“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
“Brush-Back Pitch”: Senate Democrats Have Had All They Can Take From David Vitter And His Obamacare Fixation
Sen. David Vitter (R-La.) this week tied up his chamber, blocking efforts to work on a bipartisan energy efficiency bill. He said he’d reconsider his obstructionist antics if the Senate voted on his measure to end the “Washington exemption from ObamaCare.”
As a substantive matter, Vitter is either deeply confused or playing a silly game in the hopes the public is deeply confused. There is no congressional “exemption” from the Affordable Care Act, as I imagine most senators realize. But Vitter engaged in his little stunt anyway, to his colleagues’ annoyance.
It appears that some of those colleagues are growing tired of the Louisiana Republican’s antics, and have a brush-back pitch in mind.
Senate Democrats have had all they can take from David Vitter and his fixation on Obamacare — and they’re dredging up his past prostitution scandal to hit back.
Vitter, a Louisiana Republican, has infuriated Democrats this week by commandeering the Senate floor, demanding a vote on his amendment repealing federal contributions to help pay for lawmakers’ health care coverage.
But Democratic senators are preparing a legislative response targeting a sordid Vitter episode. If Vitter continues to insist on a vote on his proposal, Democrats could counter with one of their own: Lawmakers will be denied those government contributions if there is “probable cause” they solicited prostitutes.
Ouch.
For those who may have forgotten, Vitter ran for the Senate on a “family values” platform, before getting caught with prostitutes. Making matters slightly worse, in at least one instance, the far-right Republican was found to have arranged a liaison with prostitutes from the congressional floor.
Vitter then ran for re-election anyway and won with relative ease.
By and large, Democrats have made very little effort to humiliate their conservative colleague over this, but it’s obvious they haven’t forgotten about it, either. The issue has apparently become something of a trump card Dems are prepared to play if nothing else works.
I imagine Vitter will see this as a cheap shot. Indeed, he’s already complaining.
“Harry Reid is acting like an old-time Vegas mafia thug, and a desperate one at that,” Vitter said in a statement to POLITICO, referring to the Senate majority leader. “This just shows how far Washington insiders will go to protect their special Obamacare exemption.”
First, let’s just be absolutely clear about the policy — there’s no such thing as an Obamacare exemption for Congress. It’s a made-up talking point that Republicans are fond of, which has no basis in fact. Whether or not Vitter realizes how wrong he is doesn’t matter; he keeps saying something that isn’t accurate.
Second, when you’re a married, family-values conservative who gets caught with prostitutes, you probably shouldn’t expect there to be no consequences for your actions.
By: Steve Benen, The Maddow Blog, September 13, 2013
“Forgiveness, Unless You’re A Democrat”: Anthony Weiner Is No Bill Clinton Or David Vitter
Republicans, the party of forgiveness … unless you’re a Democrat.
Anthony Weiner ain’t no Bill Clinton, although many Republicans consider them one and the same, which is why many on the right are perplexed about Weiner’s popularity rapidly dropping in the polls this week in his bid to become mayor of New York. Democrats have pulled their support from him and, so it would seem, have the Clintons.
Weiner’s problem isn’t that Democrats can’t be forgiving. Weiner’s problem is that he continued his inappropriate behavior after stepping down from Congress. The Weiners like to compare themselves to the Clintons, but the situations are not the same, though many of my Republican friends love the comparison. Let me break it down as to why the situations are quite different:
Weiner isn’t, nor ever will be, president. Weiner was a congressman, and not a popular one. Bill Clinton was a popular president, the economy was good and we were at peace. In other words, Bill Clinton was doing his job, despite his behavior, and a good job at that. Weiner on the other hand, it could be argued was distracted by his…umm…hobby.
Hilary wasn’t pregnant. As a woman, I think it was even more reprehensible to many of us ladies that Anthony Weiner was having cybersex, if you will, while his wife was pregnant with his child.
Weiner’s marriage was new. Hilary and Bill have been together a lifetime. Hilary had already suffered through Bill’s indiscretions. She had forgiven him and decided long ago to stand by her man. Although I am sure this was quite painful for her, she was used to forgiving him, and I am sure his behavior was not shocking to her as it was a pattern of behavior.
