The conclusions will probably come as a surprise exactly none of you, but a new study from the International Monetary Fund on the influence of campaign donations and lobbying politics is worth a mention because of the completeness of the research and the authority of its source. Two IMF economists, Deniz Igan and Prachi Mishra, have been examining how the targeted political activities of financial corporations between 1999 and 2006 affected how Congress voted on bills that strengthened or loosened regulation of Wall Street leading up to the 2008 crisis. They found — surprise! — that the more the corporations spent on campaign donations and lobbying, the more likely Congress was to vote in favor of deregulation. Furthermore, they found that the money Wall Street spent on lobbying members of Congress who were connected to Wall Street, either from having worked there in the past or through a former staff member who had gone through the revolving door to K Street, had a much stronger effect on their voting than on those who had no Wall Street connections.
A preliminary version of the economists’ research paper, replete with detailed methodology information, can be found here (happy to see OpenCongress mentioned as a data source). Some of their key findings were summed up recently in an article for the June edition of the IMF’s Finance & Development magazine, here. And Dan Froomkin written it up at HuffPost, here.
The most significant finding is the extent to which the revolving door influences Congress’ voting patterns. According to the study, Wall Street companies that used lobbyists who had worked for the member of Congress they were lobbying made the targeted lawmaker 20% more likely to vote how the firm wanted than the average lawmaker, and about 9% more likely than lawmakers who were lobbied by unconnected lobbyists (column 1 at right). Furthermore, when companies used lobbyists who were connected to the member of Congress they were targeting, they were able to spend less to have the same impact. The amount of money spent by companies with connected lobbyists did not affect voting (column 3). Apparently it’s just the connection that matters, not the number of trips to the Hill.
Coincidentally, Talking Points Memo has just updated their “Shadow Congress” database, tracking former members of Congress who now work for lobbying shops, and the revolving door is definitely trending up. By TPM’s count 195 former lawmakers now work on K Street — up from 172 one year ago — including several very powerful Democrats who were defeated in the 2010 midterms.
Given the influence of the revolving door, there has been very little discussion in Congress on reforming the system. In 2007, as part of a larger ethics overhaul bill, Democrats passed a loophole-laden two-year “cooling off” period before ex-lawmakers and staff members could become registered lobbyists. In the past 6 years, only one bill has been introduced to expand those restrictions. Sen. Michael Bennet’s [D, CO]“Close the Revolving Door Act of 2010” proposed, among other things, to permanently ban members of Congress from ever joining lobbying firms. It attracted one co-sponsor before dying in committee.
Me and my baby gonna get on a train that’s gonna take us away,
We’re gonna live in a tent, we’re gonna pay no more rent, we’re gonna pay no more rates,
We’re gonna live in a field, we’re gonna buy me gun to keep the policemen away.
Gonna pass me a brand new resolution,
Gonna fight me a one man revolution, someway,
Gonna start my rebellion today.
But here come the people in grey,
To take me away.
– Ray Davies
Gillain Tett has a must read piece (tx yves) in the FT regarding the heart of the past financial bubble. It’s based on a good IMF paper, good information can indeed come from bad sources. The piece is much easier to understand if you replace the term “rehypothecation” with Ponzi. Here’s the nut:
Second, as the IMF paper shows, this rehypothecation (Ponzi) activity can be so frenetic it can significantly affect the overall volume of leverage in the system. The IMF paper calculates that, by 2007, the seven largest US brokers were getting about $4,500bn of funding from rehypothecation activity, most of which was not recorded in their accounts or the US government’s flow of fund data.
That’s $4.5 trillion, one third of the entire US economy and here dear reader, you see why all the blowing in the world by Mr. Bernanke and every other central banker is not going to reflate the bubble. We have a choice, we can clear the books and get rid of all the bad debt, or we can all spend the next twenty years working a crippled economy paying off a bunch of debt that was at its foundation fraudulent.
The financial press has been a gush this morning with the news that German economy grew, wait for it, a whole 2.2%. That’s the largest growth rate in the German economy in twenty years. The FT describes it as “stellar”. Phew! Talk about you’re new normal. Just think if the Euro goes down to fifty-cents, or the neo-Deutsche Mark is released at 75 cents, the Germans might reach 3%.
A liberal education — Barbara Ehrenreich has a piece in The Nation in which she
states, “the federal government, avatar of liberal hope for at least a century, has become hopelessly undemocratic, poisoned by corruption and structurally snarled by partisan divisions.” It even gets better, though there’s a gratuitous slam at the Tea Partiers at the end. The final step of a liberal education will be the over, and too often badly educated left understanding it does indeed have some common ground with “angry white-boy America”, that would be trouble indeed.
Liberals of the United States run from DC, you have nothing to lose but your chains.
LATEST UPDATES: Tell us how your call went in the report back section right here, or scroll down below. We have had so many calls and so many reports back, it’s really great to watch the staffers start to get it and know we’re around. This week, our targets are Sen. Johnson, Rep. Frank, Sen. Corker, and Sen. Reed. TPM reports on the four New Dems weakening measures behind closed-doors, can you call them and report back?: Rep. Luis Gutierrez (D-IL), (202) 225-8203; Rep. Gregory Meeks (D-NY), 202-225-3461; Rep. Mel Watt (D-NC), 202-225-1510; Rep. Dennis Moore, Chair (D-KS), (202)225-2865. Rep. Frank has tried to gut provisions to reform credit rating agencies, showing where he is going with the bill… The Senate agreed to expand auditing of the Fed – 1 BIG WIN SO FAR. Our #2 reform discussed now, seems like a win.. Thank you for making the calls! (Follow on @wayfwd, FaceBook, riski)
We’re going to make sure there are no backroom deals that effectively gut the best reforms currently in the bill — we’ve launched “Call-in Days for the Big 3 No Bailouts Reforms” to put every decision maker in the spotlight for gutting or keeping the Big 3. We have 14 days until June 24 to influence the financial reform bill to be something worth passing. So, yesterday on Tuesday, today on Wednesday (6/16), and tomorrow on Thursday (6/17), please help us get enough people so it’s like we’re walking right into the backroom with them and slapping their hands if they do something bad. We’ll update our list on the slimiest and worst on financial reform. Full list below.
