Paul Ryan's And Trumpy-the-Clown's Vision For America Is Very Dark And Horrifyingly Kafka-esque

You may well have woken up yesterday to Señor Trumpanzee's tweet (below), taking-- or at least sharing-- the "credit" with congressional Republicans obsessed with destroying the consumer protections the Democrats made some terminative steps towards implementing-- despite obstruction from the corrupt Blue Dogs and even more corrupt New Dems from the Republican wing of the Democratic Party-- while they were in power. House Republicans-- led by Wall Street whores Paul Ryan ($10,328,395), Jeb Hensarling ($7,746,848), Ed Royce ($7,281,557), Pat Tiberi ($6,594,495), Kevin McCarthy ($6,528,867), Peter Roskam ($4,548,803), Steve Stivers ($4,512,937) and Patrick McHenry ($4,396,186)-- have been furiously chipping away at Dodd Frank protections. So how does this manifest itself in the real world and what does it do to real people?

Republicans-- along with their Blue Dog and New Dem allies like Joe Crowley ($6,477,659), Steny Hoyer ($6,073,548), Carolyn Maloney ($5,751,077), Jim Himes ($5,749,252) and Kyrsten Sinema ($2,015,020)-- literally want to make it easier for their bankster campaign donors, the people who finance their careers, to rip off their customers with impunity. An exaggeration? Not at all. Have you heard about the new class action law suits-- which the GOP wants to ban-- accusing Wells Fargo of racketeering and fraud involving over half a million customers of the bank they were stealing from? That's very precisely what Paul Ryan's "free market" Ayn Randian vision looks like in the real world. Wells Fargo-- caught red-handed-- now admits having charged hundreds of thousands of customers doing business with them for car loans for insurance they did not ask for or need, causing nightmares in the lives of countless Americans who have been left on the side of the road by conservatives as prey for the banksters.

After the NY Times exposed the scam, Wells Fargo begged for mercy late last week and promising to refund about $80 million to over half a million customers they were caught stealing from-- including at least 20,000 people whose vehicles were illegally repossessed. Last night I heard a personalized version of the scandal on NPR's All Things Considered.

Who Snatched My Car? Wells Fargo Did

Wells Fargo is back in the spotlight for another scandal. This time, for signing up 490,000 auto-loan customers for insurance they didn't need.

This comes less than a year after the bank generated a massive public outcry for opening millions of unwanted accounts for customers.

Customers who already had car insurance say they had no idea they were being charged for this insurance from Wells Fargo. And the bank acknowledges that tens of thousands of people wound up in default, which affected people's credit scores, and thousands had their cars repossessed.

One of them was Michael Feifer.

One morning in February, he was heading off to his job in Maryland at a company that builds guitars. He walked to the spot where he'd parked his car, but it wasn't there.

"I called the police," he says. "I was livid. I thought somebody stole my car."

Somebody had improperly made off with Feifer's car. But it wasn't a car thief. It was Wells Fargo bank. The police informed him of this when he called them. "That's when I found out it was repossessed," he says.

Feifer says he had no idea why the bank would repo his car. He says his payments were automatically taken out of his checking account.

"I've never missed a payment," he says. "My insurance was current."

So he called Wells Fargo and found out the bank had put another insurance policy on his car. Lenders do this when a borrower doesn't have insurance. Wells Fargo calls it collateral protection insurance, or CPI.

And there's nothing wrong with that, but Wells Fargo imposed this insurance on nearly a half-million people who already had insurance. The bank outlined the scope of the problems and its efforts to resolve them in a statement.

Right after Feifer's car got repo'd, Wells Fargo told him he was marked as delinquent for not paying this insurance-- which he didn't want or need or even know about. "They said, well, you owe $1,500," he says.

..."I showed up at that bank with my bank statements showing all the payments I made for my vehicle and my proof of insurance showing that I've never had a lapse in my insurance," he says. "The people at the bank were like, 'Well, you shouldn't owe anything because it's not your fault.' They were just as confused as I was."

Feifer says the branch employees were trying to be helpful. They called up the Wells Fargo department for him that deals with car repossessions to find out what was going on. They kept getting put on hold.

"We were probably on hold for a total of 2 1/2 hours while I was in there," Feifer says. "I literally spent the whole day" at the branch. He says the employees were getting frustrated too. "They're like, 'This is ridiculous. You shouldn't be on hold for this long.'"

What Feifer didn't know was that Wells Fargo had already been doing an internal investigation into complaints from lots of customers for the same insurance mix-up.

Feifer was eventually told to call back several days later. Then he was told there was no record of his prior calls from the branch. He said the person he spoke to on the phone wouldn't let him talk to a supervisor. "She was rude to me, talking over me. I felt like she wasn't willing to hear anything I had to say," Feifer says. He says the Wells Fargo representative just kept telling him he had to pay the money.

Meanwhile, Feifer was told that the clock was ticking and his car would be auctioned off two weeks from the day it was repossessed. So, after much haggling with the bank, he paid about $600 to get his car back.

Feifer said he figured this was just some freak mistake. But when he heard this insurance issue affected hundreds of thousands of customers, "I was blown away," he says. "I wasn't alone in it and I felt like they're preying on everybody, taking people's money. I felt like they're crooks."

Roland Tellis, a lawyer for the plaintiffs, doesn't want to let Wells Fargo off the hook with their attempt to pay the $80 million. "Wells Fargo has long lost the right to decide what is best for its customers... Refunds don't address the fraud or inflated premiums, the delinquency charges, and the late fees. It will be up to a jury or court to decide the appropriate remedy." And that's where Ryan and the House Republicans come in. They're trying the abolish these kinds of class law suits and doing everything they can to make it more difficult for the public-- their own constituents-- to protect themselves from this kind of predatory behavior. Traditionally, Democrats have stood up against this kind of crap-- it was FDR, for example, who popularized the term "banksters"-- but certainly since the Clinton presidency and the rise of the New Dems, the role of Democrats in this equation had become less clear, more murky. In his interview last week with David Sirota, for Thomas Franks explained why "the Democratic Party is in deep trouble... The Democrats very gradually, but definitely, abandoning the interests of working-class voters, identifying themselves instead with a more affluent group, with the affluent white-collar professionals. It starts in the 1970s with the Democrats removing organized labor from its structural position in the Democratic party, and then it goes up through Bill Clinton getting NAFTA done, the free trade deals that the Democrats have ... By the way, in my opinion, free trade or the trade agreements, I should say, was probably the issue that if there was one issue that really did Hillary in, I think that's what it was: the trade deals under the Clinton administration, Obama sort of dropping the ball on labor's various issues, doing these incredible favors for Wall Street while he blew off the concerns of union. The ultimate evidence is what's happening with inequality. It gets worse and worse and worse every year. It's very easy to show how the Democrats have forgotten about organized labor, but what is really striking is the passion that they show for the knowledge industries, which includes Wall Street, Silicon Valley, big pharma, that sort of thing."

The Democratic party [used to be] this sworn enemy of Wall Street. Franklin Roosevelt broke up all of these banks, the Glass Steagall Act, put all these banks out of business, and set up the Securities and Exchange Commission to regulate these guys, all of these regulatory measures. That's the Democratic heritage. That's the legacy of the New Deal. Up until the days of Clinton, that's really who the Democratic Party was. They had a very populist tone, and they would never identify themselves with Wall Street.

Barack Obama comes in, and I was one of these people who thought that he represented a turn back in the other direction and that he would be, very shortly would be, getting tough with Wall Street. He had all the bailouts were underway. He had total authority over these guys, and he didn't do it. Instead, he appointed all these various Clinton people to come in and manage the bailout situation.

