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“Taking On Too Big To Fail”: Financial Reform Is About To Catch A Second Wind And Elizabeth Warren Is Ready To Ride It

Financial reformers seeking new rules beyond the range of the Dodd-Frank law haven’t had much to cheer about this year. The chances of Congress passing new regulations—OK, passing anything—look bleak, and the Obama Administration wants to simply finish implementing the last set of reforms. But reformers are playing a longer game, biding their time until the conditions are ripe for a dam burst. That could happen sooner than you think. High-profile champions for reform are gradually bending regulators to their will, and a pile-up of big bank abuses have eroded Wall Street’s reputation in Washington. Most importantly, a new report detailing the extraordinary largesse granted banks during the financial crisis, and questioning whether Dodd-Frank would prevent a rerun, could set off a fresh spark.

An unlikely bipartisan duo, Senators Sherrod Brown and David Vitter, have tried all year to focus attention in Congress on ending “too big to fail,” the perception that large financial institutions will inevitably receive government bailouts if they run into trouble. This allows banks to take on outsized risks with implicit government support, and receive a de facto subsidy, with lower borrowing costs than their smaller competitors, because investors believe a backstopped institution will always pay them back. Brown and Vitter introduced legislation earlier this year to significantly raise capital requirements, which they say will reduce reliance on bailouts by forcing banks to pay for their own losses.

Brown and Vitter commissioned a study from the Government Accountability Office (GAO) to quantify the public subsidy bestowed on banks, which could give them powerful evidence to rally support for their legislation. GAO released the first part of the study last week. It mostly looks backward at the “extraordinary support” given to banks from 2007-2009 to weather the financial crisis, and whether the Dodd-Frank financial reform law ended this tendency toward bailouts. The more controversial part of the study, on how much the government subsidizes big banks considered too big to fail, isn’t due until next year.

But the report still contains some explosive material. It details how banks received trillions of dollars in capital injections, emergency lending and debt guarantees during the financial crisis, offered with more favorable terms than they could have found in the private market, and secured by junk collateral that non-government lenders would never accept. Some debt guarantees given by government agencies to banks were up to 10 percent cheaper than private alternatives, saving the banks billions of dollars. Banks with over $50 billion in assets used the crisis-era programs nearly twice as much as their smaller counterparts. Outside of the broadly available emergency programs, JPMorgan Chase received a $30 billion loan from the New York Federal Reserve (then run by Timothy Geithner) for its purchase of Bear Stearns, and both Citigroup and Bank of America received special direct assistance of $20 billion each. According to a summary released by Brown and Vitter, those three banks, the U.S.’s largest, would have been insolvent without the government support provided during the crisis. Since the biggest banks are even bigger today (the report states that the nation’s four largest banks are $2 trillion larger than they were in 2007), it’s hard to believe that similar support wouldn’t be granted if needed.

Dodd-Frank’s architects claim the law would prevent future bailouts. At least some of the market is convinced it would; the rating agency Moody’s downgraded the debt of major U.S. banks last week, after determining they would not have the advantage of future government support in a crisis (it’s worth noting that rating agencies receive the majority of their funding through the structured finance deals of these same big banks). But the GAO report concludes that Dodd-Frank “implementation is incomplete and the effectiveness of some provisions remains uncertain.”

The best example of this is the Federal Reserve’s Section 13(3) authority, a primary vehicle for emergency lending during the crisis. Dodd-Frank prevents the Federal Reserve from using section 13(3) to assist an individual institution, restricts even broad-based 13(3) programs from lending to insolvent firms, and adds other requirements and limitations. But the Fed has not written any 13(3) regulations yet, nor has it set any time frames for doing so. GAO recommended that the Fed establish a timeline for drafting 13(3) procedures, and the board accepted that recommendation.

The report comes at an interesting moment. Readers of this magazine may have heard of a certain Massachusetts senator named Elizabeth Warren. She has also taken on too big to fail, as an antecedent to her agenda of building an economy that works for ordinary Americans, rather than using them as giant wealth-extraction machines. And Warren has something Brown and Vitter don’t—a national platform, with the ability to shape and transform the national debate. She has already used this power to provoke incremental changes, mostly because regulators would rather be on her side than in her crosshairs. Nobody is better positioned to put this new set of facts from the GAO to use than the Warren wing of the Democratic Party.