Sign up for a day that works for you — you just need a 5 minute chunk of time free — and we’ll make your call effortless. If you’ve already signed up and when you finish your call, add what you find out in the report back section here. As soon as we hear back from you, we’ll update who is acting the sleaziest (you can also report back at #finreg #716 on twitter).
We need to call as much as each of us can to stop government support and incentives for banks to become bigger and riskier – this is structural reform.
WHAT’S HAPPENING IN THE LAST LEG OF FINANCIAL REFORM? The financial reform bill is going into the final stage in the legislative process this week and bought-out members of Congress are trying to stealthily remove all the provisions in it that the big banks oppose. The financial reform bill would be a pure product of lobbying and big banking if it were not for the just a handful of “No Bailout Reforms” that are still in the bill as we speak. Can you join us in making sure that conferees don’t gut the strongest provisions in the financial reform bill behind closed doors?
No-Bailout Reform #1, is Section 716, “PROHIBITION AGAINST FEDERAL GOVERNMENT BAILOUTS OF SWAPS ENTITIES”. Currently, the Senate financial reform bill still has language in it that will stop the biggest, most dangerous banks from getting federal bailouts for their riskiest gambling. The provision that provides for this would require banks to spin off the derivatives activities into separate entities without access to discount Fed money and FDIC guarantees. It is structural reform. This is the main provision that our conference committee members are being asked to gut by the lobbyists. 716 literally says this in its own bill text. Without this language financial companies that turned themselves into banks for the purpose of receiving bailouts under the TARP will get to stay bailout recipients in perpetuity. Without this language, the 2008 crisis will lead to a permanent situation where the government continually subsidizes derivatives trades, which were at the heart of what caused the crisis. Here’s more from Bankster.
No-Bailout Reform #2, STRONG CAPITAL REQUIREMENTS FOR BIG AND SMALL BANKS: When banks make their bets, they’re supposed to put some money down. Over the years, the largest banks received exemptions to how much, and therefore their bets got riskier. This time around, Senators Collins and Representative Speier have introduced complementary amendments in the Senate and House to make sure that the money these banks put down for their bets is real capital and is enough to keep the big banks from taking risks they can’t pay for and need to be bailed out by taxpayers. For strong capital requirements, the best of the House and Senate version need to stay. Here’s more from Rortybomb.
No-Bailout Reform #3, A NEW CONSUMER PROTECTION AGENCY: A signature reform of the Obama Administration and TARP watchdog Elizabeth Warren, an independent consumer watchdog agency can stop financial corporations from abusing consumers. “Subprime mortgages. Abusive and arbitrary rate hikes on your credit card. Payday loans. If you’re wondering who lets banks get away with this crap, there are more people at it than you think. There are no less than four federal regulators responsible for overseeing consumer protection in finance, and all of them are terrible,” writes Zach Carter. The Senate bill would house the CFPA in the Fed and allow the Fed to veto their rules proposal. That’s unacceptable. We need an independent CFPA, via the House bill, with full rule-making authority. More from HuffPo.
BIG REFORM #4: First and foremost, we’re advocates of breaking up the big banks. We fought for the Brown-Kaufman amendment to cap the size of banks before they get too big to fail, but it didn’t pass with the Senate bill. Therefore, we agree with Dr. Simon Johnson that Rep. Kanjorski’s amendment to allow regulators to break up the banks is an important part of the finreg bill and are happy to push for it. To see more reforms, see our blog post from Stephanie and Ruth.
Supporters of these measures are Nobel Laureate Economist Joseph Stiglitz and Paul Krugman, renowned Economists Robert Reich, Jane D’Arista, Dean Baker, Simon Johnson, Jennifer Taub, David Moss, Michael Greenberger, financial writers and advocates, Rortybomb/Mike Konczal, Ilan Moscovitz of the Motley Fool, Zach Carter of CAF/Alternet, Public Citizen, CAF, David Dayen/FireDogLake, BanksterUSA, McJoan of Daily Kos. Join them!
AND NOW, WHO IS WATERING DOWN THE BILL? We have figured out who is trying to water down the bill thanks to the many people who have told us what they have heard in the comments of this post and what has been said in public.
Big Bank Defenders (they would love to hear from you):
* Rep. Luis Gutierrez (D, IL) (202) 225-8203 here, here
* Rep. Spencer Bachus (R, AL) 202-225-4921 report, report
* Sen. Jack Reed (R, RI) (202) 224-4642 here, CFPA
* Rep. Dennis Moore, Chair (D, KS) 202-225-2865 blue dog, here
* Rep. Mel Watt (D, NC) 202-225-1510 bank cash, pro-CFPA, here
* Rep. Gary Peters (D-MI), (202) 225-5802 here, here
* Sen. Saxby Chambliss (R-GA) 202 224 3521 here
* Rep. Scott Garrett (R, NJ) 202-225-4465 C-SPAN, this
* Sen. Mike Crapo (R-ID) 202-224-6142 here
* Rep. Judy Biggert (R, IL) 202-225-3515 bad
* Rep. Gregory Meeks (D, NY) (202) 225-3461 bad, here
* Rep. Jeb Hensarling (R, TX) 202-225-3484 bad
* Rep. Edward Royce (R, CA) 202-225-4111 here, here
* Sen. Judd Gregg (R-NH) 202 224 3324 report, article
* Sen. Richard Shelby (R-AL) 202 224 5744 here, here
* Sen. Bob Corker (R-TN) 202 224 3344 here
Public Defenders (so far):
* Rep. Paul Kanjorski (D, PA) (202) 225-6511 here
* Sen. Blanche Lincoln (D, AR) (202) 224-4843 gutting, reverting,report
* Rep. Collin Peterson (D-MN) 202-225-2165 prefers House version, maybe
* Sen. Tom Harkin (D, IA) (202) 224-3254 here
* Sen. Patrick Leahy (D, VT) (202) 224-4242 here
* Sen. Tim Johnson (D-S.D.) 202-224-5842 pro-CFPA
* Rep. Maxine Waters (D, CA) (202) 225-2201 here, here
We hope that you are helping to call, join us for the next day or call right now, and further target the few people we need to reach. Then, help us finish the job — we can’t wait to hear from you so we can update our list of sleaziest deals — tell us what you hear in the comments of this post. Thanks for making it happen!
written by Stephanie Remington and Ruth Robertson, great ANWF organizers in California.