And now we have a pipsqueak from New Mexico, as head of the DCCC, aiming to make it worse by recruiting and financing Blue Dogs and New Dems to further take over the Democratic Party. UGLY! South Bay congressman Ro Khanna has increasingly become one of the strongest and most powerful populist voices on economic issues for progressive Democrats. Last night he reminded us that "Democrats need to have a substantive platform for the middle class, not just a rhetorical one. This means standing up for labor unions. It means standing up for class action lawsuits. It means standing up for basic consumer protections and against economic concentration. We don't need fancy consultants to come up with a message. We need to stand on the side of people against powerful economic interests and be true to our roots."

Katie Porter, a respected academic who has written extensively about consumer protection and is now running against a Republican rubber stamp who opposes it-- Mimi Walters-- with Elizabeth Warren's backing, told us that "Whether we're talking about increases in outrageous banking fees, the latest Wells Fargo product scam or the fraud that occurred in the housing market ahead of the 2008 collapse, all of it has one thing in common-- Wall Street banks engaged in systemic fraud against consumers and knew Washington would let them get away with it. I witnessed this phenomenon firsthand in my own work as a consumer advocate. These banks planned and accounted for the profits they would reap from predatory actions against consumers. Companies like Well Fargo built their business model around cheating consumers! But while Washington made some headway fighting abuses after the 2008 crisis by creating the CFPB and passing Dodd-Frank (against intense opposition from the industry and pro-Wall Street politicians), Trump and members of Congress in both parties once again are trying to make it even easier for Wall Street to break the law and reap major profits from defrauding working families. Those are completely backwards and reckless priorities, and fighting those attempts is one of the biggest reasons why I'm running."

The other progressive Democrat hoping to win the CA-45 congressional district is Kia Hamadanchy, a young attorney who worked on the staff on Banking Committee ranking member Sherrod Brown. This issue is in his wheelhouse as well and yesterday he told us that "Time and time again institutions like Wells Fargo have demonstrated that as soon as people let up or stop paying attention that they will not hesitate to take advantage of their customers and bleed them dry. One of the things we learned in the aftermath of the financial crisis was how much of the business model at many of these institutions was premised on the ability to rip off consumers. It's no surprise that they're pushing for Members of Congress '"if men were angels, no government would be necessary.' What we know is that the best predictor of future behavior is past behavior and what that tells us that its certainly not angels who are running these institutions and that they are in need of constant and relentless oversight."

  Maxine Waters and Dan Kildee, the ranking and vice ranking Financial Services Committee Democrats, asked the crooked Republican chairman, Hensarling, to call Wells Fargo’s top executives, CEO Timothy Sloan and Chairman Stephen Sanger, for a hearing "about ongoing violations of consumer rights, any lessons learned from the egregious behavior of the bank’s fraudulent opening of millions of unauthorized accounts, and what concrete steps are being taken to address all of the problems that have come to light." Last year Wells Fargo gave Hensarling a nice fat $10,000 bribe. Other crooked members of the House Financial Services Committee who accepted substantial bribes from Wells Fargo last year while they were investigating Wells Fargo's crimes were:

• Ann Wagner (R-MO)- $18,600
• French Hill (R-AR)- $15,250
• Vice Chair Patrick McHenry R-NC)- $15,100
• Keith Rothfus (R-PA)- $14,800
• Ed Royce (R-CA)- $12,500
• Frank Lucas (R-OK)- $10,000
• John Delaney (New Dem-MD)- $9,500
• Tom Emmer (R-MN)- $9,150
• Robert Pittenger (R-NC)- $8,500
• Sean Duffy (R-WI)- $7,500
• Blaine Luetkemeyer (R-MO)- $7,500
• Carolyn Maloney (New Dem-NY)- $7,750
• Denny Heck (New Dem-WA)- $7,000
• Steve Stivers (R-OH)- $7,000
• Randy Hultgren (R-IL)- $7,000
• Jim Himes (New Dem-CT)- $6,500
• Bill Huizenga (R-MI)- $6,500
• Kyrsten Sinema (Blue Dog-AZ)- $6,100
• Mia Love (R-UT)- $6,091
• Andy Barr (R-KY)- $6,000
• Dennis Ross (R-FL)- $6,000

When crooked New Dems and Blue Dogs from the Republican wing of the Democratic Party are taking bribes from the same sources that pay off the crooked Republicans... well, that leads to a very special kind of bipartisanship. doesn't it. And Lujan and Pelosi want to recruit more of this garbage for the Democratic congressional caucus.

Why No Wells Fargo Executive Will Be Prosecuted

Cartoon by Steve Sack ©2016, The Minneapolis Star Tribune (source)

by Gaius Publius

A follow-up to this recent piece — "A Clinton Speech to Millennials That Will Work" — in which my hoped-for Hillary Clinton says, among other things, that she will start a criminal investigation of Well Fargo executives for criminal fraud. In that (sadly, fictional) speech she cites several recent Justice Department investigations of banking heavyweights that found criminal behavior, yet produced no indictments.

That information came from this piece by Jesse Singal in New York Magazine, and in particular an interview with Notre Dame law professor Jimmy Gurulé.

The relevant section (my emphasis):

If you took a cursory glance at the agreement that has been struck between the CFPB and Wells Fargo, you might find reason to be optimistic about the possibility of a full-blown criminal investigation by the feds. While the document does grant immunity to the bank itself for any of the crimes that have been uncovered up to this point, it specifically mentions that other than that, nothing in the agreement prevents other government agencies from continuing the investigation — meaning the DoJ is still free to go after individuals. (A CPFB spokesperson said the agency doesn’t comment on possible referrals to the DoJ, and the DoJ declined to comment. I have an email out to the DoJ itself, and will update this post if the agency responds.)

But Jimmy Gurulé, a law professor at Notre Dame who specializes in money laundering and terrorist financing, and who has closely followed federal responses to malfeasance on the part of big banks, said he’s quite skeptical. In a phone call, he rattled off many recent instances of banks engaging in massive criminal activity, and coming away only with monetary punishments.

To take just a handful of them: In 2012, Standard Chartered was found to have violated the U.S.’s economics sanctions by moving hundreds of billions of dollars for Iran, and settled for $330 million. In 2012, federal investigators found that HSBC had, as the Times put it, “transferred billions of dollars for nations under United States sanctions, enabled Mexican drug cartels to launder tainted money through the American financial system, and worked closely with Saudi Arabian banks linked to terrorist organizations.” HSBC paid $1.92 billion. Then there was Barclays in 2010 — a fine of $298 million for illegal dealings with Cuba, Iran, Libya, Sudan, and Myanmar (before reluctantly approving the settlement, the judge in that case called it a “sweetheart deal”). Also, Credit Suisse in 2009: it settled for $536 million in connection with similar charges.

In many of these cases, the banks entered into what are called deferred prosecution agreements, with the DoJ effectively saying, “We have what we need to issue indictments right now, but if you make certain reforms, and pay a fine, we’ll table and eventually drop the charges.” Each scandal is different, but they share one commonality, other than the massive sums of money involved: “In all those cases I’ve listed, not one single individual spent a single day in jail for the criminal activity that justified those monetary penalties,” said Gurulé. And as he pointed out, full-blown investigations have benefits beyond simple punishment and deterrence: Authorities with subpoena powers can uncover important details about exactly who played the biggest roles in orchestrating and perpetuating a pattern of illegal activity, helping regulators and others prevent repeat acts in the future.

