February 2, 2022

January 2022 Month In Review Newsletter

The new year is off to a rocking start, with lots of activity focused particularly on the Federal Reserve, which impacts the wallets and pocketbooks, lives and livelihoods of every American family. Anyone with a job, home, savings or checking bank account, credit or debit card, or loan of any type (student, mortgage, auto, personal, small business, etc.) is directly and meaningfully touched by the actions of the Fed. That’s why we call the Fed the Supreme Court for economic and financial policymaking (and why we released a major report on the Fed last August, available here).

The attention on the Fed is for four key reasons: first, monetary policy, the so-called “policy pivot” on interest rates and balance sheet activities, which is going to impact wages, jobs, the cost of credit, and the business and economic cycle as well as financial stability. Second, regulatory policy, which relates to whether the Fed is going to require Wall Street’s biggest banks to follow strong rules to protect Main Street familiesfrom another financial crash and crisis like those banks caused in 2008. Third, confirmation activities, which, with five of President Biden’s nominees for the Fed, including its Chair, pending before the Senate, is very consequential and has the potential to be very contentious. Fourth, the ongoing trading scandal, which the Fed continues to downplay and cover up and needs to disclose fully to the American people all those who traded for personal profit during the pandemic while in possession of nonpublic information.

I’m going to focus for a minute here on the confirmation process for President Biden’s candidates for the Fed. There is no genuine dispute that these mainstream nominees are fully qualified and committed to carrying out the Fed’s statutory mandates while protecting the Fed’s independence. (That is true notwithstanding baseless attacks on President Biden’s nomination of Sarah Bloom Raskin for her views on climate—we will release a detailed rebuttal in the coming days.)

Current Chair Jay Powell has been renominated for another 4-year term as Chair and Governor Brainard has been nominated to be the Vice Chair; both have testified at their confirmation hearings on January 11 and 13 respectively. (See the Hill Update below.) The confirmation hearings for three other candidates are scheduled before the Senate Banking Committee on Thursday, February 3, 2022 (which you can watch live here). Ms. Raskin, nominated for the critical role of Vice Chair for Supervision, is a distinguished scholar and highly experienced public servant who is a former Deputy Secretary of the Treasury Department and former Governor of the Fed (from 2010-2014). The other two nominees, Lisa Cook and Philip Jefferson, are both outstanding, accomplished scholars, all as detailed here.

While we have had disagreements with a number of Chair Powell’s actions (particularly regarding deregulation of the banks and his deficient response to the trading scandal), we have never questioned his qualifications or his commitment to the Fed. He is clearly well qualified and should be confirmed. Similarly, Gov. Brainard would unquestionably be an outstanding Vice Chair and she, along with the other nominees, should be confirmed.

Unfortunately, while the nomination and confirmation processes are inherently political, too often qualifications are subordinated to political attacks. For example, the Senate in 2011 rejected President Obama’s Fed nominee Peter Diamond, who was a Nobel Prize winning economist (and whose then-criticized views about inflation turned out to be right). In fairness, the Senate’s recent bipartisan rejection of Judy Sheltonfor the Fed had a substantial merits basis given her views were wildly outside of the mainstream and risked politicizing the Fed. (That, however, comes with a warning because the current minority leader of the Senate Banking Committee nonetheless stridently supported Ms. Shelton, reflecting his consistent elevation of politics and ideology above qualifications.)

We are already seeing unfair political attacks on President Biden’s nominees, particularly aimed at Ms. Raskin, even though she is extremely well-qualified. That’s why her opponents are misleadingly cherry-picking and distorting some of her statements about the Fed’s mandate regarding climate. However, her views, when read fully and in context, are mainstream, well-grounded in the Fed’s mandate, and align with the views of Chair Powell and many others (including Trump’s former Vice Chair for Supervision). We will shortly release a detailed discussion of Ms. Raskin’s actual views and statements and a rebuttal of the baseless criticism.

There’s lots more going on and much more coming up in the next month so regularly check our website www.bettermarkets.org and look out for future Newsletters. Also, be sure to follow us on our social channels: Twitter, Facebook, and LinkedIn, and feel free to send comments or questions to [email protected].

Thank you again for your interest in and support of Better Markets!

