Wall Street's Race to the Bottom (By Elizabeth Warren)
Excellent piece from earlier this year.
(Videos are below)
---
Jamie Dimon is wrong. We shouldn't expect a crisis every five to seven years.
By ELIZABETH WARREN
Banking is based on trust. The banks get our paychecks and hold our savings; they know where we spend our money and they keep it private. If we don't trust them, the whole system breaks down. Yet for years, Wall Street CEOs have thrown away customer trust like so much worthless trash.
Banks and brokers have sold deceptive mortgages for more than a decade. Financial wizards made billions by packaging and repackaging those loans into securities. And federal regulators played the role of lookout at a bank robbery, holding back anyone who tried to stop the massive looting from middle-class families. When they weren't selling deceptive mortgages, Wall Street invented new credit card tricks and clever overdraft fees.
In October 2008, when all the risks accumulated and the economy went into a tailspin, Wall Street CEOs squandered what little trust was left when they accepted taxpayer bailouts. As the economy stabilized and it seemed like we would change the rules that got us into this crisis—including the rules that let big banks trick their customers for so many years—it looked like things might come out all right.
Now, a year later, President Obama's proposals for reform are bottled up in the Senate. The same Wall Street CEOs who brought the economy to its knees have spent more than a year and hundreds of millions of dollars furiously lobbying Washington to kill the president's proposal for a Consumer Financial Protection Agency (CFPA).
Within the thousands of pages of print in the "Restoring American Financial Stability Act" now before the Senate, the consumer agency is the only proposal that would help families directly. Even those most concerned about the role of personal responsibility concede that it is hard for families to make smart decisions and to compare products when the paperwork on mortgages, credit cards and even checking accounts has morphed into reams of incomprehensible legalese.
The consumer agency is a watchdog that would root out gimmicks and traps and slim down paperwork, giving families a fighting chance to hang on to some of their money. So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation.
It's a bad calculation because shareholders suffer enormously from the long-term cost of the boom-and- bust cycles that accompany a poorly regulated market. J.P. Morgan CEO Jamie Dimon recently explained this brave new world, saying that crises should be expected "every five to seven years."
He is wrong. New laws that came out of the Great Depression ended 150 years of boom-and-bust cycles and gave us 50 years with virtually no financial meltdowns. The stability ended as we dismantled those laws and failed to replace them with new laws that reflected modern business practices.
The reputations of Wall Street's most storied institutions are evaporating as the lack of meaningful consumer rules has set off a race to the bottom to develop new ways to trick customers. Wall Street executives explain privately that they cannot get rid of fine print, deceptive pricing, and buried tricks unilaterally without losing market share.
Citigroup learned this the hard way in 2007, when it decided to clean up its credit card just a little bit by eliminating universal default—the trick that allowed it to raise rates retroactively, even for consumers that did nothing wrong. Citi's reform resulted in lower revenues and no new customers, triggering an embarrassing public reversal.
Citi explained sheepishly that credit cards were now so complicated that customers couldn't tell when a company offered something a little better. So Citi went back to something a little worse. Without a watchdog in place, the big banks just keep slinging out uglier and uglier products.
With their reputations in tatters, the CEOs have decided to go on the offensive in Washington. They might have had some thoughtful suggestions for how to better shape a consumer agency. Instead, they have unleashed lobbyists who are determined to do anything to kill the consumer agency.
The latest lie is that the CFPA is "big government." The CEOs all know that the current regulatory structure, which they support, is big government at its worst: bureaucratic, unaccountable and ineffective. The CFPA will consolidate seven separate bureaucracies, cut down on paperwork, and promote understandable consumer products. In the process, it will stabilize the industry, rebuild confidence in the securitization market, and leave more money in the pockets of families. Complaining about short, readable contracts and efforts to slim down bureaucracy only further diminishes the banks' credibility.
This generation of Wall Street CEOs could be the ones to forfeit America's trust. When the history of the Great Recession is written, they can be singled out as the bonus babies who were so short-sighted that they put the economy at risk and contributed to the destruction of their own companies. Or they can acknowledge how Americans' trust has been lost and take the first steps to earn it back.
Ms. Warren is a law professor at Harvard and is currently the chair of the TARP Congressional Oversight Panel.