This explains in detail that bankers are never held accountable. As to why they're not held accountable:

The question of why the feds basically never target individuals in these cases is complicated. It would seem like an easy political, moral, and social-norm win: Punish the individuals who committed huge financial crimes, making it clear that such conduct is unacceptable and can’t be paid for with cash alone. But as one former government official who had been involved in money-laundering cases told me in 2012, sometimes building a strong case against individuals can be difficult given how big and complicated banks are, and sometimes, even when there is evidence, that evidence points not to the C-suite suits, but middle-manager types. It may be, he explained, that at the start of an investigation, there’s an appetite among investigators for convictions, but that a few months or a year in, the government realizes that its most favorable bang-for-the-buck outcome is the announcement of a rich-seeming deferred prosecution deal.

The explanation above is certainly reasonable-sounding, but it misses two points.

First, putting even middle managers in jail (or at least, before the court) sends a message that "next time, you may be next." The threat of actual jail, even in Club Fed facilities, is greater by several orders of magnitude than the threat of an executive having to pay a fine in the institution's name, not his own, with stockholder money. At this point, any banker in jail is a major step up from no banker in jail. You have to start somewhere, assuming you intend to start at all.

Second, it misses the cultural corruption of the Department of Justice, in which its top people often came from "white shoes law firms" that regularly represent clients the Justice Department may contemplate jailing. Then, when those top officials are finished working for the DOJ, they often return to those firms. Why would they want to jail their past and future clients?

Eric Holder's Revolving Door

A prime example is Eric Holder, our most recent ex-Attorney General. Lee Fang at The Intercept:

Eric Holder Returns as Hero to Law Firm That Lobbies for Big Banks

After failing to criminally prosecute any of the financial firms responsible for the market collapse in 2008, former Attorney General Eric Holder is returning to Covington & Burling, a corporate law firm known for serving Wall Street clients.

The move completes one of the more troubling trips through the revolving door for a cabinet secretary. Holder worked at Covington from 2001 right up to being sworn in as attorney general in Feburary 2009. And Covington literally kept an office empty for him, awaiting his return.

The Covington & Burling client list has included four of the largest banks, including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo. Lobbying records show that Wells Fargo is still a client of Covington. Covington recently represented Citigroup over a civil lawsuit relating to the bank’s role in Libor manipulation.

Covington was also deeply involved with a company known as MERS, which was later responsible for falsifying mortgage documents on an industrial scale. “Court records show that Covington, in the late 1990s, provided legal opinion letters needed to create MERS on behalf of Fannie Mae, Freddie Mac, Bank of America, JPMorgan Chase and several other large banks,” according to an investigation by Reuters.

The Department of Justice under Holder not only failed to pursue criminal prosecutions of the banks responsible for the mortage meltdown, but in fact de-prioritized investigations of mortgage fraud, making it the “lowest-ranked criminal threat,” according to an inspector general report.

It has to be asked at this point — who was Eric Holder's client while he was at the Justice Department? Perhaps the Occam's Razor answer is ... Eric Holder.

Could Lack of Wall Street Prosecutions Put Trump in the White House?

This leads both me and Professor Gurulé to be both certain there will be no Wells Fargo criminal prosecutions, and certain that this is a dangerous pattern for the country to be following.

“It’s very troubling for me,” said Gurulé. “I’ve been harping on this issue for at least the last four or five years — that at the end of the day, no one individual is held accountable.” At this point, he said, the country seems to be mired in a “double standard of justice” when it comes to crimes committed by banks. ... “That strikes me as wrong, and it really undermines the public’s confidence in the criminal justice system.”

Which takes us back to my earlier piece on Clinton and the way to win the support of millennials. This is the danger — that this kind of insider self-dealing might well help cost Clinton the presidency, might well help put Donald Trump, a man being used, among many things, as a "human Molotov cocktail" thrown at the entire corrupt system, into the White House.

At that point, the country could really come apart, and not just electorally. How might the country come apart under a President Trump? I'll leave you to think that through, but once down that speculative road, you may find the ways become pretty clear.

GP
  

A Clinton Speech to Millennials That Will Work

The cost of college compared to other consumer costs, 1985–2011 (source; click to enlarge)

by Gaius Publius

"I feel like a lot of the stuff Hillary does, you can see when she is trying to, like, earn the youth vote, and it just doesn't work," Nick Chanko, 20, who goes to school in Montreal but votes in New York, told the New York Times. [source]

It's not news that Hillary Clinton is struggling, struggling mightily in fact, to attract millennials in sufficient numbers to put the election out of reach:

The youth vote was one of the pillars of the Obama coalition. But thus far it’s proven perhaps the most difficult one for Clinton to rebuild. Polls show the nominee failing to earn the confidence of young voters—only 33 percent of those between ages 18-29 told Gallup this month that they approved of her—and running far behind where she would hope to be against her Republican opponent. The polls also show Clinton currently winning under half their votes, while Obama got over three-fifths of that demographic in both of his campaigns.

Many people in the Dem establishment are asking the question: How can we get millennials to vote for us?

There are a lot of plans that don't work and won't work, like appearing on an impossibly awkward edition of Between Two Ferns (awkward for both her and the host; Clinton actually had the best ad-lib), or rolling out Bernie Sanders at colleges. Regarding Sanders, Bernie stood for what Bernie stood for, and people, not just millennials, loved him for it. Will they love Clinton if the solution is Bernie Sanders now saying, "Hillary Clinton is a strong progressive too"?

Millennials won't be swayed if Sanders says it, true or not. In this transaction, it has to start with the candidate. Clinton has to make it true. In other words, no matter what changes the DNC makes to, say, its super-delegate rules, or (god forbid they should even consider it) the way they go about raising money, if Hillary Clinton wants to attract Sanders supporters, the move must be hers to make.

The good news is, there is a plan that will work. In this plan, Hillary Clinton gives the following speech about four simple issues. I picked these four. She could have picked others. But either way, if I heard a speech like this, I would find it very convincing.

Do you agree? Read on.

Hillary Clinton's Pitch Speech to Millennials

How would you respond if Hillary Clinton gave the following address?

Good evening.

Tonight I'd like to lay out four proposals that I think are important, both for the nation and for the nation's young people, the next generation for whom we are preparing the world. These are the people who will inherit the world we're building — indeed who are starting to inherit the world even as we speak.

These are the people in our nation's colleges ... the youngest people in the nation's workforce ... the youngest in our country's military. And yes, sadly, these are also the youngest people among the millions suffering from joblessness.

I'm keeping this ... conversation ... to just four issues this evening because I don't want to focus on too many at once. I'll address other critical issues, like climate change and racial justice, in due time. But the ones I will focus on tonight should give everyone watching a very clear idea of where I stand — on jobs, on justice for economic criminals, and on the burden of student debt.

I know these are issues of critical importance to everyone tuning in. Please hear me out.

Issue One — TPP.

Clinton is still speaking:

There is no question that our jobs are going overseas, and no question that unfair trade deals are one of the major causes. I've already said NAFTA didn't work, that it was a disappointment. For the same reason, I've already announced that I oppose TPP as it's currently written, and I said publicly that changes need to be made to it to protect the future of jobs in America.

I still think that. So here's what I will do about TPP as your president:

First, if Congress passes TPP and President Obama signs it, I promise to invoke Article 30.6, called the Withdrawal clause, and immediately withdraw from the TPP.

I will then order that it be renegotiated — under the public eye, in full transparency — so that the higher standards I've already set for this treaty are met.