Today is the day of our call-in days — please call — as they start to hear from us, they have to move. We’ve got a few days to get good reform – the details matter. The banks are spending a fortune lobbying congress to keep things the way they are, but the rest of us (on the receiving end of their catastrophic risk-taking and blatant fraud) outnumber them. We can’t lose sight of the public interest because we can get what we want by forcing their hand. Lincoln, Dodd, and Congress aren’t going to come back and say, “hey, you really changed our positions, activism really matters!”, but their omissions should are remiss.
Of course the problem with financial reform in the first place is that we’re tackling the entire system at once, including the small details. So many amendments are about very specific, obscure financial operations, which many people just don’t find that interesting. The details have hurt our fight for strong structural reform — everything is presented as and in one sense is complicated, some people just completely tune it out. Well, there are clear, overarching, very general, extremely structural solutions to the key issues leading to the financial crisis.
We only care about structural reforms that address key problems of financial crises:
1. First and foremost, Section 716 which addresses the problem of derivatives is the strongest and currently most possible reform we can push for. It’s gone through many cycles, and our readers have successfully fought through them. The good news is — it is still in the bill. It is the most contentious provision and it will define how strong the Democrats are on the big banks.
No other provision will accomplish what 716 does in terms of removing the subsidy enjoyed by a handful of institutions. Section 716 is the best chance for ending the ongoing threat to the taxpayer in the the current business of derivatives. At the heart of 716 is the structure it provides making a clear separation between the business of banking and that of marketing and trading derivatives. It provides a structure that protects the core financial functions of banks without extending those protections to cover highly risky derivatives transactions.
Section 716 will contribute to shrinking the size of individual institutions’ positions and the market itself by requiring that dealing and trading derivatives move to separately capitalized affiliates that do not have access to Fed lending facilities or FDIC guarantees. The huge capital reserves of institutions that dominate the U.S. market will no longer be available to support their outsized positions. The capital of derivatives affiliates, even if within the same holding company, will have to be much smaller, creating opportunities for non-bank firms to enter the market. Section 716 eliminates the risk the largest banks incur through marketing and trading OTC derivatives. It will help reduce the risk to the system as a whole by encouraging an expansion in the number of dealers in derivatives.
Blanche Lincoln (D-AR) is behind 716 and she won her Democratic primary on the strength of committing to tough new rules on Wall Street. Unfortunately, 716 suffered a couple of casualties that will be fatal to reform if left untreated. But, Sen. Maria Cantwell’s (D-WA) amendment (4086) addresses the loophole.
Lincoln wrote the whole of the derivatives section, including the “safe” proposals — she specified the means to end the biggest source of trouble with derivatives – that “the entire market operates in secret.” She required “central clearing,” a means of shining light on and watching over trades. This provision was undercut by language added by Democrats (Section 739, paragraphs A and B). This section would codify into law the now common practice of refusing to prosecute certain criminals for their demonstrably illegal activity. Section 739, paragraphs A and B, must be removed or voided by including Maria Cantwell’s amendment 4086 – it must be added for Lincoln’s section to work.
The Obama administration (notably, Treasury and Larry Summers), Senate Banking Chair Chris Dodd, and House Financial Services Chair Barney Frank propose a “substitute” (Merkley and Levin’s strengthened version of the Volcker rule). M-L must be in addition to, not instead of, Lincoln’s section. There’s no overlap between them; neither can substitute for the other. Mary Bottari of Bankster USA outlines five unique features of Lincoln’s section here.
2. The Volcker Rule: Zach Carter, Fellow at Campaign for America’s Future, reports that “The best version of President Obama’s signature Wall Street reform was an amendment written by Sens. Jeff Merkley, D-Ore., and Carl Levin, D-Mich. It was never voted on in the Senate and the House bill contains no version of any ban on proprietary trading by commercial banks. The Senate bill does include a weak version of the Volcker Rule that bank-friendly regulators can easily defang if they choose.” We need to push for inclusion of Merkley-Levin (SA 3931) in the conference and for negotiations that lead to a concrete ban on gambling with taxpayer money.
3. It is also important that we NOT forget about the Kanjorski amendment. While this amendment, introduced by Congressman Paul E. Kanjorski (D-PA), does not impose a hard size cap on banks, it proposes a number of potential objective criteria that could be used to determine when banks need to be broken up, including the “scope, scale, exposure, leverage, interconnectedness of financial activities, as well as size of the financial company.” It would greatly strengthen the hand of regulators and reinforce their power to break up those banks. As the amendment is written, a great deal of discretion would remain with the regulators, so it is much weaker than what is really needed. However, the Kanjorski amendment serves as a public reminder that “bailouts are bad” and it also increases the likelihood that management and directors would be replaced in a failing large bank.
4. An independent Consumer Financial Protection Agency: Dodd gutted an original version, but it can be restored. In its current form it wouldn’t actually protect consumers because, among other problems, it would be housed within the Fed which has yet to use its substantial, already-existing authority to protect consumers. As such it is the staying tuned to tip their hand.
Here’s a great video clip of an interview with Elizabeth Warren, Chair of the Congressional Oversight Panel created to oversee TARP bailout funds. Zach Carter reports that currently, “the House version of this agency is generally stronger than the Senate version, with more independence and broader authority. But the House version also exempts auto dealers from CFPA oversight which the Senate version does not.”