-----
VIDEO: Elizabeth Warren and Rachel Maddow discuss Republican and Democratic opposition to creation of a Consumer Financial Protection Agency (CFPA). Don't be put off by Maddow. These are both excellent clips.
-----
VIDEO: Dr. Warren on Obama's get tough approach to Wall Street --Jan. 21, 2010
Sep 18, 2010 at 3:25 PM
Reader Comments (65)
Of particular interest in Warren’s article is her comment on Congressional efforts to develop a consumer finance protection effort and the response of Wall Street’s CEOs to this effort. Warren derisively singles out JP Morgan’s Jamie Dimon, Wall Street’s top banker. She writes:
The consumer agency is a watchdog that would root out gimmicks and traps and slim down paperwork, giving families a fighting chance to hang on to some of their money. So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation.
It’s a bad calculation because shareholders suffer enormously from the long-term cost of the boom-and- bust cycles that accompany a poorly regulated market. J.P. Morgan CEO Jamie Dimon recently explained this brave new world, saying that crises should be expected “every five to seven years.”
He is wrong.
Here is from Wall Street Banker Terrorists: Debate on............
(((((((((((((( Warning From Bankers! Listen Up! ))))))))))))))))))))))))))))
We are very sorry for engineering our present economic crisis that has impoverished millions of American families, pushed the real unemployment rate to 17%, skyrocketed our deficit, trashed our currency...but if you dare try to tax our ill-gotten bonuses, or clawback the fees we earned pushing toxic CDOs and alike, there will be hell to pay!
We threatened financial Armageddon once before if our demands were not met, we can certainly do it again.
So all you pitchfork holders who are seeking justice, wake up! We own the Govt, the Fed, the SEC, our lobbies determine policy.
And I got news for you, these dog and pony shows your legislatures are putting on, admonishing our despicable behavior...well that's just a show. Behind closed doors we are all laughing.
No one is going to touch our bonuses, change the way we do business. So shut up and go home, prepare yourself for much higher taxes to cover our tab.
The joke is on you, America has a new sheriff in town, you have no voice, you have no power, simply indentured servants.
Politicians spend money because they are PAID to spend money by the Fat Cats that want in our pocket. We are at the mercy of corporations run for profits, enabled by a privatized congress that shares in those profits. Our problem is NOT government, and it is not R's or D's. It *IS* that government is owned by the special interests that want in the taxpayer's pockets.
As a former CEO my company would not have survived if I had a board of directors who took money on the side and gave away company assets in return. Our country can't survive this corruption either.
Nothing is going to change until we have public funding of campaigns. What is it about political bribes do we not understand? They BUY political spending, which leads to deficits and high taxes.
If politicians are going to be beholden to their funders, those funders should be the taxpayers. And at $5 per taxpayer per year it would be a bargain. Even at 100 times that. We MUST lobby our senators and representative to co-sponsor the bill at: http://fairelectionsnow.org/about-bill
Jack Lohman ...
http://MoneyedPoliticians.net
Hey Jack, the single-payer healthcare is socialized medicine. Jack, you are bad for my heart. I hope you do return to chat, I can help you. I have helped many fence-sitters.
Jack, do you really think international sanctions will work on Iran? Isn’t that one of the reasons why we needed to go into Iraq, 17 UN resolutions failed miserably? The UN was found to be corrupt, AGAIN!
I would love to read your book, please send me a copy. So, why did you not vote for Nader?
Thanks for visiting. If you wrote a book called "Politicians -- Owned and Operated by Corporate America," then you can appreciate what we do here.
I'd be particularly interested in what you say about the SEC and/or FINRA. Do you have any blog posts on those?
Dr. Pitchfork
I can tell you that as a former business owner, with offices in four states, had I had an employee or board member that was taking cash on the side and giving company asserts in return, I'd have him jailed. But at the congressional level we simply re-elect these jerks.
But get the money out of the political system and you'll see the SEC and other regulators cleaned up overnight.
http://www.youtube.com/watch?v=cEuiI2PbSWQ
http://www.youtube.com/watch?v=NRBYqazDDr4
Let's dispel the rhetoric about "if govt pays they will pull the plug on Granny." Or thereabouts.
