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“Because They’re Actually Not”: Why Republicans Struggle To Convince Ordinary Americans The GOP Is On Their Side

Attention, Republicans: if you want to know why Americans never seem to believe you when you say you have ordinary people’s interests at heart, look no further than the new regulation governing investment advisers the Obama administration has now released.

I realize that few readers will lean forward with excitement upon reading the words “fiduciary standard,” but this is actually an important topic, both substantively and politically, so stay with me. The new regulation, which had been in the works for some time, says that investment advisers are required to follow a fiduciary standard, which means nothing more than that they have to be guided by what’s in their client’s best interests, just like a doctor or lawyer must.

You might ask, who on earth could possibly object to that? Other than the investment advising industry, of course. The answer is…the Republican Party.

Not the whole party, actually. Most Republicans would rather not discuss this issue at all, because doing so puts them in an uncomfortable place. But I have yet to find a single elected Republican who comes down on the side of the fiduciary standard.

To explain briefly: As things exist today, when you hire a financial adviser, they’re under no obligation to actually give you advice that’s in your best interests. What they often do instead is sell you products from which they’ll obtain bigger commissions, pushing you into investments that make them more money but won’t necessarily be good for you. The new regulation changes that, imposing the fiduciary standard on those advisers. This is a very big deal, because we’re talking about an industry that manages trillions of dollars in Americans’ money.

This morning I spoke to University of Chicago professor Harold Pollack, co-author (with Helaine Olen) of The Index Card: Why Personal Finance Doesn’t Have to be Complicated and a longtime advocate of the fiduciary standard. He was, unsurprisingly, enormously pleased by the administration’s move.

“People are unaware of the many conflicts of interest that exist in the financial advice industry and how much money it costs them over the course of their lives,” Pollack said, noting that selling clients products they don’t need is a core part of the industry’s business model.

But Pollack is quick to note that financial advisers provide an essential service, since most of us don’t have the expertise to make good investments and save properly for retirement or our children’s education. It’s also an extremely intimate relationship — Americans are notoriously secretive about their finances, which means you’ll share details of your life with your financial advisor that you wouldn’t tell friends or even some family members. That’s why it’s essential that the relationship is based on a core of trust.

“When people are dealing with financial advisers,” Pollack says, “they need to know that what they are getting is actual advice and not a sales pitch.” He also pointed out: “The research that has come out about the poor performance of actively managed investments has had a huge impact.” More and more people are becoming aware that the best investment strategy is often to simply park most of your money in a low-fee index fund; no matter how smart your adviser is, you aren’t going to beat the market.

So what are the political implications of this new rule? On the surface, you’d think that a position in opposition to the administration’s move would be almost impossible to defend. Who’s going to argue that your financial adviser ought to be able to push you into buying something you don’t need? That’s just a couple of steps away from outright fraud.

But if you listen to Republicans, it becomes clear they don’t like the rule, but not for any specific reason relating to the rule itself. They’ll talk about Washington bureaucrats and Obama overreach, but the tell is in their repeated use of the phrase “Obamacare for financial planning!” (here’s an example from Paul Ryan). Whenever Republicans say something is “Obamacare for X,” it’s a way of saying, “We don’t like this thing, but we don’t want to say exactly why, so we’ll just say it’s like that other thing we don’t like.”

This gets to the heart of the different perspective the two parties bring to questions of the economy and government’s role in regulating it. The conservative perspective is essentially laissez-faire: if financial advisers take advantage of their clients, well, that may be regrettable, but we don’t want the government to actually do anything to prevent it, because we have to let the market do what it will. And when it comes to the affirmative policy changes they want to make, for ordinary people most of it involves waiting for things to trickle down. Let us cut taxes on the wealthy and reduce regulations on corporations, they say, and that will create the conditions that will foster economic growth, so that at some time in the future it will be easier for you to find a good-paying job (those getting the tax cuts and regulatory breaks, on the other hand, get their benefits right away).

