Andy Kroll

Andy Kroll

Senior Reporter

Andy Kroll is Mother Jones' Dark Money reporter. He is based in the DC bureau. His work has also appeared at the Wall Street Journal, the Detroit News, the Guardian, the American Prospect, and TomDispatch.com, where he's an associate editor. Email him at akroll (at) motherjones (dot) com. He tweets at @AndrewKroll.

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Watchdog Blasts Private Financial Regulators

| Tue Feb. 23, 2010 12:17 PM PST

In a letter sent today to Congress' banking and finance committees, a leading government watchdog has urged House and Senate lawmakers to crack down on the financial-services industry's internal "private self-regulatory organizations," or SROs, a less understood but problematic player in the global financial meltdown. Put simply, an SRO is a regulator within, say, the securities industry tasked with protecting investors, but is often led, in a glaring conflict of interest, by the very same people that regulator is supposed to be overseeing. If that sounds dubious, well, that's because it is. And as the Project on Government Oversight (POGO) contends in its letter, one prominent SRO, the Financial Industry Regulatory Authority (FINRA), has an "abysmal track record," so much that POGO openly questions "whether FINRA can ever be an effective regulator given its cozy relationship with the securities industry."

Despite FINRA's stated commitment to "putting investors first," a look at the regulator's record in the past few calamitous years casts doubt on that claim. FINRA, the POGO letter states, neglected to step in and regulate firms like Lehman Brothers, Bear Stearns, and Merrill Lynch that all collapsed under FINRA's watch, while also failing to spot the massive, multibillion-dollar Ponzi schemes run by Bernie Madoff and Allen Stanford. In Stanford's case, POGO found, an internal FINRA review discovered the regulator missed Stanford's scheme on several occasions; and with Madoff, the private regulator claimed it wasn't at fault for letting the biggest Ponzi scheme in history slip by even though experts said Madoff was under FINRA's purview.

Then again, when you look at FINRA's leadership, it's hardly surprising the regulator failed to spot the likes of Madoff and Merrill, Stanford and Bear Stearns. As POGO's letter says, conflicts of interests are rife within FINRA, to wit: FINRA chairman and CEO Richard Ketchum is a Citigroup alum; the regulator's executive overseeing member regulation came from Charles Schwab; and another executive in charge of enforcement is a former partner at a top law firm representing major financial institutions. Not to mention FINRA's ties to Madoff and Stanford—Shana Madoff, Bernie's niece, was on FINRA's compliance advisory committee until the firm went under, and two top level staffers for Allen Stanford served on other FINRA committees. "FINRA's numerous failures," POGO writes, "should hardly come as a surprise given the incestuous relationship between SROs and the financial services industry."

Yet despite these criticisms, FINRA's Ketchum wants more power for his organization, like overseeing investment advisers as well as securities brokers. Thus the purpose of POGO's letter today is to urge Congress not to let that power grab happen, and even more to encourage House and Senate lawmakers to curtail FINRA's authority. "Effective, independent, and efficient government regulation is the only proper way to safely oversee our markets," the letter concludes. "Our economy is too important to be left in the hands of the very financial industry that brought us to the brink of collapse."

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Shelby Rejoins Financial Talks

| Tue Feb. 23, 2010 10:29 AM PST

The prospects for Sen. Chris Dodd's financial-reform overhaul received a much needed bipartisan boost today, as Sen. Richard Shelby (R-AL), the ranking member on the Senate banking committee, has reportedly rejoined negotiations with Dodd, the committee's chair. Shelby had abandoned the negotiations earlier this month, largely over disagreements on whether Senate's financial-reform bill should include an independent Consumer Financial Protection Agency, a centerpiece of the House's financial-reform bill passed in December. Dodd's had replaced Shelby with Sen. Bob Corker (R-TN) as his Republican counterpart a few weeks ago.

Along with the news of Shelby's return are reports that the release of Sen. Dodd's bill might not occur until next week, a revision of earlier statements by a banking committee spokeswoman, Kirstin Brost, that a draft would come out this week and would be marked up next week. With Shelby now back in the mix, however, the fate of an independent Consumer Financial Protection Agency again hangs in the balance, and the agency could end up being folded into an existing department, like the Treasury, as Republicans like Sen. Corker have previously suggested.