Single-payer only means that "approved" care is paid for and "unapproved" is not. That does NOT mean that you cannot go outside of the system and pay for fringe procedures on your own, the good old-fashioned free-market way, with cash dollars. And for the record Medicare is 95% private contractors (I was one of them).
I've been on Medicare for five years and let me assure you that doctors and patients (mostly patients) call the shots. And if I demand a procedure that is not approved I can get it... with cash dollars. So *I* have the power of life and death... not the government.
Importantly, single-payer (Medicare-for-all) will be funded by the national infrastructure, not businesses. It means a taxpayer bailout of 100% of those businesses in the US that employ US workers. They'll then be able to compete with manufacturers around the world that are not burdened with health care costs. I prefer this to banker giveaways.
JOBS will be saved and created and our economy will benefit. Fewer jobs will leave the US as a result. (Today more Big Three cars are manufactured in Canada than in Detroit because their health care costs are $800 per employee per year there and $7000 here.)
And for the record, I have the option of the privatized side of Medicare (Medicare Advantage) which 20% of Medicare patients have chosen. Trouble is, it costs taxpayers 17% MORE than traditional Medicare because of higher costs (CEO salaries, bonuses, commissions, and even their campaign contributions which they pass onto the patient). So much for "private" being more efficient than "public."
Though I do agree that FEMA and the others are poorly run, and need better regulation. And a contracted Salvation Army would have done better (though even that could have become a big fraud if we didn't regulate it).
But that regulation can't come from a corrupt congress.
I must admit, I find some of your views intriguing, just got back from checking them out at your site.
I hope people see this as neither right or left, republican or democrat. We are all getting screwed by the corporate Fat Cats and financial industry (and even then only a small part of them are dishonest and greedy, but enough to kill our economy).
Our major problem is not the R's or D's, it's political corruption. Not in Afghanistan, here in America. And until we clean up our political system it will remain.
Neither would I let the lazies off the hook, and believe that anybody taking free health care and food stamps should be made to work for it. Cleaning or shoveling sidewalks, volunteering time, whatever. But WORK for it while looking for a good job.
But our politicians have given the good jobs to other countries so I find coming down too hard on the unwillingly unemployed a bit difficult. I have good hard-working friends that are out of work, so it can happen to any of us.
Welcome to the site, that is Gobies (Z) problem, he will agree with you abot corruption from the Democrats, but truly believes that there never has been any Republican misconduct, it is all just "other party lies". He is the only devout herd animal here.
"But our politicians have given the good jobs to other countries so I find coming down too hard on the unwillingly unemployed a bit difficult. I have good hard-working friends that are out of work, so it can happen to any of us. "
I agree, I to have many unemployed friends through no fault of their own. But the Goobermint has been proudly giving these taxpaying Americans jobs away proudly for many administrations while the true herdists proudly give their support to destroying America by maintaining the broken system.
I wonder if either of you have seen or read Bill Isaac's "Senseless Panic"? It just came out this summer. Isaacs is the former head of FDIC. He tried valiantly to stop TARP, working closely with Issa, Kaptur and other anti-TARP members.
Anyhow, two recurring themes in the book (i'm halfway done) are the influence of money in politics, and the lack of courageous, non-partisan regulators. The world Isaacs describes sounds like a different planet. I have 0 confidence in people like Geithner, Paulson, Bernanke, Summers, Bair, et al. And why should I? Their actions have earned them 0 credibility. (I think that's why many of my generation -- i'm in my 30's -- are so skeptical and fearful of things like single-payer health care. Before we get money out of politics, I don't even want to think about trying single-payer.
If you were interested in filling readers in on how some of this works, I bet Steve would be interested in publishing it.
I've learned one thing: bad bills don't require bribes to kill them, they will die for free. But they require lots of cash to pass (thus ObamaCare that will prove an [O]bomination. Cash is needed (and works) to kill good bills, and single-payer was one of them.
So all of our partisan efforts are a waste, because new politicians come in and the Fat Cats change the name on the bribes they send, and we don't skip a beat as we move toward new giveaways.
I'm new to the site but if Steve wants to contact me he can email at jelohman@gmail.com, or give me his email and I will write.