Liberals, in contrast, are comfortable with making policies like the fiduciary rule — or increases in the minimum wage, or paid family leave, or more inclusive overtime rules — that are designed to deliver immediate benefit to ordinary people. And as complicated as economic policy can sometimes get, most voters can understand this fundamental difference. That’s why Republicans constantly have to struggle to explain why they actually have ordinary people’s interests at heart, and why Democrats can just say, “Yep, there go the Republicans again, just trying to help the rich and screw the little guy,” and voters nod their heads in recognition. Republicans may think it’s unfair, but when they oppose things like the fiduciary rule or try to shut down the Consumer Financial Protection Bureau (protecting consumers, egad!), what do they expect voters to conclude?

Both Hillary Clinton and Bernie Sanders came out in favor of the fiduciary rule last fall; it remains to be seen whether they’ll bring it up again on the campaign trail. But as Pollack notes, the change might not have been possible without the attention it has already gotten. Though people in positions of power often say, “good policy is good politics” as a way of claiming that they have only the purest of (non-political) intentions for their decisions, sometimes exactly the opposite is true.

“This is an example where good politics is actually critical to good policy,” Pollack says, “because if this had been decided quietly in Congress, there’s a good possibility it would have been weakened.” The more attention it got, the more room the administration had to do the right thing. And now that they have, Democrats should keep talking about it.

 

By: Paul Waldman, Senior Writer, The American Prospect; Contributor, The Plum Line Blog, The Washington Post, April 7, 2016

April 11, 2016 Posted by | Fiduciary Standard, Financial Industry, Republicans | , , , , , , | 1 Comment

“A Standard Of Absolute Purity”: His Respected Friend; But What Does Bernie Really Think Of Hillary?

What does Bernie Sanders really think of Hillary Clinton?

When they meet in debate, the Senator from Vermont usually refers to the former Secretary of State as his “friend” – not in the polite Congressional-speech sense of someone that he actually despises, but in what is presumably his authentic, Brooklyn-born candor. He speaks frequently of his “great respect” for Clinton. And he has said more than once that “on her worst day” she would be a far better president than any of the potential Republican candidates “on their best day.”

Even more often, however, Sanders suggests that Clinton has sold out to the financial industry for campaign contributions, or for donations to her SuperPAC, or perhaps for those big speaking fees she has pocketed since leaving the State Department. Certainly he has fostered that impression among his supporters, who excoriate Clinton in the most uninhibited and sometimes obscene terms on social media.

But if Sanders believes that Hillary Clinton is “bought by Wall Street” — as his legions so shrilly insist — then how can he say, “in all sincerity,” that she is his respected friend?

To date, his criticism of Clinton on this point is inferential, not specific. He hasn’t identified any particular vote or action that proves her alleged subservience to the financial titans she once represented as the junior senator from New York. As Sanders knows, Clinton’s actual record on such issues as the Dodd-Frank financial regulation bill and the Consumer Financial Protection Bureau ran opposite to the banksters.

Back in 2007, eight years before she could ever imagine facing the socialist senator in debate, she spoke up against the special “carried interest” tax breaks enjoyed by hedge-fund managers. Her proposals to regulate banks more strictly have won praise not only from New York Times columnist and Nobel economist Paul Krugman, but from Senator Elizabeth Warren (D-MA), the populist Pasionaria, as well.

Still, to Sanders the mere act of accepting money from the financial industry, or any corporate interest, is a marker of compromise or worse. Why do the banks spend millions on lobbying, he thunders, unless they get something in return? The answer is that they want access – and often donate even to politicians who don’t fulfill all their wishes. They invariably donate to anyone they believe will win.

Meanwhile, Sanders doesn’t apply his stringent integrity test to contributions from unions, a category of donation he accepts despite labor’s pursuit of special-interest legislation– and despite the troubling fact that the leadership of the labor movement filed an amicus brief on behalf of Citizens United, which expanded their freedom to offer big donations to politicians. (That case was rooted, not incidentally, in yet another effort by right-wing billionaires to destroy Hillary Clinton.)

By his own standard, Sanders shouldn’t take union money because the AFL-CIO opposed campaign finance reform, which he vociferously supports. Or maybe we shouldn’t believe that he truly supports campaign finance reform, because he has accepted so much money from unions.