Next, if Congress does not pass TPP before the election — and I strongly urge them not to — I will start renegotiations as soon as I take office; again, in full view of the public.

Finally, whether I'm the president-elect or not after November 8, I promise to vigorously lobby Congress members not to pass TPP as written if it comes up in the lame duck session.

You can watch me do it.

From the TPP Agreement text:

Article 30.6: Withdrawal

1. Any Party may withdraw from this Agreement by providing written notice of withdrawal to the Depositary. A withdrawing Party shall simultaneously notify the other Parties of its withdrawal through the overall contact points designated under Article 27.5 (Contact Points).

2. A withdrawal shall take effect six months after a Party provides written notice to the Depositary under paragraph 1, unless the Parties agree on a different period. If a Party withdraws, this Agreement shall remain in force for the remaining Parties.

Issue Two — NAFTA.

Clinton is still speaking:

What I said I would do about TPP, I will do about NAFTA as well. We're all disappointed with the result. As your president I will act on that disappointment and force it to be renegotiated, as I promised to do in 2008, by threatening to use Article 2205, the Withdrawal clause, in order to start immediate renegotiations.

I gave my word in 2008. I will keep my word in 2017.

From the NAFTA Agreement text:

Article 2205: Withdrawal

A Party may withdraw from this Agreement six months after it provides written notice of withdrawal to the other Parties. If a Party withdraws, the Agreement shall remain in force for the remaining Parties.

Issue Three — Bankers and Fraud.

Clinton is still speaking:

Next let's look at justice, for now just one aspect — evenhanded criminal justice.

I know that many people are frustrated with what has seemed to them my overly close relationship with Wall Street. I'm here now to prove those people wrong.

I also know that may people think that much of what has been going on in the run-up to the 2008 crash and afterwards is fraudulent, in many cases, fraudulent on its face.

Many Wall Street firms and other major banks have paid heavy fines for their actions — for example, the HSBC money-laundering case in 2012; the Standard Chartered Iran sanctions case, also in 2012; the Barclays case in 2010; and the Credit Suisse case in 2009.

But fines are not enough. If similar actions were performed by the small business women and men of middle America, they'd be facing criminal charges and would be forced to defend their actions in court, as is their right, and would face jail if found guilty.

So I promise to you, the days of Wall Street executives — or indeed, executives of any powerful firm — not having to appear in criminal court for actions that would put any ordinary American citizen in court ... those days are over.

I will start, as soon as I enter the Oval Office, with a criminal investigation of Wells Fargo and its executives conducted by the Department of Justice. Yes, I said criminal investigation.

Issue Four — Student Debt and a Debt Jubilee.

Hillary Clinton is still speaking:

I want to close with this, how I will address the unconscionable magnitude and weight of student debt.

Both Senator Sanders and I agree that the burden of student debt in this country is beyond unbearable. In addition, student loan availability drives the cost of tuition in this country, which has sextupled since the 1980s. Sextupled!

In fact, tuition in the U.S. has risen at almost twice the rate of medical care, more than twice the rate of gasoline, at three times the rate of most consumer goods — all while the incomes of most Americans are essentially flat.

Student debt also drives the rate of despair among our young people, who leave college with what feels like a mortgage, but without the house, and often, without a job in the career they prepared for. And they see no hope in sight, not from their president, nor from their Congress.

This is unacceptable. As president, I will not only address the whole issue of student loans and college tuition — as I said I would do in my platform — but I will do one more thing.

This may not endear me to the bankers some say I'm too close to, but it must to be done. We must free this generation of young people ... and I mean to do it.

To the greatest extent I can, using the power of the executive branch, I will announce and implement a policy of debt forgiveness — a student loan jubilee. And I will challenge every lending institution in this country to follow my example.

This will happen within the first 90 days of my administration. You can watch if you like.

Four simple issues, four of many I could have chosen, all of great importance to prospective millennial voters, especially given their popularity during the Sanders campaign. And note — no hedging, no loopholes, no equivocation. Language like this would be a direct challenge to the voters; they will either believe her or dismiss it completely. Language like this would leave no middle ground.

Don't you think, if millennial voters heard this stark, plain speech, they'd give her candidacy a second chance, their serious consideration? I do.

Donna Brazile and the folks at the DNC, you might give this approach some of your own serious consideration. It's so direct and clear, it's almost guaranteed to work. It's certainly better than what's been going on lately. And no one wants The Donald to win this race.

GP
 

Wells Fargo CEO at Senate Banking Committee: Five Takeaways

Part two of Elizabeth Warren's grilling of Wells Fargo CEO John Stumpf. The person Warren refers to at the start is Carrie Tolstedt, the Wells Fargo senior executive who managed the scheme.

by Gaius Publius

I want to revisit the testimony of John Stumpf, Wells Fargo CEO, before the Senate Banking Committee, even though it was covered in these pages here. The focus of the earlier article was to list which members of that committee took pay-offs (campaign contributions) from the banking industry in general and Wells Fargo in particular (do click; it's an interesting list).

Here I want to focus on Stumpf's testimony itself, thanks to a nice analysis by Yves Smith at Naked Capitalism. Smith is quite familiar with the finance industry, having been part of it for many years.

The backstory is that Wells Fargo has been accused of having fraudulently opened thousands of unwanted customer accounts — opening credit card accounts, for example, for its mortgage customers — in order to sweeten its bottom line (fees and charges) and also sweeten its stock price (telling analysts, "Look at how successful we are at engaging our customers in more of our products than other banks are.")

The Consumer Financial Services Protection Bureau, the Los Angeles City Attorney, and Office of the Comptroller of the Currency fined Well Fargo a total of $185 million for opening unauthorized customer accounts, which the bank then used to charge fees. The bank has also agreed to make restitution to the defrauded customers. As the New York Times reports:

Wells Fargo employees opened roughly 1.5 million bank accounts and applied for 565,000 credit cards that may not have been authorized by customers, the regulators said in a news conference. The bank has 40 million retail customers.

This was an astonishingly brazen, large-scale effort, clearly a systematic, institutionalized campaign. It is virtually impossible for senior executives not to have known what was going on.

In the clip above Stumpf doesn't consider this a major problem, yet the scale of this fraud is breathtaking.

Now let's look at the aftermath, as Smith sees it. She begins her piece:

It’s a safe bet that Wells Fargo CEO John Stumpf will be turfed out in the next ten days. Not only did he break the cardinal rule of executive survival, namely, throw someone under the bus when the going gets rough, but he couldn’t even manage a credible show of contrition and groveling after a massive fraud took place on his watch.

As one Senator noted, the Wells Fargo fake accounts scam achieved a difficult feat: “For the first time in ten years, you have united this committee, and not in a good way.” Even Republicans like Paul Toomey used the “f” word, as in “fraud”.

The chamber was packed, and the toughest interrogation came from Sherrod Brown, Bob Menendez, and of course, Elizabeth Warren, who reached new levels of bad-assery.

You can see that bad-assery in the clip. If you watch it, do stay for the last minute, in which Warren accuses Stumpf of allowing this scheme to continue because he personally benefited from it to the tune of a $200 million increase in the value of his Wells Fargo stock holdings. Control fraud at its best.

Here are four takeaways via Yves Smith, and one from me, regarding these hearings and Stumpf's appearance.

