To Romney-Ryan We're All Muppets

Gregg A. Smith, "the swing king," has a song Stayed So Long which approaches a somewhat different, though not unrelated, kind of lust and avarice that Gregg Smith deals with in his new book, Why I Left, about why he left Goldman Sachs. (Watch the video above.) Basically, Smith grew uncomfortable with the systemic efforts Wall Street was making to rip off their clients. "Getting an unsophisticated client," he told Anderson Cooper on 60 Minutes, "was the golden prize. The quickest way to make money on Wall Street is to take the most sophisticated product and try to sell it to the least sophisticated client."

Muppets? That's what Goldman Sachs banksters call the suckers they're ripping off-- the clients. Dodd-Frank and Elizabeth Warren's Consumer Financial Protection Bureau (CFPB) were meant to protect those clients. Romney and Ryan, more than even securing the Syrian sea lanes against the mighty Persian Navy, wants to discard Dodd-Frank and cripple the CFPB. Wall Street's second biggest priority-- after electing Romney-Ryan-- is to prevent Elizabeth Warren from getting into the Senate.

This week the CFPB began accepting consumer complaints about credit reporting, giving consumers individual-level complaint assistance for the first time at the federal level. From the CFPB press release Monday:

"Credit reporting companies exert great influence over the lives of consumers. They help determine eligibility for loans, housing, and sometimes jobs,” said CFPB Director Richard Cordray. “Consumers need an avenue of recourse when they feel they have been wronged.”

  Consumer reporting agencies, which include what are popularly called credit bureaus or credit reporting companies, are private businesses that track a consumer’s credit history and other consumer transactions. The credit reports they generate-- and the three-digit credit scores that are based on those reports-- play an increasingly important role in the lives of American consumers.

  The largest credit reporting companies issue more than 3 billion consumer reports a year and maintain files on more than 200 million Americans. The consequences of errors in a consumer report can be catastrophic for a consumer, shutting him or her out of credit markets, jeopardizing employment prospects, or significantly increasing the cost of housing.

  Although a small number of large businesses dominate the credit reporting market, there are many consumer reporting agencies in the United States. The market includes: the three largest credit reporting companies that sell comprehensive consumer reports; consumer report resellers that repackage information they buy from the largest companies; and specialty consumer reporting companies that primarily collect and provide specific types of information like on payday loans or checking accounts.

  For consumers who believe that there is incorrect information on their credit reports or who have an issue with an investigation, before filing with the CFPB, they should first file a dispute and get a response from the consumer reporting agency itself. There are important consumer rights guaranteed by federal consumer financial law that may be best preserved by first going through the credit reporting company’s complaint process. Once that process is complete, if the consumer is dissatisfied with the resolution or if the consumer reporting agency does not respond, the CFPB is available to assist.

  A consumer can come to the CFPB if he or she, for example, has issues with:

·         Incorrect information on a credit report;

·         A consumer reporting agency’s investigation;

·         The improper use of a credit report;

·         Being unable to get a copy of a credit score or file; and

·         Problems with credit monitoring or identity protection services.

Rep. Brad Miller (D-NC), one of the most trustworthy and dedicated members of the House Financial Services Committee, wrote an OpEd this week on The Right Way to Break Up the Banks.

Daniel Tarullo, a respected and independent member of the Federal Reserve, has now concluded that the megabanks are too big and that Congress should do something about it.

Presumably he is referring to legislation that Sherrod Brown of Ohio introduced in the Senate and I proposed in the House to cap the size of banks. Senator Brown and I welcome Governor Tarullo as an ally.

He needn’t just look to Congress. Regulators already have the power to cure many ills of too-big-to-fail banks. Lenders would effectively break up in place if their subsidiaries-- or at least some of them-- operated as truly separate corporations.