Best, Dennis

Dennis Kelleher

Co-founder, President, and CEO, Better Markets

FOCUS ON…

SEC’s Whistleblower Program: A $5 Billion Success Story with a Bright Future

The SEC’s whistleblower program was established in the Dodd-Frank Act of 2010, and in the decade since then, it has amassed an impressive record as an effective law enforcement tool. It essentially requires the SEC to pay whistleblowers an award of between 10% and 30% of any monetary sanction exceeding $1 million that the SEC obtains in an enforcement action that is based on original information provided by the whistleblower. It has incentivized those with critical and hard-to-uncover evidence about securities fraud to come forward notwithstanding enormous personal and financial risk. And it has been a resounding success by any measure. Read more >>

ACTIVITIES AT THE REGULATORY AGENCIES…

Better Markets Applauds SEC’s Increased Hedge Fund & Private Equity Disclosures

Better Markets applauded the Securities and Exchange Commission’s January 26 vote to strengthen the reporting requirements applicable to SEC-registered investment advisers to private funds. By increasing reporting requirements for large hedge funds and liquidity funds, the Commission’s new proposal will better protect investors and markets and enhance regulators’ ability to monitor systemic risk and bolster regulatory oversight. Read more >>

Better Markets filed a comment letter with the Securities and Exchange Commission in response to the agency’s proposal to require the reporting and public dissemination of information about securities lending transactions such as short selling. That securities lending market is critical to short selling, a widespread practice that started to draw fresh media attention and regulatory scrutiny after the GameStop trading frenzy in January last year. We support the SEC implementing the Dodd-Frank Act, so that all these market practices—including short selling, securities lending, and others—are brought out of the shadows and into the light. This rule, and others to follow, will help make our markets more fair, efficient, and transparent. Read more >>

ACTIONS IN THE FEDERAL COURTS

Spotlight on the Supreme Court

Every term, the U.S. Supreme Court decides cases influencing not just major social policies such as abortion and gun control but also financial and economic issues that can profoundly affect the lives of virtually all Americans—anyone with a bank account, credit card, mortgage loan, or retirement fund. We regularly issue reports highlighting these critically important economic and financial cases. Read our preview of the current term here, and our recap of the last term here.

This term, the Court’s docket includes a number of cases that will address major legal questions in the areas of arbitration and the fiduciary duties owed to retirement savers. The Court will also consider matters of administrative law, a seemingly technical area of law that can profoundly affect the ability of regulatory agencies to carry out their mission of protecting the public from financial frauds and other threats to public health, safety, and welfare.

Below are three of the cases we’re watching, all of which have been argued to the Justices. As the weeks and months pass, we’ll be looking for the Court’s decisions on the merits and highlight the outcomes. In addition, we’ll continue to monitor the Court’s list of petitions for certiorari—requests by parties that the Court accept a case for review—with an eye on those cases that matter to the financial and economic well-being of everyday savers and investors.

ERISA LIABILITY FOR MISMANAGEMENT OF DEFINED CONTRIBUTION PLANS – Hughes v Northwestern University, 953 F.3d 980 (2020) (S. Ct. Docket No. 19-1401) (oral argument set for December 6, 2021) – In a unanimous ruling on January 24, the Supreme Court ruled that workers and retirees can continue to sue employers and Wall Street banks that offer bad investments with excessive fees in their 401(k) lineup even if they also included some reasonable choices. (We outlined the stakes in ouramicus briefand profiled the casein our November newsletter)
CHEVRON DEFERENCE – American Hospital Assoc. v. Becerra, 967 F.3d 818 (2020) (S. Ct. Docket No. 20-1114) (oral argument set for November 30, 2021) – How much deference will the Court afford to an agency’s interpretation of the law?
SUBJECT MATTER JURISDICTION FOR CONFIRMATION OF ARBITRATION AWARDS – Badgerow v. Walters, 975 F.3d 469 (5th Cir. 2020) (S. Ct. Docket No. 20-1143) (oral argument set for November 2, 2021) – Which courts (state or federal) have jurisdiction when parties seek to vacate or confirm an arbitration award?

HILL UPDATE

Federal Reserve Nominees Appear Before Senate Banking

In January, the Senate Banking Committee held two hearings to consider the nominations of Jerome Powell to be Chairman of the Federal Reserve Board, for Lael Brainard to be Vice Chair of the Federal Reserve Board; and for Sandra Thompson to be Director of the Federal Housing Finance Agency.

Chair Powell took questions from both Republicans and Democrats at the hearing about the impact of the Fed’s policies on the rising inflation rate and its impact on working families. He was also asked to assess the Fed’s willingness to follow recommendations made by the Financial Stability Oversight Council that called climate change a significant financial risk. Chair Powell said that the Federal Reserve is considering the use of scenario analysis for the climate change issue and said they will be a key tool going forward.

At a separate hearing, Governor Brainard indicated that controlling inflation is the “most important task” the Fed faces right now because working people around the country are concerned about how far their paychecks will go. She added that the Federal Reserve must frequently ensure that financial institutions are properly managing their risks, regardless of whether those risks come from the financial sector, the changing climate, or, as has been the case for the last two years, a global pandemic.

The Senate Banking Committee is holding a nomination hearing next Thursday, February 3 on President Biden’s three other nominees for the Fed. The Committee is expected to vote on all the nominations sometime after that.