1. How Wells Fargo's Control Fraud Worked

Some of what Smith concludes, having listened to the hearings:

Wells Fargo had obvious, glaring control deficiencies that appear designed to give Stumpf and his fellow execs a “whocoulddanode?” excuse. The main audit functions sat in the business units, not the at the corporate level. It is a basic failure to have control functions report into profit centers. This is the structure that led to JP Morgan’s London Whale debacle and elicited incredulous reactions all over Wall Street. Tom Curry of the Office of the Comptroller confirmed that this was a serious deficiency. But that begs the question: how did regulators give this foxes run the henhouse organization a free pass?

Be sure to think that one through. The way this works is simple. If the auditors work for the boss of the profit centers, they're under the control of those bosses — hired, fired, promoted, demoted by them — and have every incentive to not blow the whistle. Again, control fraud.

Also:

Despite saying he’d take full responsibility, Stumpf did nothing of the kind. Even though the press had already found a branch manager (who was later fired) warning him of abuses in February 2011, he says he didn’t have any idea there was a problem until sometime in 2013....

Smith adds more to the argument, but the bottom line is simple. Even though he said he didn't know, there's evidence he did.

2. No One Who Benefited Will Have to Give Money Back

Now about clawbacks — the bank taking back the money it gave to its fraudulent executives, in this case Strumpf and Carrie Tolstedt, the Wells Fargo senior executive who managed the scheme:

Stumpf refused to consider clawbacks. Stumpf will go down over this issue. He’s clearly more attached to keeping his gains than keeping his job. But what was revealing was his refusal to entertain them even for the conveniently recently retired Carrie Tolstedt, who is leaving with an exit package of an estimated $125 million in cash and equity prizes. Note that the financial press has reported that $17 million could be clawed back under the bank’s rules. When pressed, even though Stumpf kept maintaining the party line that Tolstedt had resigned, he said that the bank “wanted to go in a different direction” which is code for “she was forced out”.

Senate Banking Committee chairman Richard Shelby rejected Stumpf’s refusal to consider clawbacks: “Explain to the public: What does accountability look like when an executive departs with millions of dollars?”

Tolstedt walks away (in retirement, not after being fired, as Warren discusses in the video above) with $125 million, almost as much as Wells Fargo will pay in fines ($185 million). Strumpf will walk away with his stock portfolio sweetened by $200 million. Much of his Wells Fargo stock was almost certainly given to him by the bank as part of his compensation package.

3. Criminal Charges?

Will there be criminal charges, at least against the bank?

Some of the actions look to set up a criminal case. I’m getting out in front of serious legal analysis, but some of the actions were so rancid that they would seem to set up criminal charges. The San Francisco bank would transfer money from deposit accounts to cover fees in unauthorized credit card accounts. In addition, bank employees would forge customer signatures to create phony accounts.

In many ways, this is worse than the robosigning scandal...

Again, Smith has more, including the fun fact that one of the products that was fraudulently "sold" to unknowing customers was ... fraud protection.

4. How Will Wells Fargo Undo the Damage to Customers?

Smith makes several more points (do click through), but I want to close with just one more from her before passing to a point of my own.

Keep in mind that part of the damage done to customers is this: Customer credit scores were negatively impacted by these accounts. Some customers with lower credit scores, for example, could easily have those scores dropped even lower simply by credit inquiries from Wells Fargo and by the appearance of even more credit accounts on their records. Others were certainly impacted by the appearance of unpaid late fees on these unwanted accounts.

That results in real monetary damage, since it impacts the cost of loans those customers might want to take out, including mortgage loans. So the question is, how is Wells Fargo going to repair the damage done to its customers' credit scores. Again, the scale is huge; Wells Fargo issued over 500,000 unsolicited credit cards.

Here's Smith's smart observation on Wells Fargo's proposed "remedy":

Stumpf conned the Senators and regulators about his credit score remedy, which is not about helping customers, but more damage control by the bank. Stumpf was pressed repeatedly on how he’d repair customer credit scores. And the correct answer isn’t hard: tell the credit agencies for each and every one of the over 500,000 credit cards that the credit reports should never have been pulled on them and that any late charges were the bank’s fault.

But that isn’t what Wells Fargo is planning to do. Stumpf instead said the bank will go through the far more labor-intensive effort of calling each and every customer! Now why would the bank do that?

To sell them again! That is, to try one more time to arm-twist the customers into saying that they will keep the cards, even if Wells faked their application....

In other words, instead of taking the cheaper and faster path — the bank contacts the credit agencies, delivers the list of fraudulent credit card numbers, and takes responsibility for any credit damage done — it wants to call each customer by phone instead. Smith's reasoning is, in my view, exactly right. The bank wants to get them to keep as many of those cards as it can.

Your predatory capitalists at work.

5. Will Stumpf and Tolstedt Go to Jail? Should They? 

Smith says in the comments that she doesn't think Stumpf will see a courtroom, much less jail (that comment section is worth a read, by the way). But he should. The Democratic nominee for president has issued a statement about the Wells Fargo fraud story, telling what she would do. One thing she didn't mention is ... putting John Stumpf and Carrie Tolstedt on trial.

Should she say that? You might contact her campaign and express an opinion of your own. I'm sure they'd be glad to listen to potential voters, since there's an election on.

GP
 

Reich: The Problem Isn't That Sanders Doesn't Know How to Break Up the Banks; It's That He Does

Lloyd Blankfein, CEO of Goldman Sachs. Why isn't he in prison? Friends in high places, a great many of them (source).

by Gaius Publius

I've been wanting to write for a while about all the reasons the bipartisan Establishment — the people at the top running the "big game" that makes them all rich and keeps them in power — can't ever let Bernie Sanders get control of the Executive Branch of government. There are quite a few reasons, including the fact that people like Lloyd Blankfein, CEO of Goldman Sachs, would certainly be prosecuted and most likely jailed for fraud.

But one story that's been making the ginned-up news rounds lately is that Sanders, in an interview with the NY Daily News, seemed in the Clinton camp's telling not to know how to go about executing one of his own policies, breaking up the too-big-to-fail banks.

The problem with that framing — which every news outlet, including the so-called leftie outlets — immediately jumped to support — is that it's exactly backwards. Sanders knows exactly how to break up the big banks, and he will.

And that's the problem Bernie Sanders presents. The problem isn't that he doesn't know how. The problem is that he does know how, and he will.

Robert Reich explains:

Robert Reich: Sanders Knows How to Break Up the Big Banks—That's Why He Scares the Establishment

Of course Sanders knows how to bust up the big banks.

The recent kerfluffle about Bernie Sanders purportedly not knowing how to bust up the big banks says far more about the threat Sanders poses to the Democratic establishment and its Wall Street wing than it does about the candidate himself.

Of course Sanders knows how to bust up the big banks. He’s already introduced legislation to do just that. And even without new legislation a president has the power under the Dodd-Frank reform act to initiate such a breakup.

But Sanders threatens the Democratic establishment and Wall Street, not least because he’s intent on doing exactly what he says he’ll do: breaking up the biggest banks.

And they should be broken up, for our own safety as well as theirs:

The biggest are far larger today than they were in 2008 when they were deemed “too big to fail.” Then, the five largest held around 30 percent of all U.S. banking assets. Today they have 44 percent.

According to a recent analysis by Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corporation, the assets of just four giant banks – JPMorgan Chase, Citibank, Bank of America, and Wells Fargo – amount to 97 percent of our the nation’s entire gross domestic product in 2012.

If this isn't stopped, the next crash will be another "big one," perhaps bigger than 2008, after which there will be some flavor of bailout (or worse), followed by a revolt by everyone, left and right, who already hated the last one. I'd rather not see any of that occur.

What's Sanders' Plan?