Such assumptions would be wholly ridiculous, of course – just as ridiculous as assuming that Clinton’s acceptance of money from banking or labor interests, both of which have made substantial donations to her campaign, proves her advocacy of reform is insincere.

Political history is more complex than campaign melodrama. If critics arraign Clinton for the decision by her husband’s administration to kill regulation of derivatives trading, it is worth recalling that she was responsible for the appointment of the only official who opposed that fateful mistake. She had nothing to do with deregulation — but as First Lady, she strongly advocated on behalf of Brooksley Born, a close friend of hers named by her husband to chair the Commodity Futures Trading Commission. One of the few heroes of the financial crisis, Born presciently warned about the dangers of unregulated derivatives.

So it is fine to criticize Clinton’s big speaking fees from banks and other special interests, which create a troubling appearance that she should have anticipated. It is fine to complain that politicians are too dependent on big-money donors. And it is fine to push her hard on the issues that define the Sanders campaign, which has done a great service by highlighting the political and economic domination of the billionaire elite.

But it is wrong to accuse Clinton of “pay for play” when the available evidence doesn’t support that accusation. And if Sanders wants to hold her to a standard of absolute purity, he should apply that same measure to himself.

 

By: Joe Conason, Editor in Chief, Editor’s Blog, The National Memo, February 13, 2016

February 15, 2016 Posted by | Bernie Sanders, Financial Industry, Hillary Clinton, Wall Street | , , , , , , , , | 2 Comments

“Democrats, Republicans And Wall Street Tycoons”: Financiers Resent Any Constraints On Ability To Gamble With Other People’s Money

Hillary Clinton and Bernie Sanders had an argument about financial regulation during Tuesday’s debate — but it wasn’t about whether to crack down on banks. Instead, it was about whose plan was tougher. The contrast with Republicans like Jeb Bush or Marco Rubio, who have pledged to reverse even the moderate financial reforms enacted in 2010, couldn’t be stronger.

For what it’s worth, Mrs. Clinton had the better case. Mr. Sanders has been focused on restoring Glass-Steagall, the rule that separated deposit-taking banks from riskier wheeling and dealing. And repealing Glass-Steagall was indeed a mistake. But it’s not what caused the financial crisis, which arose instead from “shadow banks” like Lehman Brothers, which don’t take deposits but can nonetheless wreak havoc when they fail. Mrs. Clinton has laid out a plan to rein in shadow banks; so far, Mr. Sanders hasn’t.

But is Mrs. Clinton’s promise to take a tough line on the financial industry credible? Or would she, once in the White House, return to the finance-friendly, deregulatory policies of the 1990s?

Well, if Wall Street’s attitude and its political giving are any indication, financiers themselves believe that any Democrat, Mrs. Clinton very much included, would be serious about policing their industry’s excesses. And that’s why they’re doing all they can to elect a Republican.

To understand the politics of financial reform and regulation, we have to start by acknowledging that there was a time when Wall Street and Democrats got on just fine. Robert Rubin of Goldman Sachs became Bill Clinton’s most influential economic official; big banks had plenty of political access; and the industry by and large got what it wanted, including repeal of Glass-Steagall.

This cozy relationship was reflected in campaign contributions, with the securities industry splitting its donations more or less evenly between the parties, and hedge funds actually leaning Democratic.

But then came the financial crisis of 2008, and everything changed.

Many liberals feel that the Obama administration was far too lenient on the financial industry in the aftermath of the crisis. After all, runaway banks brought the economy to its knees, causing millions to lose their jobs, their homes, or both. What’s more, banks themselves were bailed out, at potentially large expense to taxpayers (although in the end the costs weren’t very large). Yet nobody went to jail, and the big banks weren’t broken up.

But the financiers didn’t feel grateful for getting off so lightly. On the contrary, they were and remain consumed with “Obama rage.”

Partly this reflects hurt feelings. By any normal standard, President Obama has been remarkably restrained in his criticisms of Wall Street. But with great wealth comes great pettiness: These are men accustomed to obsequious deference, and they took even mild comments about bad behavior by some of their number as an unforgivable insult.