The nine biggest bank holding companies together have almost 20,000 subsidiaries. JPMorgan Chase & Co. (JPM) has 3,391 subsidiaries; Goldman Sachs Group Inc. (GS) has 3,115; Morgan Stanley (MS) has 2,884; Bank of America Corp. has 2,019; and so forth. Each of the seven biggest bank holding companies has units in at least 40 countries. Goldman Sachs has 1,670 subsidiaries abroad.

Lehman Brothers Holdings Inc., with about 8,000 units, left them all in the shade. More subsidiaries are apparently not an indicator of better management.

In theory, each unit is a separate corporation. The stock of the subsidiaries is owned, directly or indirectly, by a parent corporation.

Bank holding companies create subsidiaries for tax or regulatory purposes, but rarely to limit liability, the usual reason for creating corporations. The liability of a corporation is limited to the assets of the corporation where the corporation meets certain legal requirements. The corporation must observe the formalities of corporate law, such as having a board of directors.

The assets of the corporation must be kept separate, rather than commingled with those of others. The capital of the corporation must be reasonably adequate for its business. Most important, the corporation must present itself as a separate entity, so any business partners know its obligations will only be satisfied by that corporation’s assets.

In practice, bank holding companies’ subsidiaries do little of that. The holding companies operate as a single enterprise with consolidated management and a common pool of capital and liquidity.

In short, each of the megabanks is just one big sloppy mess of an enterprise, with every subsidiary on the hook for the liability of the parent corporation and all of the siblings. The megabanks regard that as a virtue.

Bank executives sometimes justify the combination of logically distinct businesses -- mortgage servicing, credit cards, home-equity lines of credit, derivatives trading-- into one enterprise by claiming “synergies,” the business advantages that other generations have sometimes called “conflicts of interest.” More often, they claim the advantage of “liquidity.” A subsidiary obtains credit not just on the strength of that corporation’s assets, but on those of the holding company.

That is a nightmare for bank supervision. A regulator has no realistic way to assess the risk posed in thousands of subsidiaries engaged in all manner of businesses with unlimited liquidity, and the experience of American International Group Inc. teaches that the liability of one relatively small subsidiary can matter.

Some existing laws-- Section 23A of the Federal Reserve Act, the Volcker rule and the “pushout” rule for swaps trading-- try to isolate certain riskier activities from insured deposits, but none protects nonbank units from each other.

Sheila Bair, in her book Bull by the Horns, argues that regulators have the authority under the “living wills” provision in the Dodd-Frank law to require systemically important financial institutions to restructure “if they cannot show that their nonbank operations can be resolved in bankruptcy without systemic disruptions.” According to Bair, megabank operations should be “simplified and subsidiarized” into “discrete, separately managed legal entities” based on business lines.

Bair said that breaking up megabanks entirely “is an attractive option,” but she doubts “there is sufficient support in Congress for passing legislation to break them up.” I’m sure she meant no disrespect to Senator Brown’s and my legislative talents.

Stand-alone institutions would be easier to manage and supervise. They would also be far less messy to resolve. Even if the enterprise became insolvent, many subsidiaries could still operate relatively normally. Stand-alone units could be sold or spun off without significant disruption to the enterprise or to the financial system. They would also enlist the help of the market in supervising megabanks.

Market participants cannot realistically assess the assets and liabilities of a megabank any more than a regulator can. They assume that megabanks are still too big to fail, so they will get paid one way or another. If market participants knew they could be paid only from the assets of the specific subsidiary with which they did business, they would consider that subsidiary’s assets and potential liabilities.

That diligence is part of “market discipline,” a drastic change from the unlimited liquidity for every line of business. Governor Tarullo really should consider requiring stand-alone subsidiaries under existing law, just in case Senator Brown’s and my bill hits a snag.

I've said that nothing -- short of waking up on Nov. 6 and finding myself a resident of Ohio or Colorado or Florida-- could get me to vote for Obama again. But if he were to announce that Brad Miller is his choice to replace Timothy Geithner as Secretary of the Treasury... that would do it. Alas, though, he's much more likely to appoint another Wall Street shill, perhaps even Erskine Bowles, also from North Carolina, but, unlike MIller, from the anti-populist part of that state.

