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Financial Reform Newsletter: Sept. 20, 2019

What's Inside?

  • Lehman Crash Anniversary: TBTF is Alive, Well & Getting Worse

  • 2020 Presidential Candidates' Debates & Launch of Voter Education Scorecard

  • Volcker Rule: Trump Administration Re-opening the Wall Street Casino

  • Getting the CFPB to Protect Vulnerable Consumers NOT Debt Collection Companies

  • Shocking Story About JP Morgan Chase, Forced Arbitration & FINRA Failures

  • Going to Court to Defend Critical SEC Program Against Baseless Industry Attacks


 

https://bettermarkets.com/sites/default/files/Elizabeth%20Warren.jpgLehman Crash Anniversary: Wall Street's TBTF Wealth Extraction Mechanism is Alive, Well & Getting Worse

Last Sunday was the 11th anniversary of the 2008 crash of Lehman Brothers investment bank and the onset of the worst financial crash since 1929 and the beginning of the worst economic catastrophe for the country since the Great Depression in the 1930s. 
 
Wall Street’s biggest too-big-to-fail banks, which were all bailed out by taxpayers in 2008 and only exist today because of those bailouts, are bigger, more dangerous and anti-competitive than ever. But even worse than all that, too-big-to-fail systemically important financial institutions have fundamentally changed finance into a wealth extraction mechanism for the few rather than a wealth creation system for the many. 
 
That’s why we must thoroughly change finance and get it back into the business of supporting the productive economy, jobs and growth.
 
Don’t buy Wall Street’s spin that we’re so much better off today than in 2008. That’s a self-serving claim designed to mislead people: of course, we’re better off than 2008 when the financial system was a disaster and collapsed due to Wall Street’s unrestrained risk-taking and widespread illegal if not criminal conduct! The real question and the correct standard must be different and higher:
 

 

Have the systemic and moral hazard risks been reduced enough so that the American people can have confidence that financial reform is sufficient and effective to protect citizens, taxpayers, the financial system, and the economy from Wall Street’s too-big-to-fail systemically important financial institutions?

 
As we detailed in this presentation “The State of Financial Reform on the 11th Anniversary of the Crash of Lehman Brothers,” the answer to that question is an emphatic “no.”
 
(For those who want a more global view of what’s happening, check out this presentation to a Financial Stability Board (FSB) workshop at the Federal Reserve Bank of New York earlier this week: “The Too Big to Fail Problem is Alive, Well and Getting Worse.”)

 

2020 Presidential Candidates' Debates & Launch of Voter Education Scorecard

So far, the candidates’ debates have totally failed to address the fundamental economic and financial issues facing America and the voters. Given that jobs, wages and economic growth are key to so many critical issues, including whether the American Dream is alive or dead, this is really nuts! That’s why we ran an Op Ed on “The Economic Answers Voters Want from the Presidential Candidates” and have developed a voter education scorecard on the key economic and financial issues
 
The Scorecard is dynamic and will be updated throughout the coming campaign. A downloadable PDF can be accessed here:
 


 

Volcker Rule: Trump Administration Re-opening the Wall Street Casino, Endangering Main Street

One reason Wall Street’s too-big-to-fail banks are dangerous and a threat to all American families is because the highest-risk activities have the highest-margins and generate the biggest bonuses. That shift to the high-margin wealth extraction activities is also a shift from the lower-margin wealth creation activities like traditional lending that supports the productive economy, jobs and growth.https://bettermarkets.com/sites/default/files/Elizabeth%20Warren.jpg

However, the high-risk, high-margin activities are almost always socially useless or, indeed, anti-social. Worse, most are unfairly subsidized by taxpayer support for deposits and in numerous other ways. The result is the biggest banks get to compete unfairly and externalize their costs. That’s a classic example of privatizing gains and socializing losses, which is Wall Street’s “heads I win, tails you lose” business model. That is exactly what happened before, during and after the 2008 crash.

That’s why much of financial reform was focused on ending those subsidies, forcing the banks to internalize the costs of those activities, and outright prohibiting the most dangerous, anti-social ones like proprietary trading. Of course, Wall Street hates all that. They want the biggest bonuses as quickly as possible, too often consequences be damned. That’s why they have spent enormous resources for years fighting financial reform relentlessly.

