Elizabeth Warren Pushes Wall Sreet Reform

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Shahien Nasiripour
shahien@huffingtonpost.com | HuffPost Reporting




Wall Street Reform: Elizabeth Warren Challenges Republicans To Stand Up For Families


It's time for senators -- especially the Republicans -- to square their upcoming votes on financial reform with their long-professed desire to protect families, said consumer advocate and federal bailout watchdog Elizabeth Warren on Wednesday in an interview with the Huffington Post.

"Everyone in Washington claims to be on the side of families and to support reform," said Warren, a member of the 2010 TIME 100 list of the world's most influential people. "But the test is who votes to paper over problems with another regulatory system designed to fail and who votes for real Wall Street accountability even if it means that some donors will be disappointed.

"I'm tired of hearing politicians claim to support families and, at the same time, vote with the big banks on the most important financial reform package in generations. I'm deep-down tired of it."

Of all the proposals in the 1,400-page Senate bill attempting to reform Wall Street and protect American consumers, none is more contentious than the one calling for the creation of a consumer-focused agency dedicated to protecting borrowers from abusive lenders.

Reform-minded Democrats want a powerful independent entity able to defend powerless families from the banks and financial firms that squeeze profits out of customers through tricks, traps and outright predatory loans.

Moderates want to say that they voted for a bill that protects consumers -- even if it really doesn't.

Republicans profess a desire to protect consumers, acknowledging regulators' past failures, but they also don't want to stem the flow of credit or needlessly harm lenders' ability to make a buck.
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The Senate bill, authored by the banking committee's chairman, Christopher Dodd, a Connecticut Democrat, calls for a consumer entity to be housed inside the Federal Reserve. It largely, though, adheres to Warren's four tests: a chief appointed by the president, an independent source of funding, the authority to write consumer rules and the ability to enforce them against unscrupulous lenders. The unit, thus, focuses squarely on consumers. Ensuring banks' profitability is left to banking regulators.

The Republicans' counter-proposal, released this week, fails all four of Warren's tests.

It calls for a council led by the heads of the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve. They'd issue rules, supervise "our nation's largest financial institutions, large non-bank mortgage originators, and other financial services providers who have violated the consumer protection statutes," and enforce the rules.

Warren isn't thrilled with the idea of allowing bank regulators -- whose top priority is to ensure the profitability of the nation's banks -- to continue to oversee consumer protection, particularly when the OCC is involved.

"The problem with consumer protection is structure. Our current consumer regulatory process is designed to fail, and if we don't fix it, it will fail again," she said. "In every major dispute between customers and banks, the OCC entered the fray on the side of the banks. Clearly, banks -- not their customers -- were the OCC's primary interest. The idea that the OCC would now be in a position to veto the new consumer agency is shameful.

"If our goal was to take any lessons from the crisis, we would do the reverse: Let's give a consumer regulator a veto over the OCC," Warren added. After all, "it wasn't a consumer regulator who presided over the biggest financial meltdown in generations."

She didn't hold back in singling out the GOP's plan, which the Harvard Law professor and bankruptcy expert said was "pure genius -- for the banks who want to keep running things."

"The substitute language on consumer protection is designed to paper over very real structural problems with a new system that is designed to fail as much as the status quo is," Warren said. "The whole idea of the substitute is to take a bunch of regulators that already failed and throw them in a committee together."

Asked if she thought Republicans such as Senate Minority Leader Mitch McConnell of Kentucky and Richard Shelby of Alabama are trying to protect families from predatory lenders, Warren let loose.

"It isn't possible to protect families and at the same time to paper over the sorts of problems that led to the crisis with just another system that is designed to fail," she said of the duo leading the GOP effort against the consumer agency. "The time has come for choosing."

With Republicans abandoning their effort to prevent Dodd's bill from being considered on the Senate floor (the bill passed a procedural hurdle on Wednesday), senators will soon begin offering and debating amendments.

Shelby hopes to weaken the consumer agency.

"This bill still contains a sprawling new consumer protection bureau that will find and force its way into facets of our economy that had nothing to do with the housing crisis," he said in a Wednesday statement. "This massive new bureaucracy would have unchecked authority to regulate whatever it wants, whenever it wants, however it wants. I am aware of no other arm of the federal government this powerful, yet so unaccountable."

On Tuesday, Shelby told reporters that the agency was "the biggest obstacle" keeping Democrats and Republicans from reaching a deal.

McConnell also has attacked the agency, as has Democrat Ben Nelson of Nebraska.

To dilute the agency's power, Shelby and others will push proposals to give bank regulators more authority to rein it in, like replacing it altogether or giving bank regulators stronger veto authority.

The GOP proposal, for example, calls for the Fed chairman, currently Ben Bernanke, to be one of three leaders atop the consumer council.