Here's the Sanders plan from the Sanders campaign (quoted here):

Within the first 100 days of his administration, Sen. Sanders will require the secretary of the Treasury Department to establish a “Too-Big-to Fail” list of commercial banks, shadow banks and insurance companies whose failure would pose a catastrophic risk to the United States economy without a taxpayer bailout.

Within a year, the Sanders administration will work with the Federal Reserve and financial regulators to break these institutions up using the authority of Section 121 of the Dodd-Frank Act.

Sen. Sanders will also fight to enact a 21st Century Glass-Steagall Act to clearly separate commercial banking, investment banking and insurance services. Secretary Clinton opposes this extremely important measure.

President Franklin Roosevelt signed the Glass-Steagall Act into law precisely to prevent Wall Street speculators from causing another Great Depression. And, it worked for more than five decades until Wall Street watered it down under President Reagan and killed it under President Clinton. That is unacceptable and that is why Sen. Sanders will fight to sign the Warren-McCain bill into law.

I'm sure if Congress initially balks, and it's likely they will, Sanders will persist on the legislative front (as we're seen, he doesn't have much quit in him). But I'm also sure that if Congress fails to pass legislation, "within a year" he'll use every power he has as president to accomplish this breakup from within the Executive Branch. We have a very powerful executive branch, and a big-bank breakup is that important.

About Lloyd Blankfein...

Why isn't the CEO of Goldman Sachs, Lloyd Blankfein, in jail awaiting trial? Eric Levitz in New York Magazine reports on his and his firm's crimes (my emphasis):

Goldman Sachs Admits It Defrauded Investors, Pays $5 Billion Fine

In April 2006, Goldman Sachs provided investors with a bullish report on Countrywide’s high-quality mortgage loans — loans the bank had helpfully packaged into AAA-rated mortgage-backed securities, thereby offering those lucky clients a low-risk way of profiting from America’s housing boom. When the bank’s head of “due diligence” saw the report, he typed a short email to his colleagues: “If only they knew…”

Now we know. On Monday, the bank completed a $5.1 billion settlement with state and local authorities for its role in perpetuating the subprime-mortgage crisis. Goldman is the last of the major banks to pay for its financial-crisis sins, but unlike some of its peers, the firm has agreed to formally acknowledge its malfeasance. While Monday’s settlement does not include a confession of legal wrongdoing, it does contain a signed “statement of facts” that details the various ways Goldman Sachs misled investors about the risks inherent to its mortgage-backed securities. [...]

"Mislead investors" is code for "lied to investors about the facts in order to take their money." Which is code for "fraud." Matt Taibbi:

Re Goldman: if these firms were truly committed to reforming, they would want to serve up guilty execs for prosecution as a cheaper solution

— Matt Taibbi (@mtaibbi) April 11, 2016

So why isn't Lloyd Blankfein in a courtroom counting the days before he wears the orange jumpsuit? Because he has friends in high places, lots of them. Does Blankfein fear a Sanders presidency? Almost certainly, with every fiber of the last remaining shred of his soul.

I wonder who Blankfein is backing...

(Blue America has endorsed Bernie Sanders for president. If you'd like to help out, go here. If you'd like to "phone-bank for Bernie," go here. You can volunteer in other ways by going here. And thanks!)

GP
 

Wall Street Reviews What Sanders Plans for Wall Street

 

The office of Guggenheim Partners (source). The family started the investment firm because it "wanted to make its money work harder."

by Gaius Publius

This has been mentioned in a number of places (for example, here), but the whole document is worth studying as a document. It was produced by a Wall Street analyst who looks at and describes the Sanders plan for sweeping Wall Street reform — for example, for breaking up the big banks, among other proposals. Like much analysis of this type, it's insider-to-insider talk, thus dispassionate and mainly accurate in description, in addition to the advocacy it contains.

As an example, imagine an advisory note that determines whether a stock is worth or not worth your buying it. This is that kind of document. I don't present it for its advocacy, but for its analysis.

Who Is Jaret Seiberg?

The analyst's name is likely unfamiliar to most readers. According to Huffington Post writer Zach Carter, "Jaret Seiberg [is], a regulatory specialist at Guggenheim Partners -- and one of the most astute finance-friendly observers of American politics." Here's Seiberg's biography, from an event at which spoke and moderated, the 2013 Milken Global Conference:

Jaret Seiberg
Managing Director and Senior Policy Analyst, Guggenheim Partners

Jaret Seiberg is managing director and senior policy analyst at Guggenheim Securities Washington Research Group, where he follows the financial services and housing sectors for institutional investors. He has been with the group for nearly a decade after serving as Washington bureau chief for The Deal and deputy Washington bureau chief for American Banker. He began his career following legislation coming out of the savings and loan crisis. Seiberg speaks frequently to industry groups and regulators, including the American Bankers Association, SIFMA, the Federal Housing Finance Agency and the Federal Reserve Bank of Kansas City. He has briefed bank management teams, Congress and congressional staff and is cited often in the media. He has a bachelor's degree from American University in Washington, D.C., and an M.B.A. from the University of Maryland at College Park. 

At that conference, Seiberg moderated a panel on "Global Financial Regulation," a panel that included a sitting U.S. senator, a former Associate U.S. Attorney General and a couple of financial industry directors. The subject was well within Seiberg's area of expertise.

Jaret Seiberg's Note to Clients

Here is most of the full text of Jaret Seiberg's note to Guggenheim's clients (pdf) detailing and analyzing the Bernie Sanders Wall Street plan. (Sanders' speech announcing the plan is here; video here.) Read this advisory to understand (a) the simple-version Sanders plan itself, and (b) what Wall Street thinks it will do.

Seiberg does get a few things wrong, one of them egregiously (see if you can spot it). But first the advisory note, starting with Seiberg's takeaways (bolding within his takeaways is mine):

GUGGENHEIM
THIS MATERIAL IS MARKET COMMENTARY AND NOT A RESEARCH REPORT

January 6, 2016

Election 2016
Sanders Plan Radically Changes Financial System

Financial Services Policy Bulletin
Jaret Seiberg

What Is Happening

Sen. Bernie Sanders outlined a financial reform plan that would result in radical impacts to big banks, credit raters, nonbank financial firms,and payday lenders.

Our View

• Implementation of this plan is unlikely, though we do worry that it will influence how other candidates — conservatives and liberals — approach financial reform. There are also pieces of the plan that could garner bipartisan support.

• More broadly, we believe the speech fits with our theme that the political environment is very populist. Such populism greatly increases the risk of more onerous actions against big banks.

Rest of the Story

Sen. Bernie Sanders yesterday afternoon outlined his vision for how he would reform the financial system. We believe his comments went well beyond what the immediate headlines suggested, which is why we are following them up with an additional note.

On the macro level, we believe there are five key takeaways for investors:

• This is not just about breaking up the biggest banks. Sanders is calling for a system in which financial firms are smaller, the government controls the interest rates that banks charge, certain fees are capped, the Postal Service becomes a viable competitor to banks and payday lenders, CEOs would be criminally liable if employees defraud customers, and those with Wall Street experience would be banned from working for the government on financial issues.
   
• Sanders appears to argue that he could implement much of this agenda on his own even without the need for legislation. We caution against dismissing this view. There is much that the White House, Treasury, or the financial regulators could do by executive order. There is a good chance the courts would strike down these efforts, but that would then create political momentum for Congress to change the law.
   
• This is not about whether Sanders can win the nomination or the general election. Bashing Wall Street is a populist message that appeals to conservatives and liberals. Sanders has now laid out the most radical option on the table that other candidates will be judged against. At the least, this creates pressure on populist candidates on both sides of the aisle to lay out their approaches.
   