The “affair” of Bill Clinton and Monica Lewinsky was behind closed doors, albeit those doors were that of the oval office. They were not out for the public to see. On the other hand, Weiner’s penchant for taking photos of his own body parts is, well….a bit perverted. And putting it out there, online for all the world to see, makes it public and a public embarrassment for his wife as well.
I also find it odd that Republicans couldn’t wrap their heads around Democrats forgiving Bill Clinton, and for a time, Anthony Weiner. Isn’t David Vitter still in his political seat after soliciting a prostitute? Not only engaging in adultery, but breaking the law? And how about Mark Sanford? A guy who lied not only to his wife and kids, but to his state when he fled to South America to see his mistress?
So when Anthony Weiner stepped down and, at first, New Yorkers forgave him and gave him a chance, why were Republicans so harsh to judge when their own “sinners” had been forgiven? And what about Eliot Spitzer, who did the same thing as David Vitter, but had the decency to step down, get help, work on his marriage and come back, perhaps soon to be a winner again?
It’s obvious. You can hire prostitutes, play footsies with guys under a bathroom stall, run off from your post, commit adultery and use tax dollars to fly to South America to visit your mistress, and it will be forgiven … unless, you’re a Democrat.
By: Leslie Marshall, U. S. News and World Report, July 31, 2013
“Not That Anyone Really Cares”: Whatever Happened To Little Bobby Jindal?
Louisiana Governor Bobby Jindal is renowned for his policy wonkery and strict Catholicism, not a cutting sense of humor. So when he took the stage a few months ago at Washington’s annual Gridiron dinner, one jab stood out in particular. “The Menendez scandal is disturbing,” Jindal said, referring to reports (later proved untrue) that Senator Robert Menendez had paid for sex in the Dominican Republic. “Soliciting prostitution is completely unacceptable. We would never put up with that in Louisiana.”
The butt of the joke was obvious to everyone in the room. Six years earlier, Louisiana’s junior senator, David Vitter, confessed to “a very serious sin” when his name appeared in the call records of a large D.C. prostitution ring. His political career survived, but not everyone has been as forgiving as Louisiana voters. Jindal’s joke acknowledged what has become an open secret in Louisiana Republican circles: He and Vitter loathe each other.
“You have two teams, two tribes,” one longtime Louisiana political consultant explained. “If you’re not on team Jindal, you want to be on team Vitter.”
Neither Jindal nor Vitter’s offices would discuss their relationship on the record, and few bayou politicos wanted to attach their names to details of the tension between the two most powerful Republicans in their state. But Baton Rouge insiders use a few key euphemisms to characterize the relationship. Sometimes they say that the two men “won’t have a beer together”; other times, that they’re fighting a “cold war.” Occasionally they slip versions of both into the same quote: “It’s kind of a cold war between Vitter and Jindal. They respect each other, but they aren’t having any beers together, I’ll tell you that much,” a Vitter ally who worked on one of his early campaigns told me.
What makes their rivalry particularly noteworthy is that Vitter—who has been the butt of many more and much better jokes than Jindal’s—may now be more popular and influential in the Louisiana Republican Party. This doesn’t just testify to Vitter’s underrated political skills; it also pulls back the curtain on Jindal’s overrated ones. While Jindal was traveling the country, giving speeches on fixing the Republican Party and stoking presidential and vice presidential speculation, Vitter, who once seemed so isolated and politically vulnerable, was quietly and carefully courting influence in the state GOP.
Now, it’s Jindal who is isolated and vulnerable. His approval rating has plummeted after voters revolted against his handling of the state’s budget crisis. Other Republicans in Louisiana describe a governor so cut off from his party that he and his team operate “like a cult.”
Making matters worse, Jindal is term-limited as governor in 2015—and Vitter could be the candidate to replace him. If Jindal’s off-putting style has driven Louisiana Republicans into the arms of a man more famous for his personal peccadilloes than his legislative record, then just imagine what he’ll do for Marco Rubio or Chris Christie as a presidential candidate in 2016.
Most Louisiana politicos date the start of Jindal and Vitter’s contretemps to July 16, 2007, when Vitter called a press conference to fess up to his role in the D.C. madam scandal. It was the same afternoon that Jindal, then a member of Congress, kicked off his second bid for governor.
