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October 23, 2014

Financial Reform Newsletter October 23, 2014


Financial Reform Newsletter

October 23, 2014

What’s wrong with Wall Street’s Big Bank earnings? Lots: This month, the handful of “too-big-to-fail” banks that played the leading role in the financial crisis of 2008, devastating the lives of millions of Americans, reported very good third quarter financial results. The seven biggest Wall Street banks reported $109 billion in revenue and almost $20 billion in profits, for just three months.  

No wonder JPMorgan Chase’s CEO, Jamie Dimon, emphatically declared that the U.S. financial system has “completely recovered” from the financial crash.  

However, as Better Markets lays out, that is not the case for many American families who, even 6 years after the crash and the Great Recession, still struggle to pull themselves back to where they once were.  

“…almost 20 percent of homeowners in the U.S. are underwater, meaning their mortgages are higher than the market value of their homes.  Indeed, almost one-third of all homeowners are “effectively” underwater because they have so little equity that selling their home without a loss after costs would be difficult.  In addition, real median net worth has collapsed from a high in 2007 to levels not seen in roughly 25 years (1989),” wrote Better Markets. “…U.S. workers’ paychecks have stagnated.  Thus, to the extent that the financial crash didn’t wipe out, directly and immediately, whatever savings people had, there’s little if anything left for U.S. families to save or spend after paying the bills.”

This shows, once again, that measuring the condition of the country on how Wall Street’s biggest banks are doing turns the world upside down: the measure should be on how America’s families, workers and communities are doing. 

Wall Street banks unprepared for another crisis: That was the main message Better Markets’ President and CEO, Dennis Kelleher delivered during an interview with Bloomberg TV’s Betty Liu. Kelleher discussed the insufficient capital held by the “too-big-to-fail” banks, and the failure of these systemically risky institutions to pass meaningful ‘stress tests’ to protect U.S. taxpayers from a future bailout. 

Watching the “public part” of a recent meeting of the Financial Stability Oversight Committee (FSOC) was … painful. Regrettably, FSOC meetings make the Kremlin look open by comparison: “That’s unfortunate because it’s a disservice to the American people and a wasted opportunity for policy makers.  FSOC members should demand lengthy public meetings so that the American people, the press and the chattering class get to see that the Committee is genuinely grappling with difficult issues; that its members are serious, competent and hardworking policy makers; and, that they are taking their duties to protect the country against systemic risks seriously and working hard to prevent more crashes and bailouts,” wrote Better Markets’ Banking Specialist, Irina Leonova in a blog post, who also attended the FSOC meeting.

Weakening Reforms in the Securitization Market to Protect Mortgage Financing From an Uncertain Threat is a Bad Trade: The final risk retention rule mandated under the Dodd-Frank law and  released this week by federal regulators represents a step forward, but it still falls short of what we need to reform the securitization markets and prevent another financial crisis and devastating economic collapse.  The rule includes a huge loophole for “qualified residential mortgages” that threatens to gut the new risk retention requirement for mortgage-backed securities. You can read more about the new “risk retention” rule, and how it falls short of protecting the U.S. economy from another financial crisis here:

Have we ended Too-Big-To-Fail? That will be the topic of discussion during an event on November 5 in Washington, D.C. and co-sponsored by Better Markets. Among those speaking at the conference held at the George Washington University Law School, will be Thomas Hoenig,  FDIC Vice Chairman, Jeffrey Lacker, President, Federal Reserve Bank of Richmond, Anat Admati, Professor of Finance and Economics, Stanford Graduate School of Business, and Simon Johnson, Professor of Entrepreneurship, MIT Sloan School of Management and Senior Fellow, Peterson Institute for International Economics. If you live in or near Washington, D.C., or will be in town on Nov. 5th, details for the event can be found here:


Better Markets in the News:

How The Fed Blew Its Most Important Job For Over Three Years: Huffington Post by Zach Carter 10-22-2014

Goldman Underperforms Market After Reporting Strong Earnings: ValueWalk by Mark Melin 10-16-14

Behind big banks profits, a sea change: Marketplace by Stan Alcorn 10-14-2014

U.S. Banks Not Ready for Another Crisis, Kelleher Says: (Video) Bloomberg TV’s “In the Loop” with Betty Liu 10-14-14

 Rational Exuberance?: Financial World by Better Markets Fellow, Robert Jenkins 10-14-2014

Articles of Interest:

 J.P. Morgan Knew of China Hiring Concerns Before Probe Wall Street Journal by Emily Glazer, Dan Fitzpatrick, Jean Eaglesham 10-22-14

U.S. Loosens Reins, but Mortgage Lenders Want More Slack NY Times by Peter Eavis 10-22-14

Why you weren’t invited to the Fed’s ‘ethics’ talk with Wall Street: Market Watch by David Weidner 10-21-2014

Fed to Banks: Shape Up or Risk Breakup: Wall Street Journal by Ryan Tracy and Victoria McGrane 10-20-2014

Regulator Tells Banks to Clean Up Bad Behavior or Face Downsizing: New York Times Dealbook by Peter Eavis 10-20-2014

Fidelity fought Washington over money market funds – and won: Boston Globe by Christopher Rowland 10-19-2014

SEC Is Steering More Trials to Judges It Appoints: Wall Street Journal by Jean Eaglesham 10-20-2014

Federal Housing Finance Agency Unveils Plan to Loosen Rules on Mortgages: New York Times by Dionne Searcey and Peter Eavis 10-20-2014

Why High-Frequency Trading Is So Hard to Regulate: New York Times by Peter J. Henning 10-20-2014

Four Key Questions about the Upcoming ‘QRM’ Rule: American Banker by Ian Mckendry 10-20-2014

Did Bank Rules Kill Liquidity? Volcker, Frank Respond: Bloomberg by Yalman Onaran and Dakin Campbell 10-20-2014

JPMorgan Seems Less And Less Interested In Lending Money: Huffington Post Business by Ben Walsh 10-15-2014



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