---
Good point! But it supports my take on the issue, too. If Obamacare is "reform," I can only imagine what kind of form single payer would take with the same people writing the bill (and the same people handing out the bribes).
I will say, though, that what we got is probably much worse than what the progressive-left wanted to see.
---
Jack, I was addressing S. Gompers about writing for the site (about his career as a lobbyist), but if you want to get in touch with Steve (The Daily Bail), his email is thedailybail@gmail.com.
If you want a hard copy just send me your address. I didn't write it to make money and will be happy to send it for free.
Jack Lohman ... jelohman@gmail.com
And for those who care I wrote a short (though distressing) piece on how we got into this mess here:
http://moneyedpoliticians.net/2009/11/28/how-our-politicians-sold-out-america/
---
I realize that. Alan Grayson (I think) tried to do just that in response to the way Obamacare was shaping up. But that won't stop the corruption -- Big Pharma and medical device makers would still be sidling up to the trough unless something were done to stop them. And how would total costs be managed -- in favor of the corporations, in favor of the taxpayer, or in favor of runaway costs and more debt?
--Pitchfork
Who’s to blame for all of this?
You are. The voters.
You believe the politician’s rhetoric and lies, ignore their payola, and then vote him or her back into office.
We must turn this around with a 100% turnover in congress — forced term limits — until they eliminate the bribery from the political system. Throw them out in the primary so your party of choice remains.
My seven years doing that was part time representing my chosen career, it was not my career itself. Career lobbyists are truly vultures picking off the bones of what is left of America, I saw that even then.
It is not something I choose to write about, but is why I suspect Jack's book will appeal to me.
Even then, I stood against outsourcing, offshoring, increasing debt, borrowing from any nation (especially Communists), unbalanced trade deals, NAFTA, GATT, FTAA, WTO, etc., but the career boys would represent anything for their fee.
Whores beget whores I suppose...
Who’s to blame for all of this?
You are. The voters."
That is what I keep trying to say. we must stop the ping pong game. I have been to Jacks site before.
http://moneyedpoliticians.net/2010/08/02/how-many-more-jobs-must-wisconsin-lose/
http://moneyedpoliticians.net/2010/02/19/medicare-for-all-is-a-jobs-bill/
We didn't need to go into Iraq.
George W. Bush, Dick Cheney, Donald Rumsfeld, Wolfowitz and others deliberately misled the American people for a war that Cheney, Rumsfeld, Wolfowitz and the neo-cons wanted to gain control of a major middle eastern oil reserve. They needed that for future geopolitical control of the planet. I think George W. was after Saddam for attempting a hit on George H.W.
Of course now that the crooks on Wall Street and in the government have pretty much bankrupted the American People, if I were a betting man I'd bet on China for geopolitical control of the planet. They won't go to war for oil they'll just buy it.
About needing to go into Iraq, of all the people you mentioned, how many of them voted on going into Iraq if Saddam Hussein refuses to give up weapons of mass destruction as required by U.N. resolutions?
Biden...Yea
Dodd...Yea
Kerry...Yea
Reid...Yea
Clinton...Yea
Schumer...Yea
Edwards...Yea
Daschle...Yea
Rockefeller...Yea
Obama opposed the war from the start but we all see what he has done since then.
Dubya's dad, really? Did all the people I listed above also use that as motivation? I know, you hate and never supported any of those people.
http://www.youtube.com/watch?v=f_A77N5WKWM
http://www.public-action.com/911/no-wmd-sdut/
jack lohman has been around here before...a few times...jack and i met over at the sunlight foundation online chat during finreg conference committee debate...
it's interesting that the discussion moved to healthcare and away from jack's original point...which is election funding reform...he's absolutely right...the simplest and most elegant way to remove the influence of lobbying is to have taxpayers fund campaigns...we need to get there as soon as possible...it won't eliminate graft and corruption completely but will remove a huge chunk of it...
and all commenters know that they may submit stories fro publication to me thru email...jack i would love to publish something from you on the public/campaign funding theme...i've been to your site a few times, but with 250 tabs currently open i don't have the time to search and read...
choose the best you've written in the past from your blog on this issue and send it to me...
thanks...
I agree, I am a strong advocate of eliminating lobbying and having taxpayers fund campaigns. That way the majority will rule, instead of the minority with capital, and we could prosecute anyone caught taking private money.