5. Capital and leverage: From Zach Carter: “Thanks to Sen. Susan Collins, R-Maine, the Senate bill contains the strongest language to toughen capital requirements at big banks, forcing them to have more money on hand to cushion against losses. There is no corresponding language in the House bill, but the House legislation does contain a related provision capping bank leverage–the amount of borrowed money banks can use to place bets in the capital markets casinos. How these good amendments fare in the
conference committee will significantly impact how the financial system functions over the next decade.” More from Rortybomb.
6. Fed Audit: Congressman Ron Paul has been called the key battler against central banking and against the Federal Reserve and is the author of the book, End the Fed. His supporters say he has worked tirelessly to bring accountability to what they call “the secretive bank”. The Congressman, who says he has worked to bring transparency to the Federal Reserve Bank for the past 30 years, introduced a bill to audit the Federal Reserve, but that bill did not make it into the Senate version of the Financial Reform Bill. Sen. David Vitter (R-LA) later reintroduced an amendment with the original Audit the Fed language, but the Senate rejected that amendment on May 11, 2010 by a 37-62 vote.
7. Rating agencies: From Zach Carter: “Sen. Al Franken pushed through an amendment that substantively changes the corrupt business model at rating agencies. Right now, rating agencies do not get paid by the investors who use their ratings, but by the very banks who are issuing those securities. Franken would end this system, having regulators select which rating agencies rate which securities, rather than the banks who issue the securities. The House bill largely leaves the rating agency business model unchanged.”
8. Swipe fees: From Zach Carter: “When you buy something at a store with a credit or debit card, Visa and Mastercard charge the store a fee. The store, in turn, charges you more for its products, making everything everybody buys more expensive. Sen. Dick Durbin, D-Ill., pushed through language cracking down on debit card fees, but there is no language addressing swipe fees of any kind in the House.”
9. Too big to fail: Sherrod Brown and Ted Kaufman introduced an outstanding bill that would have ended TBTF. It did not pass the Senate, but is crucial to success of financial reform.
Some of the main obstacles to achieving true reform are people in the Obama Administration, as well as bankers spending big money on Congress members to get their support. Along with our demands for specific language in the bill, we need to be pushing for the removal of Summers and Geithner and the appointment of a new Fed Chairman, which would effectively – and necessarily – get rid of Bernanke. These people, among a larger group of insiders and captive regulators, must be replaced with people with successful track records, who believe in true reform, and who will push for it instead of blocking it at every turn.
We have, in Joseph Stiglitz, Robert Reich, and Simon Johnson, three people whose expertise and commitment to reform make them ideal candidates to replace Summers and Geithner and move our nation toward a healthy economy–an economy that will never again be at the mercy of the big banks. For a new Fed Chairman Joseph Stiglitz, for Secretary of the Treasury Robert Reich, and for Obama’s Economic Advisor, Simon Johnson would make a true Dream Team.
The Brown-Kaufman SAFE Banking amendment(S.3241) has become the single most important amendment to the financial reform bill to end bailouts. It is the most transformative bill because it addresses the problem that too big to fail banks are too big to regulate properly and are able to capture votes in Congress like nobody’s business. (UPDATE: Our data crunching shows that Senators who are currently opposed to breaking up the banks receive twice as much in campaign contributions from the finance sector than those who are for “SAFE Banking.”)
It is going to be voted on by the Senate soon, possibly by the end of this week. We’re making tons of progress — MoveOn is on board, New York Times is supporting it, the Senate’s #2 Democrat, Dick Durbin, is supportive — and we have a real chance here to limit the size of the biggest banks so they don’t distort our politics and put out economy at risk any longer.
But here’s the problem. We don’t know where to focus our our calls to Congress to secure the last few votes we need to get the amendment passed. We’re totally outgunned here by the moneyed special interests that oppose fixing too big to fail, but we have the momentum and we are closer than ever to pulling it off.
Here’s what we need to do.
Go to this link and enter your zip code to get the phone numbers for your two senators.
Make a quick call to each asking if they support the Brown-Kaufman SAFE Banking Act. Tell them they should.
If they don’t give you a straight answer, do a quick Google search (for example: “too big to fail” John Kerry) and see if you can find any public statements indicating where they stand on the issue.
Record your findings in the comments section of this blog post and we’ll update a running tally of what we know about where each senators stands.
We need at least one person from each state to do this. This is the single most important thing you can do right now to help the effort to break up the big banks. If you know anyone in another state who supports breaking up the banks please email this blog post to them so they can help out too. Thank You!! (UPDATE: We helped deliver 50,000 of the petitions for breaking up the banks featured in this picture and article and now Reid is a leaning yes!)
Why can’t we have accountability to the public, especially when we’re talking 2 trillion dollars outstanding from the Federal Reserve? Auditing the Fed should be about stopping big power tricks. But, why? Yesterday, Fed Chairman Ben Bernanke said that the Fed created $1.3 trillion out of thin air — he did.
Here’s something I’ve been itching to write about and it requires more time and space, but why should the Fed be democratized, de-powered in its current state, and more accountable to the public? Why should we expect that the $1.3 trillion thin paper be ensured for the public’s interest rather than the big banks? Well, that’s part of the answer there – no government should be favoring one set of elites over the equal treatment of all parts of the industry (the small banks and medium-banks), even if the elites create many jobs because the non-elites can create those jobs too and actually do, but the basic principle is strong — everyone needs a chance to be able to create jobs.
We as country believe in equal treatment and equal opportunity — we should not have erected an institution that picks winners and losers, instead the Fed should have been erected as it originally was intended by the farmers in the 1890′s, in the interest of creating an institution that would create equal opportunity in the marketplace to replace the big banks holding all the gold then. Instead, in 1913 the big banks erected the populist’s idea but for their own sake, this is now what we call the Fed. Equal opportunity is supposed to be what a free market is intended to create, but it doesn’t when the Fed is picking winners and losers and when big is favored over small and especially when big begets bigger and the Fed picks them even more and sets up a discount window for them too and there is a legislated bailout plan for them when they fail.
USAWatchdog reports, “Fed Chairman Ben Bernanke admitted the central bank created $1.3 trillion out of thin air to buy mortgage backed securities. This shocking admission came from the Joint Economic Committee hearing on Capital Hill last week.”‘ You can help audit the Fed here.
