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August 24, 2018

Financial Reform Newsletter: What the hell is going on in Washington?

The SEC Should Not Take Away Investors’ Rights or Force Them into Secret, Biased Proceedings Where They Almost Always Lose
If you’re ripped off, should you have a meaningful way to get your money back?  If a corporation rips off you and hundreds or thousands of other consumers or investors, should that corporation be able to keep all that money?  That is what is at stake in the fight over what is called “forced arbitration.” 

An increasingly vocal minority is arguing for taking away investors’ rights to sue corporations in open court and force investors into secret, biased and very costly arbitration proceedings where the corporation almost always wins (on those rare occasions when consumers or investors actually put up money to even bring the arbitration in the first place).  The result is investors lose money and the corporation gets to keep it.  That’s wrong; that’s why you should care about the fight over “forced arbitration”; and that’s why you should read this article about the fight over taking away investors’ rights.


“Trump’s CEO-Friendly Tweet” To Deprive Investors of Information is a Bad Idea
Axios PM’s recent headline story (“Trump’s CEO-Friendly Tweet”) really tells what’s wrong with this administration.  When are we going to see a “Trump Investor- or Consumer-Friendly Tweet” or, better yet, action?  This latest anti-investor proposal comes on top of a mountain of anti-consumer actions taken by this administration.  We spell out here why depriving investors of important information is a bad idea and how short-termism is really caused by bad compensation and performance incentives.


The CFTC and SEC Whistleblower Programs Are Wild Successes and the SEC Should Not Snatch Defeat from the Jaws of Victory
The whistleblower program at the CFTC is operating at an unprecedented clip as the SEC’s whistleblower program is being deluged with claims while at the same time it is proposing new limits on the awards.

The CFTC’s record for the largest award it had granted stood at $30 million for only a few weeks as the agency just topped it with a $45 million award.  Up to this point, the CFTC had issued a total of four whistleblower award totaling less than $11 million.  In a statement, the head of the CFTC’s whistleblower program, captured the importance and efficacy of the program perfectly, saying,

“Whistleblowers have added significant value to our enforcement program by enabling the Commission to swiftly identify misconduct and hold wrongdoers accountable.  I expect this trend to continue as the Commission continues to receive increasing numbers of high-quality whistleblower tips.”

The last part of McDonald’s statement seems most prescient, as the SEC has seen a huge influx of potential whistleblowers contacting them with information regarding potential fraudulent activities and other wrongdoing.  Now in its seventh year, the SEC’s program has handed out $266 million to 55 tipsters who provided the agency with critical information about fraud and wrongdoing.

However, success has been a mixed blessing for the SEC as the agency has seen a deluge of potential whistleblowers coming forward with information about potential fraudulent activity and other wrongdoing.  The SEC is receiving about 110 applications for a whistleblower award every year.  As a result, the time to assess each tip has grown to about two years.

Rather than seeing this as a wild success and allocated the proper amount of resources, the SEC has proposed a rule that could set new limits on the whistleblower program.  The changes would give the SEC discretion to essentially cap whistleblower awards by a dollar amount, which is contrary to Congress’ express will to set the awards levels not in absolute dollar amounts but as a percentage of monies collected, as detailed by Better Markets.  Congress intended and wrote in law specific terms to maximally incentivize whistleblowers to go to the Commissions with original information.  The SEC’s move unnecessarily limits the program’s incentives and risks discouraging whistleblowers from reporting fraud, misconduct and crimes, in the process allowing fraud to go undetected and investors hurt.

Whistleblowers, as Better Markets has said, provide critical information to both financial enforcement agencies, the SEC and the CFTC, enabling them to uncover, investigate, and ultimately halt fraudulent and illegal conduct.  Whistleblowers do this at great personal risk and the Dodd-Frank law required both the SEC and CFTC to offer strong incentives for them to take those risks.  Better Markets applauds the CFTC for making these awards and encourages it to continue in this effort.  In an upcoming comment letter, Better Markets will argue against SEC’s efforts to give itself authorities that Congress reserved for itself and to foolishly limit the awards.


Big banks can’t get lawmakers to support deregulation, so they are trying to pressure the regulators to do their dirty work and Wall Street’s bidding
A recent Politico article highlighted Wall Street’s biggest banks effort in pushing back on the consumer protection and financial rules of the road — put in place in the aftermath of the 2008 financial crisis to protect Main Street from a potential future crisis.