Besides, all money "donated" is ultimately passed on to consumers anyway through increased pricing.
Our best shot is the fair Elections Now Act which is being brought forward by the Dems (conveniently, just before election but without time for passage). But here's the link: http://fairelectionsnow.org/about-bill
I'd suggest calling your reps but they are either very against it or very for it, and your one voice is not going to sway them. If you can encourage a group, all the better. Public demand may sway some of the more honest ones.
Otherwise I'm encouraging people through my newsletter to just throw them all out in November.
Taxpayers funding campaigns, that never happens (see Meg Whitman).
The more totalitarian the regime, the more effective buying influence becomes.
http://www.washingtonpost.com/wp-dyn/content/article/2007/10/01/AR2007100101672.html
http://www.odu.edu/al/jchen/Chinese%20Politics%20%28Graduate%29/Review%20Essays/Week%2010/Campbell.pdf
I have done a little reading on FENA and I see why it appeals to the Dems. This is a backdoor way to get federal funds to the candidates (a four-fold match). It will be funded with taxes and the sale of the broadcast spectrum (which you guys always like to point out that it will be pushed down to the customers). This on its own would be unconstitutional in my opinion and appears to be very discriminatory. Obama likes to shit on the Constitution (he likes to refer to it as a flawed document).
The idea of deciding with standards who is a "qualified candidate" sounds fishy. Who would be in charge of these important decisions? The idea of forced debate to qualify is also very concerning. Who would run the debates and how would they be administered.
I agree with the sentiment that FENA has some big Constitutional hurdles that makes it very unattractive.
Jack (or others)…What are the cons? Are there any that I missed? Why does FENA want to limit it to in-state donations? Is it fair to pass on the costs to a targeted group? What about the free speech issues?
Nobody "decides who is a "qualified candidate." They either gather enough community support (signatures and contributions) or they do not. And why in the world would a "forced debate" bother you. If they are reluctant to speak before the people (and debate), they are not worthy of office. But IF they don't want to actually say anything in the debate, I suppose they could take the 5th. :-)
What is FENA? Public funding has been challenged in the courts and has been sustained. I cover the constitutional issues on my blog today at
http://moneyedpoliticians.net/2010/09/18/sensenbrenner-just-doesnt-get-it/
and again here: http://www.wicleanelections.org/opposing-arguments.html
You say...If they are reluctant to speak before the people (and debate), they are not worthy of office.
So now you are the judge and jury, you proved my point.
You say...Nobody "decides who is a "qualified candidate."
The Act does not define (decide) who qualifies for government matched funding?
As for you blog post on the constitutionality of FENA, your point is that because you can opt out or not volunteer that means it does not discriminate? I don't get that argument???
Oh, so you want them able to opt out of the debate? Okay. I'll let the drafters know.
How does it discriminate? Your choices are either yes or no. Do you want a "maybe?"
I do not hate any of those people, and I have never supported a single one of them. Up until George W. Bush and his incompetents turned the U.S. constitution into toilet paper I was a registered Republican. I spent too many years believing my parties elected officials were actually working for the good of the American People when they were not.
It is now just as obvious to me the party line I voted in the last election is just as corrupt and sold out to the special interests as the Republicans are, hell they may be even worse as they are throwing a hell of a lot more of our money away.
I have to agree with Jack L. , D.B., and Gompers our electoral system is totally captured by people who don't give a s**t about the majority of the American People. We need public campaign financing and a bounty on lobbyists. Just joking about the bounty, tarred and feathered and run out of town would suffice.
However with the elite corporate control of factual information available to the general public I can't see how enough of the voters will learn they need to force a change in the electoral system. Mainstream Media will overload them with meaningless BS. The government and Wall Street will start false flag operations and market manipulations to scare folks into line.
I don't think anything is going to change till we hit the bottom and major crap hits the fan, once that happens maybe the next time around we can get it right.
And Z we damn sure don't need to go to war with Iran anymore then we needed to go to war with Iraq. If push came to shove we could turn their country into a glass topped coffee table and they know it. Two screwed up wars over there are enough.
Actually three George H.W. should have finished the first one when he had justifiable reason for doing so. That one was screwed up also.