So, as there is a push for auditing the Fed, what is the real goal that we want from the audit? Why are we asking you to support no new powers for the Fed here? Why are we following Dean Baker on democratizing the Fed? Is it just so that the Fed can’t inflate away debt? I think there is an end-goal that anyone who cares about uhh.. about your own mother and father and your friends and people on the street around you over a few can agree on. The issue is not debt or money in actuality. Money is interesting but focus on it doesn’t get at the root of the issue, it’s power plays.
It’s about power because power gets all the money and then is able to manipulate the way whatever system works. So, to state explicitly, I don’t believe that those with the most money have the right to determine the way our politics or society works. I don’t, society woudn’t work and many know that society is not working — 300,000 + in foreclosure every month. But big powers will game any system, and have gamed gold, so make it so the system isn’t prone to being gamed.
Money is complicated. There are activist campaigns for a new Monetary Act. Money is complicated. I can see it going somewhere.
All of money essentially comes out of thin air and evaporates that way too, or rather money is complicated.
To reform money you can’t think about money per se, but about the power to create money and to inflate/deflate it.
So, if we make the Fed elected regionally or democratically elected, accountable to the public’s interest, and if transparency can lead to that accountability, we will have a Fed that is subject to political pressure and must show us that they are not picking winners and losers themselves.
Different groups throughout time rail against this monetary system and that one — we must instead end the big bankers’ piggy bank of whatever form is has taken and is in now, especially those funded by taxpayers. The system we have is irrelevant, rather we must set up the system to be democratic. Yes?
We can make auditing the Fed an accountability measure, one step closer to making whatever system of money we have democratically accountable. We must accept that people will start moving to the top in any system, then those on top are going to game whatever it is we have. Thus, we need to make the system that we have resistant to being gamed.
I think economist, Nassim Taleb may well agree — he’s a top-notch dude, as far as I can tell.
At the heart of the issue with the financial crisis is the loss of wealth as a result of the crisis itself, but also the extreme transfer of wealth before the crisis to the financial elite. Today, The Hill reports the following:
Treasury Department chief economist Alan Krueger on Monday said that household net wealth fell by approximately $17 trillion between 2007 and 2009 because of the financial crisis. Tumbling home and stock prices contributed mightily to the fall, but things are improving.
Let’s see then, what, where, when about the big banks:
The financial industry takes in 40% of all corporate profits.
Top 6 banks have assets equal to 63% of GDP, up from 17% in 1995.
Top 4 bank own 95% of the derivatives.
According to Rusty Cloutier, a former chairman of the Independent Community Bankers of America, “the four largest banking companies control more than 40% of the nation’s deposits and more than 50% of the assets held by U.S. banks.” “the four largest bank holding companies each have more than $1 trillion of assets, which accounts for about half of the banking industry’s assets.” Similarly, as of the end of the first quarter of 2009, the nineteen largest American BHCs accounted for $8.2 trillion in assets, or approximately 60% of all assets currently held by depository institutions. This is up from the year end of 2003, when “total assets of the 20 largest BHCs amounted to $5.6 trillion, equivalent to 64 percent of the aggregate for all BHCs or about 50 percent of GDP.”
In 1995, the top five banks had 11 percent of the country’s deposit share.
That grew to 29 percent by 2005 and today, the five institutions have nearly 40 percent of deposits.
The top five US banks’ deposit share grew from 11% of total deposits to 37% of deposits in 13 years!
Where the largest bank in the US in 1995 had 2.7% of deposits, we now find three banks have over 10% of deposits. 
the number of banks with under $100 million in assets dropped by 5,410 from 1992 to 2008.
For scale: Goldman Sachs bonus pool in 2009 exceeds Haiti’s national GDP, compare $14 billion to $8 billion.
The federal government has disbursed $4.7 trillion or $33,000 per taxpayer to the largest financial institutions to prop up these banks after the fallout from the financial crisis. We’re still $2 trillion outstanding.
The Financial Crisis Tracker gives a monthly snapshot of housing foreclosures, unemployment rates and the total cost of the Wall Street bailout. The Tracker is presented in the form of a widget that can be downloaded to your webpage.
Included in our tally is the Troubled Asset Relief Program (TARP) of the U.S. Treasury as well as the flow of funds under dozens of different Federal Reserve programs, and supports to federal housing institutions like Fannie Mae and Freddie Mac that primarily assist banks. Unlike other bailout tallies, we do not include economic stimulus funds, unemployment insurance, student loan aid, the auto bailout, “Cash for Clunkers” or other efforts to create jobs or assist the citizenry.
Learn more about the 35 programs included in our tally by visiting our Total Wall Street Bailout Cost Table which contains links to pages on each program with details about the program funds disbursed and outstanding.
In 2009, top 4 banks raised fees an average of 8%, small banks lowered their fees by 12%.
From NewRules: Small and medium banks do most of the lending in our communities, big banks do very little. “Although small and mid-sized banks ($10 billion or less in assets) control only 22 percent of all bank assets, they account for 54 percent of small business lending. Big banks, meanwhile, allocate relatively little of their resources to small businesses. The largest 20 banks, which now command 57 percent of all bank assets, devote only 18 percent of their commercial loan portfolios to small business.” (See our graphs for more detail.)”
“Until 1978, about half of the states in the country had usury laws on the books capping credit card interest rates. While these state usury laws remain on the books in several states, they were effectively eradicated by a 1978 Supreme Court decision (Marquette National Bank vs. First of Omaha Service Corp) which concluded that national banks could charge whatever interest rate they wanted if they moved to a state without a usury law. The amendment applies the same statutory interest rate cap on credit cards that Congress imposed on credit unions in 1980 as a result of an amendment to the Federal Credit Union Act that capped interest rates on credit union loans, including credit cards, at 15 percent, ” Sanders’ site.