• Do not let the facts get in the way of this political argument. We suspect that many investors would start yelling at their screens based on some of the allegations that are made. While it would be interesting to see the speech fact checked by the Washington Post or others, the accuracy of the allegations is irrelevant. This is about creating a political narrative in which Wall Street is nothing more than evil predators taking advantage of innocent consumers and small businesses. That narrative has political power, which is why it is being used by progressive and conservative candidates running for the White House. It is also why we continue to worry about negative government actions for the biggest financial firms coming out of this election.
   
• At some point, the debate will shift to using the financial system to boost economic growth and to get more people to work. We would have expected to already be at that point. This speech suggests this tipping point may be at least another presidential election cycle away.

The final bullet point sounds to my ear like industry self-praise and wish-fulfillment. Judge for yourself whether the current financial system boosts economic growth or retards it by extracting and pocketing billions in profit and fees. That aside, the rest of what's above seems well considered, including the comment about predators.

Now Seiberg's list of planks in the Sanders plan itself. For the most part I find this an excellent summary. Note the italicized comments by the author following each plank. (Can you spot the one he gets egregiously wrong? Look for the one discussing jail time.)

Seiberg again:

As we heard the speech, there were 10 planks to it. We discuss those planks below:

1. Break Up the Banks and Other Big Financial Firms. The Treasury Secretary within the first 100 days would compile a list of the banks, insurers, and nonbank financial firms whose failure would cause catastrophic damage to the economy. The White House would then break up those financial firms by the end of the [sic] 2017.

It is unclear from the speech [how] Sanders would legally do this, though media reports suggest the senator would rely on authority in Dodd-Frank that permits the Federal Reserve to break up financial firms that threaten financial stability if there is not a less onerous option available to mitigate the risk. In our view, this is unrealistic. It would require a wholesale replacement of Federal Reserve leadership, as we don't see Janet Yellen taking orders from the White House to act. On top of that, this would get tied up in court for years as Sanders appears to be skipping over the requirement to try less onerous options first.

To us, the bigger picture here is that Sanders has made it a priority to break up the biggest banks. This will then add to the pressure on other candidates who are making populist pitches to take similarly tough positions.

2. Turn Credit Raters into Nonprofits. This did not get nearly the attention it deserved. Sanders accused the credit rating agencies of picking profits over truthful ratings. His cure is to require any company in the credit rating business to be structured as a not-for-profit company. In addition, the financial firm engaged in the securitization could not pick the credit rater.

While we are skeptical that credit raters would be transformed into nonprofits, we continue to believe there is a real risk that the next president could try to separate the hiring of the rater from the payment for the rating. This would be negative for the incumbents such as S&P and Moody's.

In our view, the only reason this change has not already occurred is because this White House has not focused the spotlight on the issue. If the spotlight is focused on it, we believe change becomes inevitable given the populist nature of the country at this point.

3. Cap ATM Fees. Sen. Sanders would cap ATM fees at $2. It was unclear if he was referring to the fee to use a machine by the owner of the ATM, the fee a bank charges its customers for foreign ATM usage, or both. We suspect it was the latter, which could mean a sharp reduction in ATM fees.

This is hardly a new issue, but it is one that cannot be dismissed. This is especially true if a Democrat takes the White House. Voters hate ATM fees, which makes limiting them politically popular.

4. 15% Usury Cap. The senator would limit the interest rate on any type of loan to no more than 15%. We would note that his cap appears to be unrelated to the 10-year Treasury or some other benchmark. It would apply to credit cards, mortgages, and any other type of loan. We also believe it could apply to payday lenders, which effectively in our view would put them out of business.

No issue better symbolizes the disconnect between Wall Street and populists than the usury cap fight. With a 15% interest rate cap, banks are going to only extend credit to the most pristine borrowers because they cannot afford for these loans to go bad. This means many borrowers may lose access to credit cards. Of all of his ideas, this seems to be the one that is least likely to survive.

5. Post Office Banks. This is the solution to payday lenders and check cashers. Sanders wants to implement an idea that the Inspector General for the Postal Service first raised a few years ago. The plan is to use the post office to provide basic banking services — including small dollar loans — to consumers so these voters never need to use a payday lender again.

We continue to believe this idea is not as unlikely as it sounds. The Postal Service is in debt and needs new revenue sources. We could see Congress viewing Post Office banking as both a way to help consumers and to solve the Postal Service's financial woes.

6. Charge for Excess Reserves. The Federal Reserve at the start of the financial crisis won the right to pay interest on reserves; this was a central bank priority, as it provides another means to control the money supply. Sanders would end this practice by requiring banks to pay for the privilege of holding reserves at the central bank. It is unclear if this would apply to required reserves or just excess reserves. The revenue generated would be used to provide subsidized loans to small businesses. It is unclear what agency or company would originate these loans or how the program would work.

This is another idea that could well survive the campaign regardless of which candidate wins. The idea that the Federal Reserve is paying big banks — including foreign banks — is going to upset lawmakers on both sides of the aisle and could well lead to legislation. This is only going to generate more attention as the Federal Reserve hikes interest rates.

7. Tax Wall Street Speculation. We did not get many details on this idea, though it appears to be a traditional transaction tax as the senator said it would generate enough revenue to make public universities free for students.

Transaction tax plans have risen periodically in Congress and gone nowhere even while budget stresses were greatest. As a result, we see this as one of the lower risk ideas in the speech.

8. Bring Back Glass-Steagall. We only put this toward the end because it already has gotten so much attention. The senator would restore the separation between commercial banks, investment banks, and insurers that existed prior to its repeal during the Clinton administration.

He argued this would limit the size of shadow banks by preventing commercial banks from providing them with depositor-provided funding.

We are confused by this plank of the Sanders plan, as Glass-Steagall was never about whether banks could loan money to nonbank financial firms or buy their commercial paper. In addition, we believe Sanders really is talking about moving trading desks into nonbanks. That strikes us as interesting, as these trading desks would then be freed from the Volcker Rule and could engage in proprietary trading. In any event, the threat here is that this becomes the populist thing for progressives and conservatives to advocate without regard for its merit.

9. Criminalize Business Disputes. There was a lot of rhetoric in the speech about the need for the CEOs of big banks — especially JP Morgan — to be prosecuted. The general view appears to be that every settlement is an admission of criminal behavior for which the government should prosecute the CEO over [sic]. This appears to include holding CEOs criminally responsible for wrongdoing committed at banks that they acquired.

We almost don't know where to start with this other than to say that there will be tremendous pressure from populists on the left and the right to criminally convict bankers. We have real doubts that this strategy will work but it may well be an overhang for the industry.

10. Limit the Federal Reserve's Power in a Crisis. Sen. Sanders referred often to how the Federal Reserve did the bidding of the biggest banks during the financial crisis while ignoring consumers. As a result, he would further limit the ability of the Federal Reserve to provide emergency lending.

This is just dangerous. Congress created a central bank so that commercial banks could continue to lend even if liquidity dries up in the market. It helped end bank runs and results in a stronger economy. Yet we cannot completely discount this plan, as populists on the left and the right see such liquidity as nothing more than a bailout of the big banks.

Just a few comments from me, since I want you to focus on Seiberg's thoughts. He rightly sees the danger to his industry, though in one or two places he wrongly characterizes that danger. Scan that list of ten proposals again. The list is worth keeping in mind as you advocate and vote in this electoral season.