"Can someone please ask Ben Bernanke if he actually wants to spend his time serving on that committee?" Warren asked. "How much time does he plan to carve out of his day to think about kickbacks on car loans or payday rollovers?

"Let's give those issues to people who have the time and expertise to deal with them," she added.

Sources who have been in meetings with Bernanke and have heard him discuss these issues privately say it's "very hard to believe that he has any real interest" serving on a consumer council like the one envisioned by the GOP.

Another way Republicans and bank-friendly Democrats will try to weaken the bill's consumer protection provisions is by repealing the portion of the bill that attempts to give states more power in going after big banks that violate consumers. At present, states are largely unable to thanks to an aggressive legal campaign over the past decade by the OCC.

National banks like Wells Fargo, JPMorgan Chase, Bank of America and Citibank argue that it's too difficult and costly to comply with different consumer protection regimes in 50 states, so they need a national standard. The OCC agrees, and also touts the legal precedent set by numerous U.S. Supreme Court decisions interpreting the National Bank Act, the 19th-century law that forms the basis of the nation's banking system.

States and consumer advocates say the OCC protects big banks at the expense of consumers. State officials argue that the OCC essentially allows for consumers to be preyed upon and defrauded. The OCC vigorously denies the accusations.

Warren points out, though, that other industries don't get the special treatment afforded to national banks. In his proposal last summer, President Obama said the bill should end the OCC practice, known as preemption.

"Walmart operates in all 50 states, and it doesn't come to Washington demanding that Congress protect it from state laws that demand workplace safety or environmental standards or anything else," she said.

"Every other industry views compliance with state laws as a minor administrative cost of doing business. The big banks aren't worried about the difficulty of following local laws -- they have lawyers and computers to figure it out. Besides, thousands of little banks do it every day," she added.

In the House, bank-friendly Democrats led by Melissa Bean of Illinois watered down what was initially a strong provision that effectively neutered the OCC's authority to preempt state laws on everything from capping ATM fees to reducing overdraft charges and banning abusive home mortgage loans.

The bill now essentially resembles the status quo. Bean touts her vote on the House bill, which passed in December, as one for reform. So do the other legislators who voted against giving states more authority to crack down on abusive lenders, yet ultimately voted for the bill.

"There were others that thought they could get away with voting for the overall reform package while doing everything they could behind the scenes to hold water for the big banks and earn all those campaign contributions," Warren said. "We're about to find out if any senators want to play those games."

She hopes to find out soon.

"Every day that goes by without a clear set of rules in place to guide our economy into the future is a day that costs us money," she said. "Every credit card, payday loan, car loan and check overdraft that hides another fee or another bizarre interest calculation in the fine print costs American families. Every Too Big to Fail that takes on a little more risk, or leverages up just a little more, or that sucks capital away from another business that doesn't have a government guarantee at no charge costs American families. Every lousy product sold to a family, to a retirement fund, or to a local township costs American families.

"We cannot rebuild a strong and reliable economy without new rules," she continued. "We need those rules now. Not next month, not in six months, not in a year. Now."

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Bill Black’s Top Ten Ways to Crack Down on Corporate Financial Crime

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Published on Friday, March 5, 2010 by Corporate Crime Reporter
Bill Black’s Top Ten Ways to Crack Down on Corporate Financial Crime

by Corporate Crime Reporter

Ninety-five percent of criminologists study blue collar crime.

Five percent study white collar crime.

Of the tiny minority who study white collar crime, ninety five percent focus on the individuals who rip off the corporation.

We are left with a small handful of criminologists – think Edwin Sutherland, John Braithwaite, Gil Geis – who have studied or are studying – corporate crime.

That would be crime by the corporation.

Bill Black is one of the most prominent of those living corporate criminologists.

His specialty – control fraud.

Control fraud is when the CEO of a company uses the corporation as a weapon to commit fraud.

Bill Black is a lawyer and former federal bank regulator.

He’s the author of the corporate crime classic – The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry (University of Texas Press, 2005.)

Black says there are steps we can take as a society to control corporate crime – in particular financial crime.

In an interview with Corporate Crime Reporter last week, Black laid out his top ten.

Number ten: Hire 1,000 FBI agents.

Pass legislation (HR 3995) introduced by Congresswoman Marcy Kaptur that would fund the hiring of 1,000 FBI agents to investigate white collar crime.

Number nine: Appoint a chief criminologist at each of the financial regulatory agencies.

“Each agency needs someone who understands white collar crime,” Black said. “If you don’t understand fraud schemes, if you don’t understand how accounting is used to run these scams, you will always have a disaster in the making.”

Number eight: Fix executive compensation.

