Financial Reform Newsletter

Investigative media report reveals that Wall Street secretly funds DC front group to attack those who attempt to hold the biggest banks and their executives accountable: The DC group, Third Way, claims to be independent, but in fact consistently pushes Wall Street’s agenda in the power corridors of Washington DC and, remarkably, has spent the last year engaging in a high profile public attack on Sen. Elizabeth Warren (D-Mass.).  But, far from being independent and disinterestedly analyzing issues and offering objective opinions, the extensive investigative report by the Boston Globe’s Noah Bierman revealed that Third Way gets most of its multi-million dollar annual budget directly or indirectly from Wall Street.  As the report detailed, Third Way is “backed by Wall Street titans [and] corporate money ….”  

No wonder they so often push the agenda of their undisclosed, unacknowledged Wall Street paymasters.  This type of secret funding for front groups like Third Way matters because the “Globe examination of public documents and the backgrounds of [Third Way’s] leadership offers a window into how some wealthy Wall Street and business interests – who contribute generously to Democratic candidates – have sought to tip the Democratic Party’s intellectual debate against populism,” which is too often the pejorative and grossly misleading shorthand for anyone trying to hold Wall Street accountable.   

Better Markets president Dennis Kelleher elaborated on this story as illustrating more broadly How Wall Street Still Gets Its Way in Washington, D.C., published in the Huffington Post:

“It tells the sordid tale of how Wall Street not only gets a seat at the table, but how it gets the table set according to its preferences and the discussion conducted in a way that is most favorable to it. It’s also about trashing and trying to marginalize anyone who disagrees with Wall Street’s policy agenda. Adding insult to injury, Wall Street does this mostly unseen through undisclosed money and connections and behind closed doors without fingerprints.”

 Read the full story here.

 SEC gets a jump on holiday gift-giving with waivers for Citigroup – and coal for investors: The Securities and Exchange Commission – aka the cop on the Wall Street beat –  has summarily granted Citigroup two waivers from regulatory restrictions arising out of the federal court injunction recently entered against it.  That injunction was part of a  $285 million settlement with the SEC over the banks’ fraudulent sale of toxic mortgage-backed securities in the lead up to the 2008 crash.  These little-noticed acts of clemency, granted on September 26, 2014, without any explanation or analysis, will allow Citigroup to sell hedge fund investments and other private offerings under rules that provide relatively few investor protections.   

President Obama meets with nation’s top financial regulators on next steps for financial reform: In a White House meeting this week, the President kept up the pressure on top officials at the SEC, the Federal Reserve, Treasury Department and the CFTC, among others, urging them to identify “additional ways to prevent excessive risk-taking”  by Wall Street, said the president. Earlier this year during an interview with NPR’s Marketplace, Obama made the case for holding Wall Street and the financial sector accountable:

“Here’s the problem, the problem is that for 60 years, we’ve seen the financial sector grow massively. Now, it’s a great strength of our economies that we’ve got the deepest, strongest capital markets in the world, but what has also happened is that as the financial sector has grown, more and more of the revenue generated on Wall Street is based on arbitrage — trading bets — as opposed to investing in companies that actually make something and hire people. And so, what I’ve said to my economic team, is that we have to continue to see how can we rebalance the economy sensibly, so that we have a banking system that is doing what it is supposed to be doing to grow the real economy, but not a situation in which we continue to see a lot of these banks take big risks because the profit incentive and the bonus incentive is there for them.”

Would you sue the fire department after it saved your home from total destruction  because they got your furniture wet in putting out the fire?  That is what’s happening this week in the DC federal courtroom where the former head of the insurance behemoth AIG is suing the federal government for bailing out his company 6 years ago during the worst financial crisis since the stock market crash of 1929.  And, of course, as everyone will remember, AIG was key to blowing up the global financial system and almost causing a second Great Depression.  

We have been very critical of the terms and conditions under which Wall Street was bailed out in 2008-2009, but AIG faced certain bankruptcy and complete failure for its egregiously reckless, if not illegal, gambling in derivatives.  Bankruptcy would have resulted in almost certain total losses for its shareholders as well as substantial if not complete losses for most of its creditors and counterparties.  The only thing that prevented that from happening was one of the largest bailouts in US history:  more than $180 billion just to prevent AIG’s failure. 

Nevertheless, AIG’s former CEO, Maurice “Hank” Greenberg, is suing the U.S. government basically claiming that the terms of the bailout that prevented its bankruptcy were too tough.  He is now asking the court to award him and his fellow shareholders roughly $40 billion in taxpayer dollars on top of the more than $180 billion bailout.  And, let’s not forget that after that bailout AIG used some of that taxpayer money to pay hundreds of millions of dollars to the very executives that made those reckless bets in so-called “retention” bonuses so that they could make a fortune unwinding the very bets that bankrupted the company in the first place.  This lawsuit is award-winning Wall Street arrogance and ingratitude. 

 Better Markets’ Dennis Kelleher made his views on the case to the Los Angeles Times’ Dean Starkman: “The only choice facing AIG was bankruptcy, total failure, a complete loss for all stockholders, and close to complete losses for all of AIG’s creditors and counter-parties – or this incredibly generous bailout from U.S. taxpayers. What Hank Greenberg is saying is that: ‘We should have gotten a better return from our recklessness that not only cost AIG but almost caused a second Great Depression.'”

Better Markets in the News:

 Analysis: Suit asks why U.S. bailout of AIG wasn’t more generous: LA Times by Dean Starkman 10/9/2014

Expected Change in Derivatives Aims to Curb Damage From Bank Failure: New York times by Peter Eavis 10/8/2014

Third Way in struggle for the Democratic Party’s soul: Boston Globe by Noah Bierman 10/6/2014

How Wall Street Still Gets Its Way in Washington, DC: Huffington Post by Dennis Kelleher 10/7/2014

Articles of Interest:

The Great Wage Slowdown of the 21st Century: New York Times by David Leonhardt 10/7/2014

 SIFI Designations Aren’t Meant to Last Forever: American Banker by Paul H. Kupiec 10/8/2014

Profit at Goldman Less Easy to Find: New York Times by Nathaniel Popper 10/7/2014

Banks rewrite derivatives rules to cope with future crisis: Financial Times by Tom Braithwaite and Tracy Alloway 10/7/2014

IMF says economic growth may never return to pre-crisis levels: The Guardian by Larry Elliott 10/7/2014

AIG lawsuit should be laughed out of court: Our view: USA Today by the Editorial Board 10/7/2014

What Regulators Will Target Next: American Banker by Rachel Witkowski 10-6-14

 Wall Street Moles Go to New York’s Top Cop, Spurning SEC Cash: Bloomberg by Keri Geiger and Sam Mamudi 10-7-14

U.K. Wins First Guilty Plea From Banker on Libor-Rigging Bloomberg by Suzi Ring 10-7-14

Expand Automated Trading Safeguards to Include Brokerages, SEC Members Say: Bloomberg by Dave Michaels 10-6-14

Jobs report underscores Obama’s economic dilemma: CNBC by Ben White 10/3/2014

Millennials Really Don’t Like Big Banks. That’s Going to Disrupt the Financial Services World:  National Journal by Nancy Cook 10/6/2014

The middle class is poorer today than it was in 1989: Washington Post by Matt O’Brien 10-1-14

Swaps Said to Be Losing Special U.S. Bankruptcy Status: Bloomberg by Jesse Hamilton and Silla Brush 10-3-14

Secret Goldman Sachs Tapes Put Pressure on New York Fed: New York Times  by Nathaniel Popper and Peter Eavis 10-2-14