Wall Street's Race to the Bottom (By Elizabeth Warren)
Excellent piece from earlier this year.
(Videos are below)
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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.
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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.
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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)
Everybody who knows anything about the Constitution knows that the POTUS does not sponsor bills, he signs or vetoes them.
“which you guys always like to point out that it will be pushed down to the customers”
Gobie, I was referring to campaign contributions, that is why U.S. made prescription drugs as an example are higher here than in Mexico or Canada, we have all the other “expenses” tacked onto what we purchase (i.e. contributions, lobbying expenses, etc.), while it is not legal to pass those costs onto foreign sales. And is why they want to stop people from crossing the border to do their purchasing, because it takes out of the political coffers.
“Obama likes to shit on the Constitution (he likes to refer to it as a flawed document).”
Every one of them have shit on the Constitution for many years, take a look at some of the Executive orders signed over the years, or the missing 13th amendment, or the backing of every administration of the FED since 1913, etc.
“The idea of forced debate to qualify is also very concerning. Who would run the debates and how would they be administered.”
How about Collegiate rules, the idea of candidates with earbuds in so others back stage can tell them what to say, or pre screened questions is appalling to me (both have happened in the past). I want to here what a candidate thinks, not his pre approved by his backers position.
“Why does FENA want to limit it to in-state donations?”
Why not? Do you think it is fair for my extra special who you adore from southwestern Ohio should be accepting money from Puerto Rican rum producers, or the tobacco lobby, etc. he should be representing southwestern Ohio, which is not in Puerto Rico, or the tobacco belt. These are just two of many examples you can find nationally that will even include donations from foreign Corporations.
“Is it fair to pass on the costs to a targeted group?”
People in targeted groups already pay, if you are on prescriptions, you are getting soaked by pharma, if you have insurance, you are getting raped by big insurance, if you have a loan, you are getting raped by the banks to fund the political process we have now. They all have to first make the money, before they can buy their champions.
“What about the free speech issues?”
How would free speech be denied? If anything it will help get alternative views to the public.
“How does it discriminate? Your choices are either yes or no. Do you want a "maybe?"
Gobie has only been interested in a one party supermajority by his own admission in the past Jack.
“That's all it seems to be here lately, Ron Paul or bust.”
Who mentioned Ron on this string …
You mean, if it's his party?
I see.
http://www.constitutionalconcepts.org/13thamendment.htm
http://www.constitutionalconcepts.org/13thamend-%20images.htm
I don't believe it's that simple re: the 13th amendment.
http://www.quatloos.com/13th_amendement.htm
http://www.thirdamendment.com/nobility.html
It's great to see that you are defending and sponsoring (used like saying supporter) the Constitution, I welcome you as a Birther!!! Congratulations Gomp for finally seeing the light! Don’t be bashful about it Gompers. The last poll said 57% think Obama is constitutionally ineligible. You will help make it 58%.
Sorry for using the word sponsor rather than supporting, Obama seems to love to legislate from the oval office. Words, just words, you understand Gompers.
Gomp the Birther, it does have a nice ring to it. You make me so proud, such growth under my wings.
How many times have I said the birther issue does concern me, and it should have been dealt with prior to the election, as it is hard to get a sitting POTUS to prove or do anything.
As a matter of fact, it should have been dealt with many, many years ago, and properly clarified. How many times have I asked you your thoughts on Chester Arthur and the possibility that he had the issue, only to see you scamper away. These two candidates are not the only ones who have had a questionable past, they are just the two candidates that won.
And still silence from the Sublime Court...
John B,
The operative phrase is "every Constitutional scholar knows about it", I did not say believes it. Although if I was a Barrister or a Banker, and such a thing was true, I would be willing to do anything to make it go away, LOL.
That was a curve ball directed at Gobie, although there are some interesting points of contention involved.
I was not saying you were wrong. In fact I thank you for introducing me to the idea. I was just trying to show you some links I found on the subject.
It is an interesting issue that you might enjoy looking into further. It is facsinating that history shows so many references to it, and it seems like something our founders might believe given their distrust of central banks and the crown. Yet if it is true, obviously the bankers and barristers would want it to dissapear, as it would impare their version of "progress".
Many times in history things are not what they seem, and remember, there are two sides to every story in our history. The Government approved lesson, and then what really happened. Of course, it is this way in all countries, to the victor the spoils, and all that.
I would also suggest looking at the Executive orders signed over the years, and the backing of every administration of the FED since 1913, etc. compared to the views of the Federalist papers, the works of Payne, Franklin, Jefferson, etc., common law, and of course that beutiful document called the Constitution to see how we have been doing honoring our forefathers vision.
I am aware of both sides of this coin, and by all means thank you for taking it upon yourself to allow curiousity to encourage your own quest for knowledge.
"The last poll said 57% think Obama is constitutionally ineligible. You will help make it 58%."
Polls will not resolve this issue, there is only one way Gobie.
You are such a lever two thinker. You can only go so far using critical thinking. You should consider flexing your abstract thinking muscles. Think about it Gompers, the power of multiple meanings and a deeper understanding that goes beyond the facts and into the realm of ideas, intuition and maybe even some healthy speculation. It’s time to go deeper.
Help me help you!!!
http://www.youtube.com/watch?v=AGt5f70K02Q&p=F9B7A0BABDA715D0&playnext=1&index=46
That goes for you too Sage and RLR.
How utterly WICCA.
You are really not qualified to assume that, and Tom and his aluminum foil cap can't fix it neither.
Just the facts man just the facts.
Abstract thinking and multiple meanings creating confusion and indecision are the basic tool kit of crooked politicians. If you keep the sheeple scattered and looking for something that may be, but isn't.
You can rob them blind before they regroup and realize it was never there to begin with.
PS - I think if you go any deeper your going off the end.
You can rob them blind before they regroup and realize it was never there to begin with.
PS - I think if you go any deeper your going off the end."
Agreed, and I do not think he has seen the end in a long time.