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Financial Reform Newsletter: June 24, 2019

 

What's Inside?

  • The First Democratic Debates: The Corrupt Crony Capitalism of Wall St. vs. An Economy that Works for Main Street
  • The American Dream Depends on Financial Reform
  • The SEC's Power Grab Putting Investors at Risk
  • The Fed is Making Bailouts More Likely by Putting Main Street Investors and Taxpayers on the Hook for Wall Street's Future Failures

 

https://bettermarkets.com/sites/default/files/Elizabeth%20Warren.jpgThe First Democratic Debates: The Corrupt Crony Capitalism of Wall St. vs. An Economy that Works for Main Street

With the first Democratic presidential candidates’ debate this Wednesday and Thursday, it’s a good time to look at what they’ve been saying and the key issues, which we will be doing often over the next year.
 
There are candidates who think business as usual and incrementalism is fine, as they embrace Wall Street’s biggest financial institutions and comfort the entrenched, anti-competitive, anti-investor, anti-consumer too-big-to-fail banks, their executives and minions. Joe Biden fundraising on Wall Street and assuring the one-percenters that they would have nothing to fear if he became President is a good example of this. (He should read the Better Market’s RAP Sheet report on the egregious illegal behavior of the six largest banks and ask: where do their fundraising checks really come from – the pockets of ripped off consumers and investors?)
 
Other candidates understand that Wall Street has perverted capitalism by rigging the economic and political systems to enrich themselves at the expense of everyone else and that deep and broad structural change is necessary to save the American Dream for the rest of America. 
 
This is not an attack on the wealthy, the well-to-do, hard work or capitalism, as you will repeatedly hear from those defending and profiting off the status quo. 
 
This is a long overdue attack on the corruption of capitalism by gigantic corporations, particularly the biggest banks on Wall Street, who have used their economic power to buy political power to entrench and increase their economic power. Their campaign cash, their army of lawyers and lobbyists, and their other numerous, mostly purchased, allies have built a massive, hydra-headed influence operation that rigs the rules of the economy and politics to benefit their businesses, revenues, profits and bonuses.
 
Those two macro-frames -- Wall Street vs. Main Street and corrupt capitalism vs. real capitalism -- are going to underlie many of the core issues the candidates are going to discuss this week and for the next year. 
 
With so much financial stress, distress and anxiety among so many Americans as a result of the rigged economic and political system, these issues merit an open and robust debate. We will be tracking and commenting on the candidates’ positions on these and related issues throughout their campaigns. 

 


 

https://bettermarkets.com/sites/default/files/Simon%20Johnson.jpgThe American Dream Depends on Financial Reform

A decent job with good wages that can support a family, buy a home, put the kids through college while saving for retirement and maybe even going on a nice vacation once in a while. A future for the kids that is better than your past and present. Those are or were the core pillars of The American Dream, which was the cornerstone of the U.S. middle class after the Great Depression and WW II. 
 
That reality lasted for decades, but that Dream is simply no longer available to most Americans where 90% are worse off economically today – by 17% to 35% -- than they were before the 2008 crash. The evaporation of that Dream coincided with and is a direct result of the financialization of the American economy.
 
A Main Street focused economy based on “what was good for GM was good for America” was perverted into “what was good for Wall Street was good for America.” The 2008 crash proved that to be a lie with catastrophic consequences for Main Street America, which is also why it is so troubling to see some presidential candidates not understanding that fundamental reality.
 
Restoring an economy that works for all Americans and again makes The American Dream a reality depends on a financial system that supports the real economy, jobs, wages and broad-based prosperity. That requires effective and durable financial reform, which Better Markets’ President and CEO spelled out in an article in The American Prospect entitled “Trump’s Assault on Financial Reform.” We’re biased, but we think you really should read this article!

 


 

The SEC's Power Grab Putting Investors at Risk

The SEC has proposed to eliminate virtually all limits on corporation’s ability to secretly pitch stocks to sophisticated investors prior to a public offering without investor protection disclosures required since the Great Depression. This so-called “testing the waters” proposal was high on the wish list corporate America sent to the SEC last year. In an all-to-familiar distressing pattern, the SEC is now delivering on that wish list and, no surprise, corporate American is cheering on the proposal.

https://bettermarkets.com/sites/default/files/Elizabeth%20Warren.jpgOf the 20 comment letters filed in response to the SEC’s proposal, only the one from Better Markets opposed the proposal, for four primary reasons. First, the SEC has no legal authority to enact the changes in the proposal. Second, it is directly contrary to recent Congressional action, reinforcing our position that the SEC lacks legal authority. Third, the proposal has no factual basis or data-driven analysis supporting the industry’s self-serving assertions of the need for and supposed benefits of the proposal. Fourth, the proposal would likely create dangerous loopholes which would expose retail investors and those who lack the ability to withstand financial loss to be solicited by, among others, penny stock issues and peddlers. 

 
Better Markets is aggressively opposing this proposal because, if the SEC can enact corporate American’s anti-investor proposal contrary to express Congressional intent in this instance, then it raises the question of whether there are any limits on the SEC’s authority to do whatever it wants.
 
The SEC’s exemptive authority may be broad, but it isn’t unlimited, and it cannot be used to exempt entire sections of a statute, as is being proposed here. After all, the “testing the waters” proposal here is being applied to all companies; that’s not an exemption; that’s a repeal of a statutory provision.

 


 

The Fed is Making Bailouts More Likely by Putting Main Street Investors and Taxpayers on the Hook for Wall Street's Future Failures

In another example of Better Markets alone raising key issues to protect Main Street investors and taxpayers, we also opposed the banking regulators’ so-called TLAC proposal for “total loss absorbing capacity.” 

Rather than making Wall Street's too-big-to-fail firms maintain enough actual capital to absorb their own losses in bad times, banking regulators have decided to allocate losses from failinghttps://bettermarkets.com/sites/default/files/Elizabeth%20Warren.jpg banks to mutual fund investors and pensioners.  This is almost certain to undermine the stated objective of the proposed rule and make bailouts more, not less, likely.

Why would they do that? They’ve convinced themselves that it’s the right policy, but it’s also because the industry doesn’t want higher capital requirements and its political allies have made raising capital to the right levels virtually impossible politically. So regulators have come up with this otherwise crazy idea to have mutual funds and pension funds purchase debt that will convert to equity in the middle of a crisis to bail out the biggest banks and to prevent their failure. 
 
The result is that, just as in 2008, the public is going to pay for bailouts, but unlike last time when it was taxpayers footing the bill, it’ll be Main Street investors.

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