To see this attitude change in real time, simply review the Senate Banking Committee confirmation hearings for Janet Yellen, nominated to take over the chair of the Federal Reserve. In 2009, Ben Bernanke sought confirmation for the same position, and when he was questioned about the Fed’s failures in financial regulation before the crisis, he vociferously defended the institution’s actions. Yellen, right in her opening statement, added financial regulation to the Fed’s core responsibilities, along with full employment and price stability—a huge shift. During questioning from Warren, Yellen agreed that the Board of Governors should reinstate regular principals meetings on financial supervision for the first time in 20 years, instead of relegating the decision-making to the staff level.


By: David Dayen, The New Republic, November 21, 2013

November 25, 2013 Posted by | Big Banks, Financial Reform | , , , , , , , | 2 Comments

“A Nuclear End To Republican Denial”: Seeing The World As It Is Rather Than Pining For A World That No Longer Exists

Those who lament the Senate Democrats’ vote to end filibusters for presidential nominations say the move will escalate partisan warfare and destroy what comity is left in Congress. Some also charge hypocrisy, since Democrats once opposed the very step they took last week.

In fact, seeing the world as it is rather than pining for a world that no longer exists is a condition for reducing polarization down the road. With their dramatic decision, Senate Democrats have frankly acknowledged that the power struggle over the judiciary has reached a crisis point and that the nature of conservative opposition to President Obama is genuinely without precedent.

What happened on Nuclear Thursday has more to do with the rise of an activist conservative judiciary than with the norms of the Senate. From the moment that five conservative justices issued their ruling in Bush v. Gore, liberals and Democrats realized they were up against forces willing to achieve their purposes by using power at every level of government. When the Bush v. Gore majority insisted that the principles invoked to decide the 2000 election in George W. Bush’s favor could not be used in any other case, they effectively admitted their opportunism. Dec. 12, 2000, led inexorably to Nov. 21, 2013.

Bush v. Gore set in motion what liberals see as a pernicious feedback loop. By giving the presidency to a conservative, the five right-of-center justices guaranteed that for at least four years (and what turned out to be eight), the judiciary would be tilted even further in a conservative direction.

Bush was highly disciplined in naming as many conservative judges as he could. His appointments of Chief Justice John Roberts and Associate Justice Samuel Alito bolstered the Supreme Court’s conservative majority. The court later rendered such decisions as Citizens United, which tore down barriers to big money in politics, and Shelby County v. Holder, which gutted a key part of the Voting Rights Act. Both, in turn, had the effect of strengthening the electoral hand of conservatives and Republicans.

With the conservatives’ offensive as the backdrop, Senate Democrats and liberals on the outside revolted in 2005 against the Republican threat to use the nuclear option when the GOP controlled the Senate. Progressives felt they had no choice but to throw sand into the gears of a juggernaut.

Liberals said things eight years ago that are being used by conservatives to accuse them of hypocrisy now. I didn’t have to look far for an example of what they’re talking about.

In a column in March 2005, I called the GOP’s effort to speed the confirmation of conservative judges “a blatant effort to twist the rules” that ignored “the traditions of the Senate.” I might take back the “traditions of the Senate” line, a rhetorical attempt to call conservatism’s bluff. But what animated my argument then is the same concern I have now: This era’s conservatives will use any means at their disposal to win control of the courts. Their goal is to do all they can to limit Congress’s ability to enact social reforms. At the same time, they are pushing for measures — notably restrictions on the right to vote — that alter the electoral terrain in their favor.

And it is simply undeniable that in the Obama years, conservatives have abused the filibuster in ways that liberals never dreamed of. Senate Majority Leader Harry Reid cited the Congressional Research Service’s (CRS) finding that in our history, there have been 168 cloture motions filed on presidential nominations. Nearly half of them — 82 — happened under Obama. According to CRS, of the 67 cloture motions on judicial nominees since 1967, 31 occurred under Obama. Faced with this escalation, senators long opposed to going nuclear, among them Reid and California’s Dianne Feinstein, concluded it was the only alternative to surrender.

Republicans gave the game away when all but a few of them opposed Obama’s three most recent appointments to the Court of Appeals for the D.C. Circuit not on the merits but by accusing the president of trying to “pack the court.” In fact, Obama was simply making appointments he was constitutionally and legislatively authorized to make. His nominees were being filibustered because they might alter the circuit court’s philosophical balance. The GOP thus demonstrated beyond any doubt that it cares far more about maintaining conservative influence on the nation’s second most important judicial body than in observing the rules and customs of the Senate.