Unfortunately, Wall Street has notched another win from the Trump Administration, which has turned out to be Wall Street’s best friend even though Main Street families are hurt. The most recent win was the gutting of the Volcker Rule, which was supposed to prohibit high risk, dangerous proprietary trading.  Here and here are our press releases explaining the actions; here is a Fact Sheet on the loopholes created by the regulators most recent actions; and here is a document exposing in detail the myths and disinformation of Wall Street.

 


 

Getting the CFPB to Protect Vulnerable Consumers NOT Debt Collection Companies

https://bettermarkets.com/sites/default/files/Elizabeth%20Warren.jpgAlmost all Americans pay their debts and most of those who don’t are facing circumstances beyond their control like unemployment, a medical calamity, and other usually tragic occurrences. Congress enacted the Fair Debt Collection Practices Act (FDCPA) to protect those vulnerable Americans from shocking, egregious, and abusive practices by the debt collection industry: calling homes repeatedly day and night; calling employers to get people fired; calling friends, neighbors, and relatives to embarrass people; and generally harassing people nonstop to boost their profits. The list of horror stories is long and revolting.

The Consumer Financial Protection Bureau (CFPB) has proposed a rule to implement the provisions of the FDCPA. While it has a few modest consumer protections in it, the proposal also opens too many loopholes and ambiguities that will enable debt collectors to once again engage in too many near-abusive or outright abusive practices. For example, as we detailed in our comment letter, the proposal allows too many communications with debtors, essentially amounting to legalized harassment, and it would create an escape hatch from liability when debt collectors file lawsuits to collect on debts that are actually time-barred under the law. 

We will continue to fight to make sure the CFPB puts consumer interests over debt collectors and meaningfully constrain their impulse to engage in abusive but highly profitable practices.

 

 

https://bettermarkets.com/sites/default/files/Elizabeth%20Warren.jpgShocking Story About JP Morgan Chase, Forced Arbitration & FINRA Failures

This is a shocking and disturbing story of dereliction of duty by FINRA and the SEC, and egregious, repeated misconduct by JP Morgan Chase, including the creation of false evidence by a “compliance manager” used to corrupt a FINRA arbitration in retaliation against a whistleblower.
 
The hair-raising expose reveals many of the flaws in the financial system that are hurting millions of investors every day, including the systematic exploitation of clients and the gross deficiencies of FINRA’s biased, pro-industry, anti-investor arbitration forum. Indeed, FINRA appears more interested in protecting its own by persisting with disciplinary action against the whistleblower yet taking little or no action against those at JPMorgan who helped create the phony evidence in an attempt to destroy the career of the adviser.
 
The story also highlights and confirms what Better Markets and others have argued for years: the current arbitration system is deeply unfair to investors and fundamentally broken. FINRA and the SEC should be ashamed of and embarrassed by their conduct here. 

 


 

https://bettermarkets.com/sites/default/files/Simon%20Johnson.jpgGoing to Court to Defend Critical SEC Program Against Baseless Industry Attacks

Better Markets filed an amicus brief urging the D.C. Circuit Court of Appeals to uphold the SEC’s critical Transaction Fee Pilot program, which it initiated last year to study the effects of the legalized kickbacks large exchanges offer to brokers to attract orders. As we explained in our brief, these kickbacks hurt both large and small investors, who lose money when conflicted brokers route orders to maximize kickbacks from exchanges rather than seeking best execution for investors. Moreover, the exchanges use the order flow they receive from brokers to sell information to predatory high-frequency traders, who use that information to pick off and front-run retail investors’ orders. The Pilot, which will last one- to two-years, will enable the SEC to gather perhaps definitive information on the impact of these legalized kickbacks that would hopefully serve as the basis for informed and optimal policymaking.
 
As we have repeatedly said over the years, fundamental market structure problems, particularly deeply rooted conflicts of interest, will not be solved by those who benefit from the system. Legalized kickbacks by the exchanges that incentivize and induce routing decisions by brokers at the expense of best execution and market quality is one of those most entrenched and insidious market practices today, and it requires forceful and independent intervention by the SEC. This test pilot will enable the SEC to do just that.

 

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