IMPORTANT BIG BANK REGULATORY EXEMPTIONS/REGULATORY CAPTURE:
“While the Riegle-Neal Banking of Act of 1994, which established a 10% cap nationally on any particular bank’s share of federally-insured deposits, should have been a barrier for at least some of these mergers, holes in the law and regulatory forbearance permitted them to go through anyway. For example, the deposits of an acquired thrift do not count towards the cap, a loophole that allowed Bank of America to acquire Countrywide even though the overall deposits of the combined institutions far exceeded the cap. The law also allows banks to exceed the cap through organic growth and provides great flexibility to regulators to find ways around the limit. By establishing a hard 10% cap on the overall holding company, this legislation would close the loopholes and obviate regulatory forbearance.”
CNN outlines Citi and BoA exemption to allow their banks to lend to their brokerage affiliates.
The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup’s Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary. Citigroup and Bank of America requested the exemptions, according to the letters, to provide liquidity to those holding mortgage loans, mortgage-backed securities, and other securities.
The regulations in question effectively limit a bank’s funding exposure to an affiliate to 10% of the bank’s capital. But the Fed has allowed Citibank and Bank of America to blow through that level. Citigroup and Bank of America are able to lend up to $25 billion apiece under this exemption, according to the Fed. If Citibank used the full amount, “that represents about 30% of Citibank’s total regulatory capital, which is no small exemption,” says Charlie Peabody, banks analyst at Portales Partners.
The Fed says that it made the exemption in the public interest, because it allows Citibank to get liquidity to the brokerage in “the most rapid and cost-effective manner possible.”
So, how serious is this rule-bending? Very. One of the central tenets of banking regulation is that banks with federally insured deposits should never be over-exposed to brokerage subsidiaries; indeed, for decades financial institutions were legally required to keep the two units completely separate. This move by the Fed eats away at the principle.
From the Garn St.-Germain Act of 1982 (substantially deregulating savings and loan institutions) to the Gramm-Leach-Bliley Act of 1999 (allowing combined commercial and investment baking) and the Commodity Futures Modernization Act of 2000 (permitting largely unrestricted trading in derivatives), Congress relaxed the regulatory constraints that had housebroken the financial industry since the 1930s, while failing to establish effective oversight of custom derivatives. The Federal Reserve spent the 1990s relaxing constraints on commercial banks and the 2000s neglecting to enforce consumer-protection laws against predatory mortgage lenders. In 2004, the Securities and Exchange Commission relaxed capital requirements for major investment banks in exchange for the power to oversee them through the Consolidated Supervised Entity program — a program that failed spectacularly with both Bear Stearns and Lehman Brothers.
In some cases, we’re talking a new definition of corruption, it defines a new kind that is more widespread and harder to break away from — campaign contributions and the resulting positive thinking that comes from it.
UPDATE: Those voting against the SAFE Banking Amendment got nearly twice as much in campaign contributions from the finance sector — Big Banks Bought the SAFE vote.
Looking at finance/insurance/real estate sector campaign contribution data from OpenSecrets.org, I found that senators who voted against the Brown-Kaufman SAFE Banking amendment have received nearly twice as much money from the big banks at the senators who voted in favor of it. Specifically, the average senator voting against the amendment has received $3,536,187 from the financial sector over the course of their careers, while the average senator voting in favor has received only $1,846,292. It’s very close to double for those opposed. And when we are talking about millions of dollars, double is a whole lot of money and a whole lot of influence.
Big banks were not allowed to fail, there is a government guarantee of a bailout. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) allowed the federal government to rescue uninsured depositors of large banks if not doing so posed a systemic risk, eliminating the possiblity for bankruptcy by the largest banks. Banks that became too-big-to-fail over the years have earned themselves this government guarantee on losses. In addition, by dominating the market and having systemically important market power, the greatest lobbying powers, and the political-economic safety net of the FDICIA, the largest banking institutions became truly so politically powerful that they could not fail.
First on the list of taxpayer handouts to Citi would be the “too big to fail” (TBTF) subsidy. This subsidy is the result of the fact that investors know that the government will not allow Citi to fail because it would create too much disruption in the economy. In effect, taxpayers are implicitly guaranteeing Citi’s loans. This allows Citi to borrow at much lower cost than if it had to compete in the market like other businesses. In a paper I co-authored with Travis McArthur last year, we calculated that Citi’s TBTF subsidy could be as much as $4.4 billion a year.
The collapse of Lehman Brothers and the near failures of Morgan Stanley and Goldman Sachs — chronicled in detail in Andrew Ross Sorkin’s Too Big to Fail — should have shaken this belief. The recent report by Anton Valukas, the examiner in the Lehman bankruptcy, revealing a history of (at best) misleading accounting and lax government oversight, should have obliterated its remains. But although Washington is more willing to regulate now than in years past, one thing has emphatically not changed: the power of the banking industry to fight back. All of the techniques honed over the past few decades have been evident in full force over the past year…..
Journalists Ryan Grim and Arthur Delaney have documented how Democrats have placed new, relatively conservative members of Congress from Republican-leaning districts on the House Financial Services Committee, because it increases their ability to raise money. Unfortunately, the effect was to create an influential bloc of banking-friendly Democrats on the committee, who allied with Republicans on certain issues to weaken financial-reform legislation, against the wishes of committee Chair Barney Frank.
Matt Taibbi points out the issue of lobbying dollars, and policies that were passed in big banks’ names.
“Wall Street is so worried about the prospect of real reform that for over a year now, it’s handily spent $1.4 million daily in lobbying and campaign contributions, attempting to buy out policy-makers and prevent substantive financial reform from passing.”
The Democrats here are going to suffer, deservedly so, for having taken so much money in the past from Goldman and banks like Goldman. That fact now allows transparent bullshitters like Palin — who incidentally supported the bank bailouts — to credibly argue that this Regulatory Reform bill is an industry creation. It doesn’t hurt that the Democrats’ last major piece of legislation, the Health Care bill, actually was a monstrous giveaway to industry that allowed campaign contributors to appropriate the power of the state to extract profits from ordinary people.