This is why the Senate Democrats’ action will, in the end, be constructive. The first step toward resolving a power struggle is to recognize it for what it is. The era of denial is finally over.


By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, November 24, 2013

November 25, 2013 Posted by | Filibuster, Senate | , , , , , , , | 1 Comment

“When In Doubt, Go Shopping”: The Affordable Care Act Puts People, Not Insurers, First

It’s pretty straightforward: A major reason we have 50 million uninsured people in the United States is that insurance companies do not see individuals as a profitable market.

The recent uproar over canceled health insurance plans not only highlights the insurance industry’s out-of-hand dismissal of this market, but also reinforces why there is a need for the new health reforms under the Affordable Care Act .

Consumers have reason to be angry but they should be angry at the insurers, not the health care law. Connecticut’s Insurance Commissioner, Thomas B. Leonardi, announced Monday that of the approximate 27,000 insurance policy cancellation notices which have gone out only 9,000 of them were because plans were not in compliance with the health care law. The new law forbids insurers to deny or drop coverage when people get sick or have a pre-existing condition such as hypertension, diabetes or obesity. Consumers will gain those protections in 2014 whether they buy through the insurance exchange called Access Health CT or on their own.

Mr. Leonardi’s comments highlight the fact that it has been a customary practice of insurers to send their policyholders notifications that a particular plan will no longer be available or there’s been a change in benefits. Only one-third of the policies being canceled in Connecticut were plans that did not have protection under the law’s grandfather clause and did not meet the benefit standards or the consumer protections required by the law. The other two-thirds were discontinued as part of the insurance companies’ business-as-usual practices.

Historically, the health insurance industry has made its fortune by denying coverage to sick people, decreasing benefits and jacking up prices. Insurers do not see the individual market as profitable unless they continue to shift risk onto consumers through high deductible plans and unless they can raise rates on their customers as they age and develop health problems to the point they can no longer afford health insurance. That’s why they’re getting out. The Affordable Care Act is stopping this bait and switch approach.

Understandably, the cancellation notices came as a jolt for policyholders, especially because the reasons behind them were not made clear. Furthermore, insurers failed to do the right thing and inform their policyholders that other coverage options are now available to them under the new health care law.

Fortunately for consumers though, President Barack Obama‘s decision to give insurance companies another year to continue their substandard health plans carried the proviso that they must inform their customers of the new coverage opportunities under the health care law.

It’s too bad the commotion over the cancellations happened to coincide with the rocky rollout of the new health insurance exchange website. But consumers would do well to keep their eyes on the big picture, beyond the political grandstanding and partisan bickering. Websites can be fixed. Health care reform is about improving the quality of coverage benefits and offering more choice and affordability through the health insurance exchanges. That’s what Connecticut is trying to do.

Friday’s announcement by Gov. Dannel P. Malloy that the state would not extend poor quality policies through 2014 re-emphasizes Connecticut’s commitment to making sure its residents have access to plans that will provide quality comprehensive care. The state also announced that it was pushing back the date people had to sign up by for coverage that begins Jan. 1. Now residents have until Dec. 22, giving them an additional week to weigh the options on Access Health CT, the state’s health insurance exchange, and to find a plan that fits their families’ needs.

According to Access Health CT, in the first month, more than 300,000 Connecticut consumers checked out their options on the Website, almost 40,000 calls have been answered through the call center and more than 13,000 Connecticut residents are now enrolled.

Clearly, consumers here are getting the message: When in doubt, go shopping.


By: Frances G. Padilla, President of Universal Health Care Foundation of Connecticut, Op-Ed Columnist, The Hartford Courant, November 22, 2013

November 25, 2013 Posted by | Affordable Care Act, Health Insurance Companies | , , , , , , | Leave a comment

“The Rewards Justify The Risks”: President Obama’s Iran Nuclear Deal Could Be A Major Triumph

International agreements last only so long as their signatories support them. Political forces certainly exist here as well as in Iran that oppose the interim agreement that the United States and the five other nations signed with Iran freezing its nuclear program. Agreements like this always contain risks, but in this instance, the rewards are sufficient to justify the risks.

While negotiating a final agreement, the current deal stops Iran from using its nuclear facilities to make bombs. It allows the International Atomic Energy Commission to conduct rigorous daily inspections. Daryl Kimball, the executive director of the Arms Control Association, says, “The limits on Iran’s nuclear program are, unequivocally, a major success in reining-in Iran’s nuclear potential and an essential stepping stone toward the negotiation of an even more effective, final agreement.”