“I got the sense that every reporter in town was covering Vitter and not Jindal,” says Robert Mann, who worked as communications director for Democratic Governor Kathleen Blanco, Jindal’s predecessor. While the rest of the Louisiana congressional delegation rushed to Vitter’s defense, Jindal—who represented Vitter’s old district—waited a day longer and said only: “While we are disappointed by Senator Vitter’s actions, [my wife] Supriya and I continue to keep David and his family in our prayers. This is a matter for the senator to address, and it is our hope that this is not used by others for their own political gain.”
Jindal was elected to the governor’s mansion later that year, while the national press excoriated Vitter. But Vitter had already begun laying the groundwork for his ascendance in his home state. In his days as a state legislator, he had successfully pushed for term limits for legislators, forcing many of the lawmakers he had served alongside to give up their seats in 2007. Vitter began recruiting conservative candidates to replace them and helped fund campaigns through the Louisiana Committee for a Republican Majority (LCRM), a PAC he had co-founded a couple years earlier. He also personally reached out to Democrats in conservative districts, encouraging them to get ahead of the state’s rightward turn.
The Louisiana legislature didn’t go red in 2007, but, thanks to a successful election cycle and a few high-profile Democratic defections, the House flipped in 2010. A year later, the state Senate followed suit. It was the first time Republicans controlled the legislature since Reconstruction. Scott Hobbs, a Louisiana-based political consultant, estimated that Vitter helped “at least sixty to seventy percent [of Republicans in the legislature] in some way” between 2007 and 2011. Now Baton Rouge is filled with Vitter-friendly pols, sometimes referred to as the “fiscal hawks.” They’ve made Jindal’s life a lot harder, attacking him for using accounting gimmicks to balance the state budget. Vitter has gotten in on the action too, castigating the governor for “kicking the can down the road—the sort of bad spending policy I’m constantly fighting in Washington.”
Vitter, in fact, has frequently questioned Jindal’s judgment. He vocally criticized Jindal’s handling of a high-profile fight between landowners and the oil and gas industry as “very counterproductive.” When Jindal backed a $1.2 billion teaching hospital in New Orleans, Vitter wrote to the secretary of Housing and Urban Development to ask that they reject the state’s application for federal loan insurance and joined forces with the state treasurer and House speaker to come up with their own, cheaper proposal. “That involvement and willingness to address policy issues kind of allowed his allies to rally around knowing there was another power center other than governor who would be supportive,” says one conservative activist involved with the state party.
Many observers of the state’s political scene believe that Vitter’s motivation, however principled, is also at least somewhat personal. In 2010, when Vitter was up for reelection against Democratic Representative Charlie Melancon, Jindal declined to endorse him—though he had traveled out of state to support other candidates. The following year, when Jindal was up for reelection, Vitter publicly endorsed him, but not without a note of passive aggression: Vitter said Louisiana needed a conservative legislature “[t]o help Bobby become as engaged and bold as possible in his second term.” Vitter’s official Twitter account then tweeted an article to his followers: “Gov. Bobby Jindal gets endorsement from senator he refused to endorse last year.”
Flack from Vitter and his allies, drastic cuts to schools and hospitals, and the impression that he cares more about his own political future than the state’s have cost Jindal dearly with Louisiana voters. Slightly over a year after he was reelected with two-thirds of the vote, his approval rating now sits at 38 percent. His stature with lawmakers is hardly better. In May, when The Lens, an investigative reporting outlet based in New Orleans, surveyed lawmakers in the capital about their relationships with the governor, they discovered that “no one in the Capitol can identify any friendships Jindal has developed among lawmakers.”
“He’s a victim of his own staff,” one conservative activist told me. “His own staff has overprotected him and created this Praetorian guard around him, and therefore he has not been able to engage enough, particularly with legislators and other politicians, and that I think has limited his effectiveness.”
“It’s really, really bad,” said another Louisiana Republican familiar with the relationship. “So essentially Vitter has stepped up to fill that void. Because everyone hates Bobby, David hates Bobby, and presto: The enemy of my enemy is a friend.”