Wall Street’s biggest banks and their lobbyists, including their newest lobbying group, the Bank Policy Institute which we discussed in a recent op-ed, has been using the revolving door to staff up and trying to use their Congressional allies to get regulators to weaken or eliminate key financial rules.  For example, several Republican Senators on the Banking Committee and dozens of Republican House members on the Financial Services Committee recently wrote to the Federal Reserve urging them to scale back rules for the handful of biggest banks. As Better Markets’ CEO put it in the article:

“These one-sided, partisan letters from congressmen shamelessly repeating Wall Street’s grossly misleading talking points demonstrate that Congress won’t vote in the light of day for Wall Street’s wish list because they fear voters will hold them accountable.”

These deregulatory efforts would be bad at any time, but coming less than one month before the 10th Anniversary of the failure of Lehman Brothers they should ring especially hollow:

“Everyone saw the tragic and catastrophic downside of insufficient capital just 10 years ago,” Kelleher said. “Responsible regulators know how critically important sufficient capital buffers are to protecting the financial system and the economy.”

The good news is that Wall Street’s biggest banks can’t get Congress to eliminate the protections for Main Street by weakening the Dodd Frank financial reform law.  They are reduced to getting their Congressional allies to send letters badgering regulators to do their dirty work and Wall Street’s bidding.  The bad news is the Wall Street remains rich, powerful, incredibly well-connected and relentless.  Worse, they are emboldened and doubling down as the American Banker pointed out in an article entitled “They’re baaaaaack: Big banks are flexing their lobbying muscle.” 

It’s somewhat misleading to say Wall Street is “baaaack” because they never left.  Their lobby reorganization and attempted rebranding are merely their latest attempt to overcome their latest failures.  However, still suffering from the economic catastrophe Wall Street inflicted on them from the last crash just ten years ago, the American people and most elected officials aren’t buying Wall Street’s latest attempted makeover:  painting themselves as some kind of benign social service organizations only interested in economic growth and jobs rather than profits and bonuses.  There’s no amount of lipstick that can fool enough people about the dangers and risks Wall Street still poses to Main Street. 

But, with hundreds of millions if not billions in profits and bonuses at stake if they can change the law or the rules to allow them to cut capital and prop trade, Wall Street, its lobbyists, lawyers and sundry other purchased allies will never give up.  They will do and spend and reorganize and say whatever they have to because they know memories fade, their created complexity intimidates many, money often enough speaks louder than wisdom, and sooner or later they will get enough loopholes and changes that they will once again be back to the go-go deregulation zeal that prevailed in the 1990s and 2000s………………….until the next crash, when they will again plead innocence and stick their hands in taxpayer pockets for yet more bailouts.


Consumer Financial Protection Bureau Acting Director Mick Mulvaney Sides With Predatory Payday Lenders over Ripped Off Military Service Members
According to internal documents at the Consumer Financial Protection Bureau (CFPB), widely reported by news outlets, acting director Mulvaney and his CFPB are looking to eliminate what is known as “supervisory examinations” of lenders for violations of the Military Lending Act.

This move, if carried out, would mark the 27th time by our count that Mulvaney will have sided with financial predators over Main Street consumers. This time though, it seems worse than others. Mulvaney is actively choosing to side with predatory payday lenders rather than the ripped-off military service members who are serving their country.

Mulvaney says believes the current CFPB practice is too “proactive” and not explicitly laid out in the Military Lending Act. However, for the past 5+ years, under the leadership of former Director Rich Cordray, the CFPB conducted countless investigations and oversight related to both lenders and payday lenders and received zero legal opposition. On top of that, no lenders are challenging the CFPB’s authority to carry these investigations out.

Adding military service members to the long and ever-growing list of other anti-consumer actions we have tracked, there really appears to be no consumer that the acting director of the Consumer Financial Protection Bureau will actually protect. 


What the hell is going on in Washington?  Why is it so messed up?  How’s it impacting everyday Americans?  What’s anyone doing about it?
Better Markets President and CEO recently sat down with Rob Johnson, President of the Institute for New Economic Thinking, to talk about, among many things, the 10th anniversary of the financial crisis, the rules of the financial road put in place after the crash, and how Main Street families are being protected from a future crisis – an effort spearheaded by Better Markets.

Here’s a short clip of Dennis laying out just how bad the financial crisis was for Main Street Americans

Here’s a short clip of Dennis on what candidate Trump promised the American people versus what President Trump has delivered for Wall Street.

And you can watch the full, 25-min conversation, here



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