This Regulatory Reform bill is not that, but if you’re a Tea Partier, what about the past history of the Democrats would lead you to believe otherwise? Thus Carl Levin can get up there and roar all he wants at Lloyd Blankfein today, but the way this is going to play to a good 30% of the electorate is that the Democrats and big Lloyd are putting on a dog-and-pony show in order to smooth the way for the next chapter in their world domination plan. Hell, even writing that right now, I’m starting to believe it myself.
The reality, of course, is that this is a make-or-break moment for Goldman, Sachs. It just may be that the Democrats, after years of intimate partnership with this firm, have finally decided to “go in a different direction” and cut Goldman loose, purely for political reasons. A close friend of mine from Russia points out that there are parallels here to Putin’s ascension to power, when a rookie president pushed into his seat by a gang of oligarchs decided upon election to whack the most obviously odious of the bunch — Bank Menatep’s Mikhail Khodorkovsky — in order to firm up his “reform” credentials and, politically speaking, put himself on the other side the obscene corruption of the Yeltsin era.
Zero Hedge points out a senator who currently is pushing for reform who was swayed by the big banks then.
Yet in order to keep a fair and balanced perspective on things, it may behoove those watching Carl Levin’s sanctimonious monologues to realize that the November 4, 1999 vote on S. 900, better known as the Gramm-Leach-Bliley Act, received Senator Levin’s full endorsement. If Goldman is the pure, unadulterated evil it is today, it is so only because of idiotic Senators who were corrupt, or stupid enough, or both, to let GLB pass when it did, and usher in the era of unbridled prop trading/hedge funding by banks with full access to the discount window and taxpayer bailouts…
From Govtrack.us (funny, when it should really be dot com)
Between 1998 and 2006, the average increase in lobbying spending to Congress from the Finance, Insurance and Real Estate industry (FIRE) increased by 25%, compared to an average 10% increase of other industries. The FIRE sector is the largest contributor at $3,567,970,558 from 1998 to 2009. The Securities Ind & Financial Markets Assn (SIFMA) made $5,585,0000 in contributions in 2008 on behalf of FIRE. Sunlight Foundation has this great graph.
Looking at the largest contributors within FIRE, we can compare how political contribution levels before (1990-1996) and after (1998-2008) firms engaged in megamergers and the political contributions during the period when Gramm-leach-Bliley was most heavily lobbied for (1996-1998). Political contributions show a correlation to the passing of policies that allow firms to become too-big-to-fail and enter a state of infalliability in the market across all metrics — competition, lobbying, securities and depository assets.
CAUSES OF THE CRISIS:
Kevin Drum: “It’s true that a lot of reasons for the crisis have been offered up. Here are the ones that occur to me just off the top of my head:
1. Housing bubble (i.e., the pure mania aspect of the thing).
2. Massive increase in leverage throughout the financial system.
3. Global savings glut/persistent current account deficits.
4. Shadow banking system as main wholesale funder for banking system/Run on the repo market.
5. Fed kept interest rates low for too long.
6. De facto repeal of Glass-Steagall in 90s (and de jure repeal in 1999) allowed banks to get too big.
7. Commoditization of old-school banking drove increasing reliance on complex OTC securities as the only way to earn fat fees
8. Mortgage broker fraud.
9. Explosive growth of credit derivatives magnified and hid risk.
10. Overreliance on risk models (VaR, CAPM) that understate tail risk.
11. Wall Street compensation models that reward destructive short-term risk taking.
12. Originate and distribute model for mortgage loans.
13. Three decades of deregulation/political economy of lobbyists.
14. Endemic mispricing of risk throughout market.
15. Ratings agency conflict of interest.
16. Investment bank change from partnerships to public companies.
17. Government policies that recklessly encouraged homeownership.”
Obama White House Counsel, Greg Craig, left his keep post and is now working as counsel for Goldman Sachs.
Past Goldman Executives
A total of 30 ex-Congressmembers and aides are now registered as Goldman Sachs lobbyists, for example Rick Gephardt (D, MO)
Henry Paulson, was CEO of Goldman Sachs, then becameTreasury Secretary under George W. Bush
Larry Summers, was Goldman executive, now head of National Economic Council
Neel Kashkari, VP of Goldman, oversaw TARP under Bush
Goldman Sachs was the top contributor to Obama’s presidential campaign at $980,000
Mark Patterson, Top Advisor to Geithner, previously GS lobbyist
Gene Sperling, Geithner Aide, previously GS lobbyist
Allen Stanford, Geithner Aide, previously GS lobbyist
Lee Sachs, Geithner Aide, previously GS lobbyist
Robert Rubin, Treasury Secretary under Clinton, now Citi executive
Structural change, go directly at the power and ability to corrupt and capture. Regulatory capture must be addressed in order to actually enforce TBTF regulation.
REFORM IN CONGRESS:
The Most Important Amendment: SAFE Banking Act nips too-big-to-fail in the bud before it happens. Show your support with our petition.
-2% GDP cap for non-deposit liabilities for all banks, break up any bank that is bigger than $280 billion, which will affect the 9 largest banks.
-3% GDP cap of all liabilities for non-banks
-statutory limit level 16.67:1
A very important amendment: End usury, state pre-emption laws. “The amendment applies the same statutory interest rate cap on credit cards that Congress imposed on credit unions in 1980 as a result of an amendment to the Federal Credit Union Act that capped interest rates on credit union loans, including credit cards, at 15 percent. The reasonable interest rate cap that Congress imposed on credit unions has protected consumers from being charged usurious interest rates; it has not harmed the safety and soundness of these institutions; and it has not negatively impacted the access to credit of credit union members. Credit union members with good credit scores are still able to receive credit cards and loans that they need at reasonable interest rates. Unlike banks, credit unions have not received hundreds of billions of dollars from the Troubled Asset Relief Program.”
A very important amendment: Audit the Fed: “While the Treasury Department is posting TARP bailout recipients and amounts on their web page, the Fed is quietly spending much more, as much as $2 trillion, but is not telling us who is getting the money or why. Sanders’ bill parallels the Ron Paul-Alan Grayson language from the House bill.” Rally your senators with Bankster here.