Black would tie executive bonuses to long term corporate performance.

Number seven: Target the top 100 corporate criminals.

“We need to do a top 100 priority list – the way it was done in the savings and loan crisis,” Black said. “The FBI, the Justice Department and the regulatory agencies got together and put together a list of top 100 companies to target. There was a recognition that these were control frauds. The top executives were using seemingly legitimate savings and loans as their weapons of fraud. And that is why any serious look will tell you the same thing about this most recent crisis as well. The criminal justice referral process has collapsed at the agencies.”

Number six: Regulate first.

“When you desupervise or deregulate an industry, in fact you are decriminalizing control fraud. The regulators are the ones who make the bulk of these cases. I’m not saying they can do it alone. In the current crisis, the FBI had no meaningful support from the regulators. You have regulators denying they were regulators and saying that there could be no fraud because the rating agencies were handing out high ratings. That kind of naivete is ideologically driven. You will not have effective prosecution with that kind of regulatory regime.”

Number five: Bust up the FBI partnership with the Mortgage Bankers Association.

“Now we have the FBI standing with what it calls its partners – the Mortgage Bankers Association,” Black said. “But the Mortgage Bankers Association – that’s the trade association of the perps. So, the FBI is partnering with the perps.”

“The result is – we have seen zero prosecutions of the specialty non-prime lenders that caused the crisis,” Black said. “The mortgage bankers are going to position themselves as the victims. This has been so successful that the FBI now has a mantra. They are saying there are two kinds of mortgage fraud. Fraud for profit and fraud for housing. And neither of them is control fraud. They have effectively said – control fraud is impossible. Even though it was the entire story behind the savings and loan crisis, the Enron wave, and the creation of the most recent housing bubble.”

Number four: Get rid of Ben Bernanke as chair of the Fed. Replace him with Nobel prize winner Joseph Stiglitz.

“Ben Bernanke should not have been reappointed as head of the Fed,” Black said. “He was the most senior regulator. And he was an utter failure. Under President Bush, he was President of the Council of Economic Advisors. So, he was a failure as a regulator. And he was a failure as an economist.”

Number three: Get rid of too big to fail.

There are about 20 banks that have assets of $100 billion or more. They are considered too big to fail. “You do three things,” Black says. “First, you stop them from growing. Second, you shrink them (to below $20 billion in assets.) You create the tax and regulatory incentives where they have to shrink below the level where they pose a systemic risk. And third, you regulate them much more intensively while they are in the process of moving from a systemically dangerous institution to a more leaner, smaller, more efficient, less dangerous institution.”

Number two: Create a consumer financial protection agency headed by Harvard Law School professor Elizabeth Warren.

“The sine qua non for success as a regulator is independence,” Black says. “So, it’s a very bad sign that Congress is moving away from an independent regulator.”

“As we speak, news is breaking that they are moving away from housing the regulator at the Treasury Department. Now they are talking about putting it at the Federal Reserve. The Fed is an independent regulator. Unfortunately, it’s an independent anti-regulator. I called putting it at the Treasury a sick joke. Putting it at the Fed is also a sick joke. They are both recipes for failure.”

Number one: Fire Treasury Secretary Timothy Geithner, Office of Thrift Supervision chief John Bowman, Fed chief regulator Patrick Parkinson, and Office of the Comptroller of the Currency Chief John Dugan.

“Tim Geithner was testifying before Congress a couple of years ago,” Black said. “And in response to a question from Ron Paul (R-Texas), Geithner said – ‘I have to stop you right there – I’ve never been a regulator.’ Well, that’s true. But you are not supposed to admit it.”

“Can you imagine. This is the President of the New York Fed, testifying about the greatest failure in banking in the history of the nation. And he is so completely out of it – the mindset of capture is so complete, that he says – I’ve never been a regulator. This is the ultimate capture. You don’t even think of yourself as a regulator.”
“Ben Bernanke in October 2009 appointed Patrick Parkinson as the top supervisor at the Fed,” Black said. “He’s the guy who, under Alan Greenspan, led the Fed charge against Brooksley Born when she wanted to regulate credit default swaps.”

“Patrick Parkinson, on behalf of the Fed, testified that credit default swaps should be left completely deregulated.”

“The reasons? If we regulate them, they will flee to the city of London. We should be so lucky, of course.”

“And two, fraud can’t happen in credit default swaps, because the participants are so sophisticated. This is the most astonishingly naive model of white collar crime by people who know nothing about white collar crime and don’t study it at all.”

“John Dugan’s sole priority and all of his passion as OCC director has been pre-empting state efforts to protect us from predatory lenders,” Black said.
“And John Bowman should be fired,” Black said. “The OTS got in bed with the industry most openly.”
© 2010 Corporate Crime Reporter

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