March 4, 2010
We reached the point where serious financial reform began to look like a lost cause. Nothing has been done to address the problems that caused the financial crisis. Economists have been warning that we could be facing another financial crisis, requiring another round of bank bailouts. The watered-down financial reform bill passed by the House of Representatives, HR 4173, is about to become completely defanged by the Senate.
The most hotly-contested aspect of the proposed financial reform bill — the establishment of an independent, stand-alone, Consumer Financial Protection Agency — is now in the hands of “Countrywide Chris” Dodd, who is being forced into retirement because the people of Connecticut are fed up with him. As a result, this is his last chance to get some more “perks” from his position as Senate Banking Committee chairman. Back on January 18, Elizabeth Warren (Chair of the Congressional Oversight Panel and the person likely to be appointed to head the CFPA) explained to Reuters that banking lobbyists might succeed in “gutting” the proposed agency:
“The CFPA is the best indicator of whether Congress will reform Wall Street or whether it will continue to give Wall Street whatever it wants,” she told Reuters in an interview.
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Consumer protection is relatively simple and could easily be fixed, she said. The statutes, for the most part, already exist, but enforcement is in the hands of the wrong people, such as the Federal Reserve, which does not consider it central to its main task of maintaining economic stability, she said.
The latest effort to sabotage the proposed CFPA involves placing it under the control of the Federal Reserve. As Craig Torres and Yalman Onaran explained for Bloomberg News:
Putting it inside the Fed, instead of creating a standalone bureau, was a compromise proposed by Senator Bob Corker, a Tennessee Republican, and Banking Committee Chairman Christopher Dodd, a Connecticut Democrat.
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Banking lobbyists say the Fed’s knowledge of the banking system makes it well-suited to coordinate rules on credit cards and other consumer financial products.
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The financial-services industry has lobbied lawmakers to defeat the plan for a consumer agency. JP Morgan Chase & Co. Chief Executive Officer Jamie Dimon called the agency “just a whole new bureaucracy” on a December conference call with analysts.
Barry Ritholtz, author of Bailout Nation, recently discussed the importance of having an independent CFPA:
Currently, there are several proposals floating around to change the basic concept of a consumer protection agency. For the most part, these proposals are meaningless, watered down foolishness, bordering on idiotic. Let the Fed do it? They were already charged with doing this, and under Greenspan, committed Nonfeasance — they failed to do their duty.
The Fed is the wrong agency for this.
In an interview with Ryan Grim of The Huffington Post, Congressman Barney Frank expressed a noteworthy reaction to the idea:
“It’s like making me the chief judge of the Miss America contest,” Frank said.
On Tuesday, March 2, Elizabeth Warren spent the day on the phone with reform advocates, members of Congress and administration officials, as she explained in an interview with Shahien Nasiripour of The Huffington Post. The key point she stressed in that interview was the message: “Pass a strong bill or nothing at all.” It sounds as though she is afraid that the financial reform bill could suffer the same fate as the healthcare reform bill. That notion was reinforced by the following comments:
My first choice is a strong consumer agency . . . My second choice is no agency at all and plenty of blood and teeth left on the floor.
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“The lobbyists would like nothing better than for the story to be the [proposed] agency has died and everyone has given up,” Warren said. “The lobbyists’ closest friends in the Senate would like nothing better than passing an agency that has a good name but no real impact so they have something good to say to the voters — and something even better to say to the lobbyists.”
Congratulations, Professor Warren! At last, someone with some cajones is taking charge of this fight!
On Wednesday, March 3, the Associated Press reported that the Obama administration was getting involved in the financial reform negotiations, with Treasury Secretary Geithner leading the charge for an independent Consumer Financial Protection agency. I suspect that President Obama must have seen the “Ex-Presidents” sketch from the FunnyOrDie.com website, featuring the actors from Saturday Night Live portraying former Presidents (and ghosts of ex-Presidents) in a joint effort toward motivating Obama to make sure the CFPA becomes a reality. When Dan Aykroyd and Chevy Chase reunited, joining Dana Carvey, Will Ferrell and Darryl Hammond in promoting this cause, Obama could not have turned them down.
Inviting Blowback
March 11, 2010
Is it just a coincidence that “Turbo” Tim Geithner was the subject of back-to-back feature stories in The New Yorker and The Atlantic ? A number of commentators don’t think so.
The March 10 issue of The New Yorker ran an article by John Cassidy entitled, “No Credit”. The title is meant to imply that Getithner’s efforts to save America’s financial system are working but he’s not getting any credit for this achievement. From the very outset, this piece was obviously an attempt to reconstruct Geithner’s controversial public image – because he has been widely criticized as a tool of Wall Street.
The article by Jo Becker and Gretchen Morgenson in the April 26, 2009 issue of The New York Times helped clarify the record on Geithner’s loyalty to the big banks at the public’s expense, during his tenure as president of the Federal Reserve of New York. That piece began with a brainstorming session convened by Treasury Secretary Hank Paulson in June of 2008, at which point Paulson asked for suggestions as to what emergency powers the government should have at its disposal to confront the burgeoning financial crisis:
The recent article in The New Yorker defends Geithner’s bank bailouts, with a bit of historical revisionism that conveniently avoids a small matter referred to as Maiden Lane III:
Edward Harrison of Credit Writedowns dismissed the NewYorker article as “an out and out puff piece” that Geithner himself could have written:
The article on Geithner, appearing in the April issue of The Atlantic, was described by Mr. Harrison as “fairly even-handed” although worthy of extensive criticism. Nevertheless, after reading the following passage from the first page of the essay, I found it difficult to avoid using the terms “fawning and sycophantic” to describe it:
Gawd! Yeech!
The reaction to the New Yorker and Atlantic articles, articulated by Yves Smith of Naked Capitalism, is an absolutely fantastic “must read” piece. Ms. Smith goes beyond the subject of Geithner. Her essay is a tour de force, describing how President Obama sold out the American public in the service of his patrons on Wall Street. The final two paragraphs portray the administration’s antics with a long-overdue measure of pugilism:
Congratulations to Yves Smith for writing a fantastic critique of the Obama administration’s combination of nonfeasance and misfeasance in responding to both the financial and economic crises.