A very important amendment: Glass-Stegall Revival:Zero-Hedge sums up creating a firewall between greedy investor risk and people’s deposits:
Any attempt at fixing Goldman must begin with reinstating Glass-Steagal – period. Anything and everything else is smoke and mirrors. Yes it will be painful (for the banks), and yes it will cost massive equity losses due to forced spin offs (for bank shareholders), but it will prevent the next scapegoating circus after the fact. How about we preempt these things from happening for once? That said, we applaud the 8 out of 100 senators who had the foresight to not sell their country’s future to the banking cabal.
CMD UPDATES WALL STREET BAILOUT TOTAL, FOCUS ON HOUSING$1.6 Trillion Disbursed to Prop Up Mortgage Market, Yet 367,056 Properties Foreclosed in March, the Worst Month Since 2005Today, the Real Economy Project of the Center for Media and Democracy (CMD) released an update on CMD’s Wall Street Bailout accounting that unlike other bailout assessments, includes Federal Reserve loans. CMD finds that the Federal Reserve, the U.S. Treasury and FDIC combined have disbursed a total of $4.7 trillion on the bailout of which $2 trillion is still outstanding.
CMD’s assessment also shows that the Federal Reserve and the U.S. Treasury have disbursed $1.6 trillion in an effort to prop up the mortgage investment market through purchases of mortgage-backed securities and Fannie Mae and Freddie Mac debt. The majority of this money was from the Federal Reserve and was not subject to Congressional debate or approval.
At the same time, the U.S. Treasury Department has spent a small fraction of this amount, $90 million, on the Home Affordable Modification Program (HAMP). HAMP is the only Congressionally-authorized program that is actively spending money and designed to prevent foreclosures. Yet, foreclosure filings were at historic highs in March — 367,056 — an increase of nearly 19 percent from the previous month, and the highest monthly total since 2005, according to RealtyTrac.
I tried but I could not find a way
Looking back all I did was look away
Next time is the best time we all know
But if there is no next time where to go?
The first rule of bubbleology is, you don’t know when they will pop, and in fact, they can expand a lot longer than you think. Or as Mr. Keynes said, markets can stay irrational a lot longer than you can stay solvent. The second rule of bubbleology is — bubbles always pop. In the last year, we’ve watched as “man of the year” Mr Bernanke flooded the world with liquidity and it has had an impact, most importantly “inflating” global currency markets, what that means over time, well, we’ll see. Doug Noland is a bubbleologist extraordinaire, he writes at the Asia Times:
The markets’ perception of “too big to fail” has for years been an integral facet of bubble dynamics. And despite all the talk of trying to rid the marketplace of this notion, the markets remain more persuaded than ever: the unfolding global government finance bubble is much too gigantic for policymakers to risk letting it come anywhere close to failing.
So, the real question is how long policymakers can keep things afloat. In the end, that depends on the real economy, and looking at that has become a Rorschach test, unless you’re unemployed, it just looks one way, pretty shitty. It certainly seems deflationary trends are fairly entrenched. The most recent inventory numbers in the US show they remain down a whopping 10% from last year. While the FT reports regulators are telling US banks to hold onto their money “until political and economic uncertainty surrounding the industry dissipates.”
Over in Europe, the roulette wheel turns to see which sovereign debt problem makes it to the front page next —
Portugal, Spain, Italy, the Brits, or back on red with the Greeks once more? Ed Harrison has good piece on the not looking too good European economy. Can everyone really export and devalue their way out of this mess?
There is one bright spot and that is Asia. And China is moving, but where? The problem with command and control economies is they push on the thing that is working until it doesn’t work anymore, and then there’s great problems. The FT reports the Chinese are indeed exporting and certainly from last year’s cratered numbers things look better, but in the last paragraph the FT notes:
The “new export orders” component of China’s official PMI fell from 53.2 in January to 50.3 in February, while the import component dropped from 53.4 to 49.1. The PMI readings are forward looking and a level above 50 indicates expansion while a level below 50 indicates contraction.
The Sibyl, with frenzied mouth uttering things not to be laughed at, unadorned and unperfumed, yet reaches to a thousand years with her voice by aid of the god. — Heraclitus
Sibyls were the oracles of ancient Greece. You’d go to them when you had a heavy decision, but the problem was their advise was never straight forward and prone to misinterpretation, not quite as bad as a modern pollster, but they could get you in serious trouble. For example, Croesus a great king of ancient Greece, went to the Delphic Oracle seeking advise about attacking Persia. She replied, “If you attack Persia, a great empire will fall.” He did and a great empire fell, unfortunately for Croesus it was his. Looking at the global economy today, one can’t help but think you’d get a better view of the future from any Sibyl.
Global financial markets are so manipulated and pumped full of discount dollars, they are relatively useless in divining. The US stock market on p/e value is approaching historical highs, while a metal like copper sits near historic highs, despite a global economy that sits well below its peak of two years ago. Now there’s no denying Asian economies led by China started growing again, but how sustainable that growth, considering the faults of over-indulging history has revealed with any command and control economy is truly an important question. The question of over-capacity in China is an important one, and the Chinese have announced they are beginning to shutter smaller steel and electricity plants.
Now, if you look at China, India, Australia and the other Asian economies minus Japan, they are a little over 20% of the global economy. Nothing to sneeze at, however a great chunk of that is tied to exporting to what we can call the old global economy, that is the US, Japan, and the EU, which still comprise almost half the global economy. Now the old global economy is drowning in debt, and depending on who
you ask, that either matters or it doesn’t. Right now for the Greeks, who need a trip up to Delphi, it matters. For the EU as a whole, it seems to matter too, as growth seems at best spotty. The Japanese remain entrenched in deflation and the American economy appears little better than flat.
The most interesting oracle for the modern world is the price of oil, which despite the greatest global slow-down in post-war history managed to stay above $70 a barrel and today sits around $87, which no way helps the global economy as presently structured. Begging the question, what if the global economy gets back to its 2007 peak, where then the price of oil?