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September 24, 2014

Financial Reform Newsletter September 24, 2014



Financial Reform Newsletter
September 24, 2014

Broad group of public interest and labor organizations applaud the Dept. of Labor’s push to protect Americans’ retirement savings: Millions of hardworking Americans who have spent years saving for retirement are receiving financial guidance from professional advisers who are not obligated to act in the best interest of their clients, resulting in a huge drain on retirement savings for many workers and retirees, wrote a group of leading public interest organizations in a letter sent last week to members of Congress and officials in the Obama administration. Those advisers are often permitted to recommend investments that beef up their own income but come with high fees, poor returns, and even substantial risks for clients, because they have no fiduciary duty.  This behavior, which threatens the retirement security of millions of American workers and senior citizens, will continue unless the U.S. Department of Labor completes its work updating the 40-year old fiduciary duty rule that governs those who advise retirement plans and plan participants, the group argued.  The rule proposal is expected to be released publicly in January next year.

Top U.S. banking regulators warn still much work to be done to shield the taxpayer and the economy from risks posed by “too-big-to-fail” Wall Street banks: Last week, the Federal Deposit Insurance Corporation (FDIC) held its annual banking research conference, which brought together researchers and policy makers from around the world  to discuss pertinent issues in the areas of capital and liquidity regulation, systemic risk monitoring, and the economic impact of “too-big-to-fail” bailouts, among other important topics. Better Markets contributed to the conference discussion.  Martin Gruenberg, Chairman of the FDIC, in his remarks once again noted that we should be mindful of the fact that the underlying problems that created the 2008 financial crash are still with us today, and policymakers must focus on addressing them.  Thomas Hoenig, Vice Chairman of the FDIC, reiterated his concerns, which he outlined in February of this year, that we need to assure that the largest, most complicated banks can be resolved through bankruptcy in an orderly fashion and without taxpayer bailouts.

 A number of areas of vulnerability were outlined at the conference in addition to shadow banking and inadequate capital levels, including concentration of financial assets, problems with bankruptcy law, and cross-border trading, to name a few.  As Better Markets has repeatedly said, the risk of “too-big-too-fail” banks and the inevitable bailouts by taxpayers will remain as high today as it was in 2008 unless Congress and the regulators address capital adequacy, resolvability, and shadow banking. We cannot afford to gamble on whether or not the financial system will survive another global crisis, and we must implement solutions that we know will help address that threat.


 Lawmakers urge the S.E.C. to move quickly to protect investors from possible fraud as a result of the deregulatory JOBs Act: In a letter sent this week (Tuesday, Sept. 23) U.S. Senators Carl Levin (D-Mich.); Jack Reed (D-R.I.); Edward Markey (D-Mass.); and Elizabeth Warren (D-Mass.) called on SEC Chair Mary Jo White “to finalize and strengthen investor protections for private securities offerings that you proposed more than one year ago.” At issue are provisions within the JOBS Act that allow hedge funds and start-ups  to solicit potential investors through “highway billboards, internet advertisements, cold calls to senior living centers, and promotional t-shirts…with no education for investors and limited disclosure of risks,” the lawmakers wrote.

 Better Markets shares these concerns over the risks that the JOBS Act poses to all investors. In September of last year, when the SEC announced its proposal to protect the public from an onslaught of predatory marketing tactics for risky investment products, Better Markets sent a letter to the agency mirroring the same worries expressed by the lawmakers: “Protecting investors and markets is why the SEC exists. That, presumably, is also why the Proposed Rules were issued, but if they are to be more than ineffective window dressing, they must be substantially strengthened and then adopted without delay. Investors in the private offering market are now exposed to a fresh wave of investment offerings through general solicitation and they deserve to be protected,” wrote Better Markets.

 Correcting the Record:  Former NYC mayor Michael Bloomberg, in a press event, last week observed that “[T]wo people from Goldman [Sachs], Hank Paulson and Bob Steel, and Steve Rattner, my friend, and a bunch of others who came to Washington…they saved America” from the financial collapse that Goldman Sachs and the other “too-big-to-fail” Wall Street firms helped create. However, Mr. Bloomberg failed to mention another group of people who played a key role in “saving America”: The U.S. taxpayers. To avoid an utter collapse of the entire U.S. and global financial system, the U.S. government spent, lent, guaranteed, pledged, and otherwise used trillions of dollars in taxpayer money.  The taxpayers  foot the bill for the bailouts, and they are still paying the price for the financial crisis, which will ultimately cost over $13 trillion dollars  in lost wealth, including retirement and college savings, income, jobs, and homes for tens of millions of Americans. 

 Criticism over the Dept. of Justice’s refusal to hold Wall Street executives accountable for causing the worst financial crisis since the market crash of 1929 continues: Read this scathing piece in the Fiscal Times by columnist David Dayen who captures the feelings of many Americans: Eric Holder’s Shameful Legacy on Wall Street Fraud. Mr. Holder’s Justice Dept. has not held a single Wall Street banker responsible for crashing the financial system and the economy. And the settlements the Attorney General reached with the “too-big-to-fail” banks in the last year have all side-stepped judicial review and withheld most of the critical information about what the banks actually did and the scope of the harm they caused.  This is exactly why Better Markets is suing the Justice Department over the  backroom, secret  settlement it handed JPMorgan Chase.


Better Markets in the News:

 Broad-Based Coalition Pushes For Updates To Retirement-Plan Advice by Cyril Tuohy 9-18-14

 It’s Been a Bad Week for Wall Street  VICE by Matt Taylor 9-18-14

Articles of Interest:

 FDIC Chair: More Detail May Be Coming On ‘Single Point of Entry‘ Wall Street Journal  by Ryan Tracy 9-22-14

 N.Y. financial regulator says to focus on cyber security Reuters by Luciana Lopez 9-22-14

 Barclays Fined $62 Million on Asset-Protection Failures Bloomberg by Richard Partington 9-23-14

 High Hopes for Russia Are Fading on Wall St. New York Times by Andrew Ross Sorkin 9-22-14

 Wells Fargo admits to control problems from insider-trading case Reuters by Sarah Lynch 9-22-14

 S.E.C. Makes Largest Ever Whistle-Blower Award New York Times by Matthew Goldstein 9-22-14

 GAO: CFPB Should Take Steps to Protect Consumer Data Collected From Banks Wall Street Journal by Alan Zibel 9-22-14

 Charles Plosser and Richard Fisher, Both Dissenters, to Retire From Fed New York Times by Binyamin Applebaum 9-22-14

 Fed Rebukes U.S. Branch of Santander New York Times DealBook by Michael Corkery 9-18-14

 Citigroup Tells Appeals Court of Its Argentina Quandary New York Times DealBook by Alexandra Stevenson 9-18-14

 Regulators Weigh Delay for Separating Banks’ Swaps Units Bloomberg by Jesse Hamilton and Silla Brush 9-19-14

 Eric Cantor’s out, Wall Street’s still in POLITCO by Anna Palmer and Jake Sherman 9-17-14



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