

Kidney added, “I have had bosses, and bosses of my bosses … who made little secret that they were here to punch their ticket. They mouthed serious regard for the mission of the commission, but their actions were tentative and fearful in many instances.”

Under White, the SEC failed to monitor stock buybacks to prevent market manipulation. It failed to stop the epidemic of granting waivers to companies automatically banned from securities activities after settling cases of civil and criminal wrongdoing. White stood with Republican commissioners even as Democratic colleagues tried to stop those waivers from being granted. In a troubling continuance of regulatory capture at the agency, White hired a senior Goldman Sachs attorney as the SEC chief of staff.

Though White made a big show of fighting to force companies to admit guilt in any settlement, a break from past practice, in reality this tool was rarely used. According to a letter from Sen, Elizabeth Warren, of 520 settlements from June 2013 to September 2014, only 19 required admissions of guilt. And in the majority of those cases, the SEC only asked for a broad admission of the facts of the case, rather than admissions of specific securities violations. In one example, the SEC got JPMorgan Chase to admit to breaking a law in 2013, but it wouldn’t say which one.

Perhaps the most notable trend of White’s SEC tenure was how she repeatedly recused herself from cases, not only because of her past association with Debevoise (which forced recusal from cases involving Bank of America), but because her husband John White worked as a corporate lawyer at another white-shoe firm, Cravath Swaine & Moore. It’s been rumored that firms would try to sign up with Cravath just to knock White out of enforcement cases.

In the first two years, White recused herself from over four dozen investigations, according to the New York Times. In several cases, this resulted in a 2-2 split on enforcement decisions among the five-member panel, delaying or sometimes ending the offending banks’ cases.

White got ethics waivers to insert herself into some cases involving former clients, like Credit Suisse, despite the conflict of interest. Enforcement against the Swiss bank has been called cozy and soft; a recent $90 million fine for misleading investors was “almost a win-win for the SEC and Credit Suisse,” according to former SEC enforcement attorney David Chase.

Warren asked President Obama to fire White last October, saying “The only way to return the SEC to its intended purpose is to change its leadership.”

Unlike Obama, President Trump does not even pay lip service to that intended purpose, which is to protect investors. Trump’s choice for White’s replacement, Jay Clayton, is also a former corporate lawyer. Clayton worked for Sullivan & Cromwell, which represented Goldman Sachs, among other financial firms. Clayton’s wife Gretchen is a vice president at Goldman Sachs, leading to yet more conflicts of interest. And even before Clayton’s confirmation, the SEC’s acting chairman, Michael Piwowar, has quietly worked to roll back the power of senior attorneys to open investigations into Wall Street misconduct.

White began as an associate with Debevoise & Plimpton in 1976. She became an assistant U.S. attorney under President Carter, then went back to Debevoise to do white collar defense work. In 1990, White returned to the federal prosecutor role, eventually becoming the U.S. attorney for the Southern District of New York, which includes Wall Street, under President Clinton. When that ended, White became a partner at Debevoise from 2002 to 2013, until President Obama tapped her to chair the SEC.

Not only is White returning to Debevoise, but her SEC director of enforcement, Andrew Ceresney, is headed back through the revolving door to the law firm as well.

White will be a “senior chairwoman” at Debevoise, representing corporate clients in government investigations and negotiations. Her 2013 ethics form stated “I will retire from the partnership of Debevoise & Plimpton,” enabling her to take a lump sum retirement payment of a little over $2 million, along with payouts of stock accounts.