Furthermore, while the Dodd-Frank financial regulation bill enacted in 2010 was much weaker than many reformers had wanted, it was far from toothless. The Consumer Financial Protection Bureau has proved highly effective, and the “too big to fail” subsidy appears to have mostly gone away. That is, big financial institutions that would probably be bailed out in a future crisis no longer seem to be able to raise funds more cheaply than smaller players, perhaps because “systemically important” institutions are now subject to extra regulations, including the requirement that they set aside more capital.

While this is good news for taxpayers and the economy, financiers bitterly resent any constraints on their ability to gamble with other people’s money, and they are voting with their checkbooks. Financial tycoons loom large among the tiny group of wealthy families that is dominating campaign finance this election cycle — a group that overwhelmingly supports Republicans. Hedge funds used to give the majority of their contributions to Democrats, but since 2010 they have flipped almost totally to the G.O.P.

As I said, this lopsided giving is an indication that Wall Street insiders take Democratic pledges to crack down on bankers’ excesses seriously. And it also means that a victorious Democrat wouldn’t owe much to the financial industry.

If a Democrat does win, does it matter much which one it is? Probably not. Any Democrat is likely to retain the financial reforms of 2010, and seek to stiffen them where possible. But major new reforms will be blocked until and unless Democrats regain control of both houses of Congress, which isn’t likely to happen for a long time.

In other words, while there are some differences in financial policy between Mrs. Clinton and Mr. Sanders, as a practical matter they’re trivial compared with the yawning gulf with Republicans.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, October 16, 2015

October 17, 2015 Posted by | Bernie Sanders, Financial Industry, Hillary Clinton | , , , , , , , | 1 Comment

“Wall Street Takes Over More Statehouses”: Public Pension Wall Street Feeding Frenzy About To Get Worse

No runoff will be needed to declare one unambiguous winner in this month’s gubernatorial elections: the financial services industry. From Illinois to Massachusetts, voters effectively placed more than $100 billion worth of public pension investments under the control of executives-turned-politicians whose firms profit by managing state pension money.

The elections played out as states and cities across the country debate the merits of shifting public pension money — the retirement savings for police, firefighters, teachers and other public employees — from plain vanilla investments such as index funds into higher-risk alternatives like hedge funds and private equity funds.

Critics argue that this course has often failed to boost returns enough to compensate for taxpayer-financed fees paid to the financial services companies that manage the money. Wall Street firms and executives have poured campaign contributions into states that have embraced the strategy, eager for expanded opportunities. The election results affirmed that this money was well spent: More public pension money will now likely be entrusted to the financial services industry.

In Illinois, Democratic incumbent Pat Quinn was defeated by Republican challenger Bruce Rauner, who made his fortune as an executive at a financial firm called GTCR, which rakes in fees from pension investments. Rauner — who retains an ownership stake in at least 15 separate GTCR entities, according to his financial disclosure forms — will now be fully in charge of his state’s pension system.

In Rhode Island, venture capitalist Gina Raimondo, a Democrat, defeated Republican Allan Fung. Raimondo retains an ownership stake in a firm that manages funds from Rhode Island’s $7 billion pension system. Raimondo’s campaign received hundreds of thousands of dollars from financial industry donors. She was also aided by six-figure PAC donations from former Enron trader John Arnold, who has waged a national campaign to slash workers’ pensions.

In New York, Gov. Andrew Cuomo, a Democrat, handily defeated his Republican opponent, Rob Astorino, after raising millions of dollars from the finance industry. The New York legislature is set to send Cuomo a bill that would permit the New York state and city pension funds to move an additional $7 billion into hedge funds, private equity and other high-fee “alternative” investments. Cuomo has not taken a public position on the bill, but his party in the legislature passed it by a wide margin, and he is widely expected to sign it into law.

In Massachusetts, Republican Charlie Baker appeared early Wednesday to have secured a narrow victory over Massachusetts Attorney General Martha Coakley. Baker was on the board of mutual funds managed by a financial firm that has also managed funds from Massachusetts’ $53 billion pension system. Baker is also the subject of a New Jersey investigation over his $10,000 contribution to the New Jersey State Republican Party just months before New Jersey Gov. Chris Christie’s officials awarded his firm a state pension deal.

