These are heady times for the bipartisan group of reformers seeking a safer and more manageable U.S. financial system. The leaders of this movement, Senators Sherrod Brown and David Vitter, introduced legislation yesterday to force the biggest banks to foot the bill for their own mistakes by imposing higher capital requirements.
The days between the Fourth of July and Bastille Day on the 14th are known for fireworks on both sides of the Atlantic. This year, more rockets and firecrackers than usual were going off, but they were inside hearing rooms in the British Parliament and the U.S. Congress. Barclays bank announced that it had been fined more than $450 million by regulators from both countries, and its CEO, Robert E. Diamond Jr., and COO, Jerry del Missier, both resigned. The fines were part of a settlement that granted Barclays immunity from potentially worse punishment for its manipulation of interest rates. The press reported that 10 to 12 other large banks (including HSBC, Citigroup, and JPMorgan Chase) were also under investigation.
With Occupy Our Homes—the growing movement to fight foreclosures and evictions—community organizations and Occupy activists have teamed up in cities throughout the country to defend at-risk homeowners, pressure banks to renegotiate mortgages, and keep families in their homes. This effort has resulted in some impressive local victories. At the same time, the scope of the foreclosure crisis calls out for federal remedies.
We’re entering the 99 percent spring, with escalating actions starting across the country next Tuesday targeting America’s biggest tax dodgers. On April 24, shareholder actions will begin at General Electric, Wells Fargo, Bank of America, and dozens of other corporations. Americans are renewing the fight to fix our economy and to hold the big banks accountable for the misdeeds that have left millions out of work and out of homes.
If Republicans and Democrats can't find common ground on giving assistance to small banks and Community Development Financial Institutions, they aren't liable to agree on anything.
America’s knack for invention and risk-taking has long been a source of competitive advantage. Entrepreneurs depend not just on ingenuity and nerve but also on capital and credit, which come, or don’t, from a variety of sources, including their own savings, venture capital, as well as loans from banks and other institutions.
Zachary Davis and Kendra Baker, 30-something co-owners of a small ice-cream manufacturing and retail shop in Santa Cruz, California, sat next to first lady Michelle Obama at the 2011 State of the Union address in honor of their entrepreneurship. They traveled a rocky road to their seats in the House gallery, one that reveals the parlous state of small-business finance—an endangered ecosystem whose diminished capacity to nurture new jobs is retarding the rebound from the Great Recession.
As chair of the Federal Deposit Insurance Corporation (FDIC) until last July, Sheila Bair played the role of loyal opposition to the strategy pursued by Treasury Secretary Timothy Geithner of propping up the biggest banks and deferring the issue of systemic reform. Bair argued for helping smaller banks and small businesses as well as breaking up huge banks that were deemed “too big to fail.” Now based at the Pew Charitable Trusts, Bair spoke with Prospect co-editor Robert Kuttner.
Treasury Secretary Tim Geithner, chiding Wall Street for trying to undermine enforcement of the Dodd-Frank financial-reform bill, is trying to rewrite history. He would have us believe that regulators lacked the power to prevent the financial collapse. In fact, they had plenty of power. The problem was that Geithner and company were in industry’s pocket, and didn’t use the power they had.
Writing in today's Wall Street Journal, in an op-ed piece titled “Financial Crisis Amnesia,” Geithner contends:
The SEC Doing Wall Street’s Bidding Robert Kuttner
In the right-wing revisionism of what caused the financial collapse, Fannie Mae and Freddie Mac are leading villains with the federal Community Reinvestment Act in a supporting role. Supposedly, Fannie and Freddie lowered their standards, purchased lots of subprime mortgages, and were major contributors to the housing bubble and crash. In this fable, government pressured banks to make unsound mortgage loans to meet the goals of CRA.
I happened to be flying on American Airlines the morning after the company declared bankruptcy. Exactly nothing bad happened to my flight. Nobody passed the hat to buy aviation fuel. The flight attendants offered the same dismal snacks. It was business as usual.
American will get to stiff its creditors, its employees, its pensioners, and sail happily onward, not even required to replace its managers. Chapter 11 filings are standard operating procedure when necessary in corporate America. In its full-page ads promising no disruption of service, American managed to avoid even the word "bankruptcy."
If Jim DeMint gets his way, the Senate will vote any day now on repealing the historic Dodd-Frank financial-reform law. While Senator DeMint is receiving a big assist from conservative lobbying groups, his amendment is sure to fail given the Democratic majority. Still, the tireless war against Dodd-Frank - a law that marks its first anniversary next month - will go on.
Late Friday afternoon, Treasury Secretary Tim Geithner disclosed that he is exempting from the Dodd-Frank transparency requirements on trades of derivatives all derivatives involving foreign exchange. This creates a $4 trillion loophole that will make it easier for large banks to manipulate markets to their own advantage.
This week Standard & Poor’s provoked what amounted to a non-event when it lowered its outlook on the U.S. debt from “stable” to “negative,” based on its expectation that Congress isn’t going to reach a meaningful compromise on deficit reduction in the near future. The downgrade came just days after the Senate subcommittee on Investigations released its massive report on the causes and villains of the financial crisis. The report indicted S&P, along with Moody’s, for keeping the credit ratings of mortgage-backed securities and collateralized-debt obligations artificially high, then sharply lowering them when the foreclosure rate began to skyrocket in 2007. It explains:
The Obama administration released it's plan for unwinding Fannie Mae and Freddie Mac today, and offered a set of alternatives on how to replace it. But the big takeaway is that the government will basically stop promoting homeownership, and it will likely especially remove incentives for reaching low-income families who might not otherwise be able to afford one:
Taken together, these measures would directly affect borrowers, by increasing the costs of buying a home. That would also make the loans more profitable and perhaps draw new competition from private firms.