The Unemployment Numbers Might Be A Good Sign-- But Sheila Bair Actually Wants to Take Some REAL Action

Sheila Bair: Time for action!

The Administration was jumping up and down holding it's wiener this morning when it was announced that unemployment is now "only" 10%, down from 10.2% (11,000 job losses for the month). The great turnaround has come! Maybe. Or maybe there are a just lots more "discouraged workers" who have stopped looking for jobs. Unfortunately, it is also the excuse the Administration is using to refrain from making much needed investments in job creation and the second phase of a Stimulus bill. Bernanke, fighting for his job in an increasingly contentious confirmation battle, actually seems to be making a play for Republican Senate votes by advocating cuts in Social Security and healthcare benefits.

After the data was released economist Dean Baker penned a good look at this, Unemployment Edges Downward, as Employment Loss Slows that goes through all the facts and figures and closes with his assessment:

On the whole, this report is much better news than we have seen since the decline accelerated last September. Still, there is no evidence in this report of anything resembling a robust recovery. It is likely that the economy will continue to shed jobs for at least another month or two and it may be several more months before job growth is fast enough to keep the unemployment rate from rising. And, there are many risks that could make this picture less pleasant.

Christina Romer, chair of the White House's Council of Economic Advisors isn't emphasizing that "could make this picture less pleasant." Her own assessment is that the data is that "the most hopeful sign yet that the stabilization of financial markets and the recovery in economic growth may be leading to improvements in the labor market."

Others who share the fear that we do that this could be used as a wrong-headed excuse to dial back on aggressive ameliorative efforts in the economic arena and that nothing more needs to be done because "the market" has it all under control now, are no less concerned this month than they were last month. The AFL-CIO has a more realistic outlook on this by Tula Connell who agrees with the Economic Policy Institute's Director, Larry Mishel who says he would "not interpret this decline as the beginning of an ongoing reversal in the unemployment rate. In fact, the jobs situation likely will worsen for up to the next 12 months, he says. One reason: There is a backlog of people who dropped out of labor force who will come back in-- up to 3 million jobless workers. And when they start looking for jobs again unemployment will rise."

Tula's point-- in line with what Krugman has been saying as well-- is that if we don't aggressively spend money now to address the real unemployment problem, the deficit and the nation's economy will be in far worse shape in a very short time. Remember, we're in the midst of the deepest payroll downturn since the Great Depression and that even the jobs that are being created aren't really the kinds of good jobs that can sustain middle class lifestyles.

Eric Massa (D-NY), took time out fighting against Obama's Afghanistan escalation plans to address the release of the unemployment numbers. His, like many in Congress, was a measured, mildly optimistic point of view. "I am cautiously optimistic, but I think we are headed in the right direction. The 111th Congress has worked very hard to create jobs and improve our economy which was in freefall when we took office. This is a lot like being given the controls of an airplane while it's in a full nosedive-- it's been discouraging to have lost altitude during the last year, but top economists are saying that we're almost leveled off and ready to start climbing again. I never read too much into individual month-to-month reports like this, but we are working very hard to create an improved economic environment and I am hopeful that we will see improved numbers in the New Year. I remain fully committed to making this happen to the best of my ability."

Much better news than this data was an announcement yesterday from Sheila Bair, the Chair of the FDIC (one of Bush's only good appointments ever to anything), that they're looking into the idea of reducing the principal on as much as $45 billion in mortgages the FDIC has acquired from failed banks. The earliest opponent of Bush's Wall Street bailout, she's lost patience with the Wall Street-centric Treasury Department and their lame, timid and failed excuses to sweet-talk (or "embarrass") the banksters into modifying distressed mortgages. Remember, the FDIC has taken over something like 120 failed banks. She wants to cut the principle of all those mortgages they inherited. She should; in fact, that's what Obama's team should have done six months ago.



(If you enjoyed that clip, you can watch the whole presentation here.)