Meanwhile, Vitter hasn’t announced his next move, but recent polls have him neck to neck with New Orleans Mayor Mitch Landrieu to take Jindal’s job in 2015. That doesn’t mean he’ll waltz into the governor’s mansion. He still hasn’t faced serious criticism over the prostitution scandal, and some Republicans expect it’d be an issue in his run for governor. “It’s not that people haven’t forgiven Vitter. They have,” the Louisiana Republican told me. “But just because you’re there doesn’t mean people need to vote for you.”
Even if he doesn’t make his way to the governor’s mansion, he’s in line to become chairman of the Environment and Public Works Committee if Republicans retake the Senate next year—a hugely important committee assignment for Louisiana lawmakers. “No other politician has momentum like he has right now,” said Republican State Representative Lance Harris. “He caught lightning in a bottle.”
Jindal’s future is less clear. “We can all see he’s running for president,” said Mann. “But there’s also the sense that no one thinks that he’s got a chance. Everybody thinks that it’s a fool’s errand. So what does he do once he flames out?” I put that question to my sources, and a few of them mentioned a kind of presidency Jindal might be better suited for, one that would require less strenuous politicking: a think tank presidency.
By: Marin Cogan, The New Republic, July 8, 2013
“Quaking In Their Boots”: Watch Out Wall Street, Sherrod Brown Is Coming
With Sen. Tim Johnson, D-S.D., officially headed for retirement, speculation regarding who will replace him as chairman of the Senate Banking Committee is well underway. And one option reportedly has Wall Street quaking in its boots: Sen. Sherrod Brown, D-Ohio.
As the Huffington Post’s Ryan Grim reported, Brown is fourth in line to head the Banking Committee – which oversees most financial regulatory matters for the upper chamber – but the three senators ahead of him all have reasons to take a pass. And if Brown were to become chairman, he would have a powerful new platform from which to continue his efforts to bust up the nation’s biggest banks. “I think everything from too-big-to-fail banks all the way down to issues impacting the unbanked and underbanked would suddenly see a new energy behind them,” one analyst told Politico.
Since the financial crisis of 2008, Brown has been one of the foremost critics of Wall Street’s mega-financial institutions. During the debate over the Dodd-Frank financial reform law, Brown tried unsuccessfully to secure passage of the SAFE Banking Act, which would have capped bank size as a percentage of the economy and reduced the amount of non-deposit liabilities that a firm could hold.
Brown’s plan would have gone much further than anything that ultimately wound up in Dodd-Frank, and would have been far preferable to the Volcker Rule, the unwieldy regulation meant to deter banks from threatening the financial system via risky trading.
Recently, Brown has joined with Sen. David Vitter, R-La., to once again call for breaking up big banks.
“How many more scandals will it take before we acknowledge that we can’t rely on regulators to prevent subprime lending, dangerous derivatives, risky proprietary trading, and even fraud and manipulation?” he asked. “We simply cannot wait any longer for regulators to act. These institutions are too big to manage, they are too big to regulate, and they are surely still too big to fail.”
It is certainly true that the last few years have seen the banking sector commit a slew of misdeeds: rampant foreclosure fraud; fixing of global interest rates; and the so-called “Whale Trade” that cost JP Morgan Chase billions of dollars (and yet still won the firm an award). And the root of the problem is that the largest banks aren’t only too-big-to-fail, they’re too-big-to-jail.
The Justice Department, in fact, explicitly said earlier this month that it is not prosecuting some of the biggest banks for fear of causing them to fail, which would endanger the rest of the financial system. Instead, banks have gotten off with slaps on the wrist and penalties that barely dent their bottom lines.
“Declining to prosecute either the banks themselves or individuals at the banks for financial fraud sends the message that crime pays,” said Sen. Charles Grassley, R-Iowa, another Brown ally. Indeed, if a bank is so big that prosecuting it is deemed too risky to the economy, that bank is too big, period!
As Brown joining with Vitter and Grassley shows, a coalition of left and right can be cobbled together when it comes to reining in banks for the good of the financial system. (The Senate even voted 99-0 recently to end federal advantages for too-big-to-fail banks, though the measure is non-binding.) Having Brown at the helm of the Senate Banking Committee certainly wouldn’t hurt that cause, and the economy would be better off for it.
By: Pat Garofalo, U. S. News and World Report, March 27, 2013
Share This Blog
Unknown Feed- An error has occurred; the feed is probably down. Try again later.
mykeystrokes.com 