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February 20, 2015

Financial Reform Newsletter – February 20, 2015

MUST SEE TV: Better Markets’ CEO takes on the propaganda machine of Wall Street’s too big to fail banks and the pollution of the public debate:  One of the unfortunate things about Washington DC policy debates is that they are often fact-free or little more than spin.  Too much of that comes from what we call the Wall Street fog machine that creates complexity and confusion in addition to just spewing out propaganda to support their baseless, self-interested positions.

One of the favorite and frequent ways Wall Street does this is to have allies, usually undisclosed purchased allies, put out a “study” or “report” that seems like it is from someone independent and authoritative.  Then that study or report focuses on something other than Wall Street’s interests, which are never stated, but those other interests nonetheless line up with Wall Street’s wish list to be deregulated and go back to policing themselves — which means no policing at all, i.e., the circumstances that caused the financial crash of 2008, the massive taxpayer bailouts and the economic wreckage still inflicting damage on tens of millions of Americans today.

This gambit was repeated last week when it was widely reported that a “Harvard Study says Dodd-Frank hurting small banks,” except it’s not from Harvard, it’s not a study and it doesn’t show Dodd-Frank hurts small banks (among other egregious deficiencies).  It says on the first page that it doesn’t reflect the views of Harvard and has “not undergone formal review or approval.”  In fact, it’s no more than a “working paper” written by a former officer of JP Morgan Chase, the biggest too big to fail bank in the US and the world.

More importantly, as Better Markets’ CEO Dennis Kelleher discussed in a lively debate today on Bloomberg TV, the working paper has multiple significant substantive flaws that thoroughly discredit it.  Most remarkably, it ignores the impact on small banks of the financial crash of 2008, which was the worst crash since 1929 and caused the worst economy since the Great Depression of the 1930s.  The cost of all that to the US is going to be more than $12.8 trillion.  GDP plummeted, business activity crashed, small businesses went bankrupt at historic rates, tens of millions lost their homes, unemployment and under-employment skyrocketed to more than 40 million Americans and home prices fell to 2001 levels.  The impact of that economic catastrophe on small banks and its customers was ignored by the author, who wanted to and did blame all problems facing small banks on Dodd-Frank.

In addition to ignoring the worst economic circumstances facing this country (including small banks) since the Great Depression, this former JP Morgan Chase officer had to also ignore the facts of Dodd-Frank.  He did this by dividing recent history into “crisis” and “post crisis” periods.  Without basis – and contrary to fact – he then arbitrarily began what he called the “post crisis” period on March 1, 2010 and then claims that all bad things that happened to small banks after that date have been due to the Dodd-Frank law. 

Except the Dodd-Frank law wasn’t passed until 7 months later (July 21, 2010) and it was not self-executing.  For the law to be effective and applicable, including any provisions that might be related to small banks, it had to go through the rule making process, which in the ordinary course usually takes years.  However, the entire process for Dodd-Frank has been repeatedly delayed mostly due to Wall Street lobbyists who have laid siege to the regulatory agencies.  And, even when an agency issues a final rule that doesn’t end the fight for Wall Street – it has often sued the agency in court to get the rule overturned.  As a result, depending on how you count, less than half of Dodd-Frank rules have been finalized even today – in 2015 — and many that have been aren’t yet effective.  Moreover, almost none of them apply to small banks!  The leading and very effective trade group for small banks actually endorsed Dodd-Frank after it expressly included numerous provisions making sure they were not applicable to small banks.

We won’t detail the numerous other fatal flaws in the working paper here, but we will note that the author’s proposals to address the problems that his tendentious paper created are directly from Wall Street’s wish list and directly contrary to the interests of small banks, the purported object of the author’s concerns.  They would effectively gut financial reform, unleash the too-big-to-fail banks and result in reckless, unregulated banking – again.  That not only threatens another financial crash and the economic devastation that will result (which will again disproportionately hurt small banks), but it also continues the indefensible subsidies to the biggest banks, which then compete unfairly against small banks. 

Ending too-big-to-fail, not perpetuating it as this author’s suggestions would do, is one of the best things anyone could do for small banks.  But, that is just another one of the many facts ignored in this working paper.

Worried about your retirement? So are we:  A crucial yet little known loophole has been costing millions of Americans their retirement savings.  Better Markets is proud to join forces with six other prominent national public interest organizations in an effort to help close this loophole.  

We urge you to go to our dedicated website and follow us on Twitter @OurRetirement for up to the minute news on our progress and to learn more about an issue that ultimately affects us all. 

The “Retirement Advice Loophole” dates back to the 1970s and allows financial advisers to act on their conflict of interests and to put their interests above the best interests of their clients.  For example, they can recommend investments that pay large commissions to them, but which drain away our retirement savings through high fees and subpar performance.  The US Department of Labor has been working hard to propose an updated rule that can fix this problem, but some in the brokerage and insurance industries are fighting to kill the rule before it even gets issued for public comment.   Why are they so afraid of the light of day?  What do they have to hide?  What won’t withstand public scrutiny?

What’s at stake? With over $12 trillion of retirement money in 401(k)s and IRAs, there’s tens of billions of dollars at stake that get shifted from your retirement accounts to your adviser’s bank accounts, usually invisibly and often in small amounts.  This adds up to a lot of money and can seriously impact the amount of money available to you for your retirement.  We aren’t saying every adviser or broker is doing this.  Indeed, many are honest, hardworking and loyal, but closing this loophole won’t affect them.  It will only affect those who put their interests above their clients.  We think anyone giving retirement advice should be required to put the best interests of their clients first, not their own interests.  That’s what closing the loophole will do.

Save Our Retirement is a campaign to support the Department of Labor’s effort to close the retirement advice loophole.  You can help by following us on Twitter, liking us on Facebook, and signing our petition.  Hard-working Americans deserve a secure and dignified retirement.  Let’s help the Department of Labor update its rule to better protect our retirement savings.

Better Markets in the News

What Will Be the Legacy of Dodd-Frank Legislation?: Bloomberg TV Betty Liu “In the Loop” 2/20/2015

Video of Dennis Kelleher’s February 2015 Finance Watch Conference Speech: Finance Watch (Youtube) 2/16/2015

Articles of Interest

New Rules Spur a Humbling Overhaul of Wall St. Banks: The New York Times by Nathaniel Popper and Peter Eavis 2/19/2015

House Bill Would Force Big Banks to Compete in Free Market: American Banker by Mayra Rodriquez Valladares 2/20/2015

Are the World’s Biggest Banks Moving Money for Terrorists?: Bloomberg by Paul Barrett 2/19/2015

A Whistleblower’s Horror Story: Rolling Stone by Matt Taibbi 2/18/2015



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