The agreement also continues a welcome thaw in American relations with Iran. Some hardliners in Congress like to present America as the wounded party in the longstanding quarrel between the two nations, but that is simply not the case. This August, the Central Intelligence Agency finally unclassified documents that revealed its role in the overthrow of Iranian nationalist Mohammed Mossadegh in 1953. That act, and America’s continuing support for the Shah’s dictatorship, figured prominently in the minds of the Iranian revolutionaries who held American diplomats hostage in 1979.

Iran subsequently supported terrorist acts against Americans, but Americans backed Iraq’s Saddam Hussein, who in 1980 began an eight-year war with Iran that cost the Iranians a million lives. The Bush administration also branded Iran, which had aided America in Afghanistan, part of the “axis of evil” and supported groups that sought to overthrow its government.

A thaw between the governments could ease conflicts throughout the Middle East and even South Asia. Iran could be of immense help in negotiating an end to the war in Syria. (Syria is Iran’s Vietnam. It has already spent billions backing Basher al-Assad.) The Rouhani government could aid the United States in Afghanistan and Iraq.  It could help suppress al Qaeda and other Sunni terrorist organizations. It could reduce Saudi Arabia’s sway over world oil prices. And it could remove a real, or imagined, threat to Israel. It’s easily forgotten, but Iran was once Israel’s closest ally in the Middle East. The two nations have an affinity as religious outliers in the Sunni Arab Middle East that could be revived if Israel were to finally recognize the rights of Palestinians.

The main opponents of America reaching an agreement were the Israeli and Saudi governments and organizations and politicians in the United States that are close to the rightwing Netanyahu government in Israel. Netanyahu has compared the agreement to the 1938 Munich agreement that allowed the Nazis to gobble up Central Europe. And Illinois Senator Mark Kirk, who, when he ran in 2010, was the largest recipient of so-called pro-Israel money, compared Obama to British Prime Minister Neville Chamberlain who signed the Munich Agreement. During the last month, Kirk and other Senators pressed for even harsher sanctions on Iran, even though the effect of these would have been to undercut any possibility of an agreement with Iran and leave the United States with no option but war to preventing Iran from acquiring a nuclear weapon.

In the weeks before the new agreement was signed, some opponents began to back down. On October 29, after meeting with senior administration officials, leaders of AIPAC, the American Jewish Committee, the Anti-Defamation League, and the Conference of Presidents of Jewish Organizations reportedly agreed not to press a new sanctions bill while the administration was negotiating the interim agreement with Iran. And in the immediate aftermath, several important critics appear to have moderated their stance. Kirk, while belittling of the Iran’s concessions in the agreement as “cosmetic,” now threatens to bring forth sanctions legislation only if “Iran undermines this interim accord or if the dismantlement of Iran’s nuclear infrastructure is not under way by the end of this six-month period.” That even opens the way to a Kirk backed a final agreement.

The Guardian described the Saudis as maintaining a “discreet silence” about the agreement. Only Netanyahu and other members of his administration have continued to denounce the agreement. Netanyahu called the deal an “historic mistake.” “The Iranian regime is committed to the destruction of Israel and Israel has the right and the obligation to defend itself, by itself, against any threat,” Netanyahu said. “As Prime Minister of Israel, I would like to make it clear: Israel will not allow Iran to develop a military nuclear capability.”

Netanyahu’s statement was uncompromising – even setting as a trigger Iran developing a “capability” and not an actual weapon. It also hyped an “existential” Iranian threat that, if it ever existed, only did so during the term of Mahmoud Ahmadinejad, and then only in Ahmadinejad’s fevered rhetoric, which was meant for domestic consumption. The rhetoric, and so, too, is Iran as a major backer of Hamas. But it is unclear whether Netanyahu is really laying the basis for an Israeli military strike, or simply currying favor with Israeli voters. Israel does not appear to have the military ability to knock out Iran’s nuclear program, although it could certainly reap havoc and start another regional war.

Netanyahu and some American critics of the deal with Iran have compared it to the American agreement with North Korea in 2005, in which North Korea promised to give up nuclear weapons in exchange for economic aid. North Korea subsequently violated the agreement. But a more optimistic comparison would be to the Intermediate Nuclear Forces (INF) agreement that Ronald Reagan signed with the Soviets in 1987.

