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“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

March 28, 2013 Posted by | Banks, Wall Street | , , , , , , , | Leave a comment

“Holding Pickpockets To Account”: Sen. Elizabeth Warren Comes Out Swinging

In case you missed it, Elizabeth Warren made quite the splash at her first Senate Banking Committee hearing on Thursday.

In front of a panel entitled “Wall Street Reform: Oversight of Financial Stability and Consumer and Investor Protections,” Warren berated regulators for failing to prosecute a single Wall Street criminal in recent years, and for not letting institutional suspicions arise due to the fact that banks are trading at below-book value.

This, as you can imagine, did not sit well with banking executives.

According to POLITICO’s Ben White, they went apoplectic:

“We have been through more tests and thorough exams than any college student over the past four years, including many conducted by the CFPB,” said Richard Hunt, president and chief executive of the Consumer Bankers Association.

“While Sen. Warren had every right to ask pointed questions at [Thursday’s] Senate Banking Committee hearing, her claim that ‘nobody believes’ that bank books are honest is just plain wrong,” [another anonymous] executive said in an email. “As Federal Reserve Gov. [Daniel] Tarullo explained in response to her question, the low valuations are more likely due to continued economic uncertainty and concerns on the part of investors regarding the impact on banks’ profitability due to the hundreds of new regulations.”

White, however, left out key pieces of background here. The first is that Wall Street banks are performing like they were in 2006, and that their moaning about profitability rings hollow. The second is that to say the industry has a credibility problem would be the understatement of the decade: according to the Wall Street Journal and a trade publication called CFA Magazine, “one out of every ten people working on Wall Street are psychopaths.”

Not wanting to disappoint, the executive evidenced a delusional mendacity again in White’s article, when he said that “Elizabeth warren and [Texas Republican Senator] Ted Cruz are dueling for the title of ‘most extreme fringe freshman senator.’”

To this empty suit, it’s not just as if the financial crisis never happened. It’s as if Wall Street firms haven’t been mired in scandal after scandal since: foreclosure fraud, LIBOR, JP Morgan London Whale, FHA loan fraud, and MF Global to name a few. According to our faceless executive, wanting regulators to hold these well groomed pickpockets to account — for both crimes and reckless legal practices — is equal to slandering Chuck Hagel for having fictitious ties to North Korea or a blatantly made-up Hamas linked booster group (and certain publications continue to push this false equivalency in their fact-free devil-may-care attempts to be “objective” stenographers).

Fortunately for Wall Street, Warren might not have done herself any favors through her line of questioning. As Yves Smith, author of the the indispensable blog “Naked Capitalism” pointed out, the freshman Senator could have played a more subtle cat-and-mouse game to “tease out” information she claimed to have wanted – about why regulators never take cases to trial, namely, or why the fines they issue amount to a paltry “cost of doing business” amount. I suspect, however, that Warren was just trying to make a point – that whether regulators are scared of losing cases, or not wanting to find themselves shunned by Wall Street when they decide that they’ve had enough of Washington, they haven’t been doing the public any favors through inaction.

What’s important about this exchange, though, is that Warren demonstrated why she was elected. She might, thus far, be known as a one-issue kind of expert, but that issue is of massive importance to her constituents (and the American people). Her banking committee membership, I suspect, will be significantly more valuable the next time financier psychopaths pay a visit to one of the Senate office buildings to testify.

 

By: Brian Knight, Washington Monthly Political Animal, February 17, 2013

February 19, 2013 Posted by | Banks, Wall Street | , , , , | Leave a comment

   

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