What Seiberg Gets Wrong

Jaret Seiberg's analysis gets a few things wrong, and they're worth noting briefly. His description of points one through eight are accurate, and his commentary, sometimes panicked, is mostly appropriate from his point of view. For example, his concern that point four, a 15% usury (interest rate) cap, would put payday lenders out of business is likely accurate. And his comment in point two, that turning credit rating agencies into non-profits "did not get nearly the attention it deserved," is excellent. David Dayen gives that point a closer look here.

I disagree with his comment on point four that a cap on interest rates would force banks to "extend credit to the most pristine borrowers" only. First, this is similar to CEOs saying if their taxes are higher, they'll just refuse to work. Of course they'll work; it's how they'll get more money, taxes or no. But second, the problem isn't lending but predation. So if banks are limited to 15% interest in credit card debt, do you think they'll take it or walk away from a still lucrative business?

To answer that, consider that prior to the 1978 Supreme Court case that deregulated interest rates for national credit cards, the cap on interest rates in Minnesota was 12%. Do you think Minnesota banks were going out of business, or lending only to "the most pristine borrowers"? Of course not.

But his most egregious characterization, that the Sanders plan would "criminalize business disputes," is just plain wrong. And it's wrong in the same way that the fossil fuel companies are wrong when they say RICO prosecution of their climate change-denying activities would "criminalize differences of opinion." This mischaracterization is a well-tested ploy. RICO prosecutions would hold companies accountable for fraud, not "differences of opinion." The fraud, in fact, arises from the fact that the fossil fuel CEOs, like tobacco CEOs, hold exactly the same opinions as those they're defrauding, not opinions that differ at all; the fraud is that they lie about what they know to make money.

Here's financial analyst and Sanders campaign writer RJ Eskow to explain: "Bank CEOs would not broadly be 'criminally liable if employees defraud customers.' But they would not enjoy the de facto immunity they appear to enjoy today as the result of lax law enforcement. They would be held responsible for their own actions and the deterrent effect would help forestall future crimes."

I invite the reader to consider the prosecution of bankers during the 1980s Savings and Loan crisis: "[Following] the savings and loan crisis of the ’80s and early ’90s ... more than 1,000 bankers were convicted by the Justice Department. Among those jailed were Charles Keating Jr., whose Lincoln Savings and Loan cost taxpayers $3.4 billion, and David Paul, who was sentenced to 11 years in prison for his role in the $1.7 billion collapse of Centrust Bank."

Yet in the aftermath of the 2008 crisis, which "left 8.8 million Americans jobless and led to a $700 billion government bailout," the number of criminal prosecutions for crisis-related fraud remains ... zero. That's what Sanders wants to change.

But these are small disagreements relative to the value of this analysis, and we should be grateful to Mr. Seiberg to be able to learn from it.

(Blue America has endorsed Bernie Sanders for president. If you'd like to help out, go here; you can adjust the split any way you like at the link. If you'd like to "phone-bank for Bernie," go here. You can volunteer in other ways by going here.)

GP

NY AG Schneiderman Issues Subpoenas, Launches Probe Into Exxon

Which would you rather see go over the cliff, Exxon's stock price or your grandchildren's future? Sometimes you have to clear out the old to make room for the new.

by Gaius Publius

Short and simple. There have been multiple calls for RICO investigations and/or lawsuit filings against Exxon and the rest of the fossil fuel industry thanks to the investigative work by Inside Climate News and separately, the LA Times.

There have also been calls for the SEC to investigate Exxon, using, I think, Sarbanes-Oxley, which provides for criminal penalties and jail time for corporate executives who sign off on knowingly false annual and quarterly statements.

That's two methods of approach, RICO and Sarbanes-Oxley. A third approach is the little-known Martin Act, a New York state statute that gives prosecutors very broad powers of subpoena and discovery.

What's the news? New York Attorney General Eric Schneiderman is using the Martin Act (at least) to subpoena documents from Exxon, looking for evidence of investor fraud (at least). This comes from two sources. Let's start with the New York Times (my emphasis everywhere):

Exxon Mobil Investigated for Possible Climate Change Lies by New York Attorney General

The New York attorney general has begun a sweeping investigation of Exxon Mobil to determine whether the company lied to the public about the risks of climate change or to investors about how those risks might hurt the oil business.

According to people with knowledge of the investigation, Attorney General Eric T. Schneiderman issued a subpoena Wednesday evening to Exxon Mobil, demanding extensive financial records, emails and other documents.

The investigation focuses on whether statements the company made to investors about climate risks as recently as this year were consistent with the company’s own long-running scientific research.

The sources said the scrutiny would include a period of at least a decade when Exxon Mobil funded outside groups that sought to undermine climate science, even as its in-house scientists were outlining the potential consequences — and uncertainties — to company executives.

Kenneth P. Cohen, vice president for public affairs at Exxon Mobil, said on Thursday that the company had received the subpoena and was still deciding how to respond. [...]

Now from Inside Climate News:

New York Attorney General Subpoenas Exxon on Climate Research

New York State Attorney General Eric Schneiderman’s office demanded that ExxonMobil Corporation give investigators documents spanning four decades of research findings and communications about climate change, according to a person familiar with the year-long probe.

An 18-page subpoena issued to the oil giant late Wednesday seeks documents from Exxon (NYSE:XOM) related to its research into the causes and effects of climate change, to the integration of climate change findings into business decisions, to communications with the board of directors and to marketing and advertising materials on climate change, the person said.

Investigators have been looking closely into the company’s disclosures to shareholders and the Securities and Exchange Commission, and the subpoena also sought documents related to those communications. The probe is based on New York’s powerful shareholder-protection statute, the Martin Act, as well as the state’s consumer protection and general business laws. [...]

This is already broader than many people realize. Looks like Exxon's not alone (via the Times article):

The people with knowledge of the New York case also said on Thursday that, in a separate inquiry, Peabody Energy, the nation’s largest coal producer, had been under investigation by the attorney general for two years over whether it properly disclosed financial risks related to climate change. That investigation has not been previously reported, and has not resulted in any charges or other legal action against Peabody.

Peabody deserves whatever it gets. This could get big quickly:

Mr. Schneiderman’s decision to scrutinize the fossil fuel companies may well open a new legal front in the battle over climate change. To date, lawsuits trying to hold fossil fuel companies accountable for the damage they are causing to the climate have been failing in the courts, but most of those have been pursued by private plaintiffs.

Attorneys general for other states could join in Mr. Schneiderman’s efforts, bringing far greater investigative and legal resources to bear on the issue. Some experts see the potential for a legal assault on fossil fuel companies similar to the lawsuits against the tobacco companies in recent decades, which cost them tens of billions of dollars in penalties.

“This could open up years of litigation and settlements in the same way that tobacco litigation did, also spearheaded by attorneys general,” said Brandon L. Garrett, a professor at the University of Virginia law school. “In some ways, the theory is similar — that the public was misled about something dangerous to health. Whether the same smoking guns will emerge, we don’t know yet.”

This should strike a huge blow to the whole industry, but especially to Exxon. And not soon enough, considering the cliff we may be about to go over — as a species. Watch that stock price (NYSE:XOM). Would you buy Exxon stock tomorrow morning? If you owned it, would you sell it? Collapses often happen quickly.

Sometimes You Have to Clear Out the Old to Make Room for the New

And finally, which would you rather see go over the edge into the canyon, Exxon's corporate valuation or your grandchildren's odds of living in something like civilization? Don't weep for Exxon. Sometimes you have to clear out the old to make room for the new. Think of it as emptying the closet so you can buy new clothes.

GP