Conservatives denounced Reagan for the pact. National Review called it “Reagan’s suicide pact.” Henry Kissinger charged that it undermined “40 years of NATO.” But, of course, the treaty turned out to be a prelude not only to more comprehensive arms agreements, but to the end of the Cold War. If the United States is lucky – and luck is always a factor in international affairs – the modest deal that the United States and five other nations signed with Iran could like, the Reagan’s INF treaty, be the beginning of something much larger, more important, and more welcome.


By: John B. Judis, The New Republic, November 24, 2013

November 25, 2013 Posted by | Foreign Policy, Iran | , , , , , , , | Leave a comment

“The Real Enemies Of Christmas”: Sham “War On Christmas” Overlooks Holiday’s History

Probably seeking more TV appearances and speaking gigs, Sarah Palin has decided to enter the overcrowded “War on Christmas” market sector with a new book. Like all the other screeds on the subject, Palin’s version — Good Tidings and Great Joy: Protecting the Heart of Christmas – takes up arms against a cast of alleged scoundrels frequently denounced by conservative talking heads.

Is Palin sick of the commercialization that has wrenched the season from its roots? Is she tired of Christmas sales that start before Thanksgiving? Has she had it with the bickering over parking spaces and shoving to get the most popular toy that inevitably accompany shopping at this time of year?

Ah, not so much. As Palin tells it, the gravest threats to the seriousness of the season are atheists who sue over public displays of the creche and shopkeepers who call out “Happy Holidays” instead of “Merry Christmas.” Just like every other right-wing talking head who comes out swinging at this time of year, she sees the problem as Americans who believe in the First Amendment, who speak to Allah when they pray, who understand the difference between public spaces and religious ones.

Her diatribe is not only ridiculously overwrought and paranoid, but it’s also redundant. Hasn’t Bill O’Reilly thoroughly covered this ground?

Still, we’re bound to be subjected to a month-long outcry over school calendars that mention “winter holidays” instead of “Christmas,” so it’s worth repeating the many ways in which Palin and her compatriots are wrong. Let’s start with history.

For the most part, the earliest American Christians did not celebrate Christmas at all. They didn’t believe celebrations were appropriate. The Puritans were a dour bunch who rebelled against the traditional Christmas festivities that had marked the season in 17th-century England: caroling, eating, drinking, carousing.

The Puritans in the Massachusetts Bay Colony outlawed any celebrations of Christmas, fining those who dared show any hint of merry-making. That likely would have included the errant greeting of “Merry Christmas!” (Increase Mather, the Billy Graham of his day, had a point about the December 25 anniversary, which he noted coincided with a pagan Roman celebration. Historians doubt that Jesus was actually born on that date.)

But the far bigger flaw in the “War on Christmas” arguments lies in a fundamental misreading of the U.S. Constitution and its traditions. Palin and her ilk claim to be faithful readers of the founding document, but their view of it — like their interpretation of the Bible — is narrow, limited and eccentric.

The United States was not created as a “Christian” nation. In fact, the Founding Fathers were acutely aware of Europe’s bloody and destabilizing religious wars, and they sought to create a nation that would thrive as a pluralistic republic, allowing all citizens to worship as they chose. That is explicit in a treaty unanimously ratified by the U.S. Senate in 1797 and aimed at ending piracy along the Barbary coast. One of its articles begins, “As the government of the United States is not in any sense founded on the Christian religion …”

Thomas Jefferson, who coined the phrase “wall of separation between church and state,” was a believer, but not of the sort that Palin would recognize. While he had great respect for Jesus’ moral teachings, for example, he did not believe in Christ’s divinity.

Jefferson might be surprised by the religious pluralism of the nation he helped to birth, but his wisdom has held up well through the centuries. Government does not endorse any religious view, so public school teachers should not lead public prayers. (Let me also clear up a common misunderstanding: Students are free to pray on their own in public schools, and many do.) Government buildings should not include any Christian inscriptions unless they include those of other religions. Churches, mosques and synagogues, however, are free to display what they like, and they do.

I know many committed Christians who struggle to keep sacred the meaning of the season. But they don’t do that by railing against what they hear clerks say to patrons in the malls. They try to stay out of the malls.

When the “war” focuses on the real enemies of Christmas — endless commercialization and mindless consumerism — I’ll enlist.


By: Cynthia Tucker, Featured Post, The National Memo, November 23, 2013

November 25, 2013 Posted by | Christmas, Constitution, Religion | , , , , , , | Leave a comment

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