In all, Republicans won 18 gubernatorial races thanks, in part, to the robust fundraising of Christie’s Republican Governors Association. Some of that organization’s top donors are the financial investment firms that manage public pension systems.

Former Securities and Exchange Commission attorney Edward Siedle said campaign cash from the financial industry is fundamentally shaping the debate over how to manage state pension systems.

“Why have all pension reform candidates concluded that workers’ retirement benefits must be harshly cut, but, on the other hand, fees to Wall Street be exponentially increased?” said Siedle, who has published a series of forensic reports critical of politicians shifting ever more pension money to Wall Street. “The answer, of course, is that more money than ever is being spent by billionaires to support a public pension Wall Street feeding frenzy.”

After the 2014 election, that feeding frenzy is only going to intensify.

 

By: David Sirota, Senior Writer at The International Business Times; Published in The National Memo, November 14, 2014

November 18, 2014 Posted by | Financial Industry, Public Pension System, Wall Street | , , , , , , , | Leave a comment

“A Pension Jackpot For Wall Street”: A Vicious Cycle Whereby The Financial Industry Wins And Taxpayers, Once Again, Lose

Most consumers understand that when you pay an above-market premium, you shouldn’t expect to get a below-average product. Why, then, is this principle often ignored when it comes to managing billions of dollars in public pension systems?

This is one of the most significant questions facing states and cities as they struggle to meet their contractual obligations to public employees. In recent years, public officials have shifted more of those workers’ pension money into private equity, hedge funds, venture capital and other so-called “alternative investments.” In all, the National Association of State Retirement Administrators reports that roughly a quarter of all pension funds are now in these “alternative investments” — a tripling in just 12 years.

Those investments are managed by private financial firms, which charge special fees that pension systems do not pay when they invest in stock index funds and bonds. The idea is that paying those fees — which can cost hundreds of millions of dollars a year — will be worth it, because the alternative investments will supposedly deliver higher returns than low-fee stock index funds like the S&P 500.

Unfortunately, while these alternative investments have delivered a fee jackpot to Wall Street firms, they have often delivered poor returns, meaning the public is paying a premium for a subpar product.

In New Jersey, for example, the state’s alternative investment portfolio has trailed the stock market in seven out of the last eight years, while costing taxpayers almost $400 million a year in fees. Had the state followed the advice of investors like Warren Buffett and instead invested its alternative portfolio in a low-fee S&P 500 index fund, New Jersey would have had more than $5 billion more in its pension fund. In all, as New Jersey plowed more pension money into alternatives, its pension returns have routinely trailed median returns for all public pension systems.

It is the same story in other states that have been increasing their alternative investments.

In Rhode Island, Democratic state treasurer Gina Raimondo’s shift of pension money into alternatives has coincided with the pension system trailing median returns. Had the state generated median returns, it would have had $372 million more in its pension system.

Likewise, a Maryland Public Policy Institute study shows that returns from that state’s $40 billion pension system have trailed the median for the last decade. Had the state met the median, it would have $3.2 billion more in its pension system — an amount the study’s authors note is enough to “award 80,000 poor children with $40,000 four-year college scholarships.”

It is a similar tale in North Carolina, Kentucky and many other locales. In short, public officials are spending more and more pension money on high-fee alternative investments, and those investments are generating worse returns than other low-fee investment vehicles.

That brings back the original question: Why are pension funds pursuing such an investment strategy? Some of the answer may have to do with the same psychology that encourages the gambler to try to big-bet his way out of deficits. But it also may have to do with campaign contributions. After all, many of the politicians who have been pushing the alternative investments just so happen to benefit from Wall Street’s campaign contributions.

That spotlights a pernicious dynamic that may be at work: The more public money that goes into alternative investments, the more fees alternative investment firms generate, the more campaign contributions are made by those firms, and thus the more money politicians devote to alternative investments, even as those investments deliver poor results for pensioners. It is a vicious cycle whereby the financial industry wins and taxpayers, once again, lose.

 

By: David Sirota,  Senior Writer at the International Business Times; The National Memo, September 26, 2014

September 27, 2014 Posted by | Financial Industry, Public Pension System, Wall Street | , , , , , | Leave a comment

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