5 Uses for Wall St.'s Bonuses

| Tue Feb. 23, 2010 8:15 AM PST

Bonuses on a resurgent, if not shrunken, Wall Street bounced back to more than $20 billion in 2009, up 17 percent from the year before, according to new data from the New York Comptroller's office. The average bonus was $123,850, and at three of biggest banks on the Street—Goldman Sachs, Morgan Stanley, and JPMorgan Chase, all of which taxpayers bailed out—bonuses jumped even more, up 31 percent from 2008. Mind you, 2009's bonus checks are nowhere near the ludicrously high totals we saw at the peak of the bubble, like the $34 billion in 2006 and $33 billion in 2007. (Who can forget this typical New York Times headline from bonus season in 2004: "That Line at the Ferrari Dealer? It's Bonus Season on Wall Street.") Still, when one in five Americans is "underwater" on their home and nearly one in ten are unemployed, $20 billion in bonuses is a staggering, incomprehensibly large sum that could go a long way if spread out across the rest of the population.

In that spirit, here are five alternative uses for that $20 billion in bonuses that might alleviate our current economic woes:

  1. You could pay the salaries of more than 390,000 public school teachers across the country.
  2. You could close nearly all of California's gaping budget hole.
  3. You could almost cover unemployment-fund shortfalls, now nearing $25 billion, in 25 different states.
  4. You could more than double the amount of Pell Grant funding given to students from low-income backgrounds who might not attend college otherwise.
  5. You could increase the budget of the Small Business Administration by more than 35 times, a much needed boost considering the SBA's coffers had dwindled from $3.5 billion in 1978 to $578 million in 2008.

But really, we'd all rather have a Ferrari anyway, right?

More Credit Card Fee Madness

| Mon Feb. 22, 2010 10:33 AM PST

First, happy Credit CARD Act day! As I wrote last week, the second phase of the Credit Card Accountability Responsibility and Disclosure Act of 2009 goes into effect today, cracking down on unfair and predatory practices like universal default and unfair interest rate hikes. You can read more about those changes here [PDF]. Sadly, banks are trying awfully hard to pass along the cost of new regulation to their customers. In my post from last week, I told how a Citi Card customer who contacted us here at MoJo could face a $60-a-year fee for—get this—not charging enough money to her card.

James Kwak, over at Baseline Scenario, heard from a reader with a similar story on how Chase is pleading with its customers keep their overdraft service which consumers can now opt out of thanks to the new legislation. Kwak, who posted Chase's letter to its customer, wasn't surprised:

There's nothing particularly evil about this—banks will no longer be allowed to charge overdraft fees without your consent, and even I will concede that there are some people who might want this service, so now they have to ask for permission. Of course, it's a pretty hard and misleading sell: they focus primarily on the issue of funds availability (deposits may not be available immediately), and they try to frighten you with "an unexpected emergency like a highway tow." If you do get a letter like this and are not sure what it means, remember that the bank will not tell you when you are about to overdraw your account, and it will charge you $34 each time, even multiple times per day, no matter how small the overdraft.

I was interested to note that the bank doesn't even promise that it will cover your overdraft—it says only that it may cover your overdraft, at its discretion. I suppose this makes sense, since they don’t want to cover an overdraft for $100,000, but couldn’t they guarantee it up to some fixed amount? I mean, if this service is supposed to give you peace of mind, how much peace of mind do you get when the bank reserves the right not to cover your overdrafts? [emphasis mine]

For all their convenience, overdrafts can be a nasty, unfair practice; if you calculate the APR from the average overdraft fee, it's more than 10,000 percent. No matter how well Chase or any other bank cloaks the practice is corporatespeak, we're all better off now with the chance to opt out of overdraft fees.

Goldman Hires Bush Crony's PR Firm

| Mon Feb. 22, 2010 9:48 AM PST

Yes, billions of dollars in bailouts and bonuses, counterparty fiascos, claims to be "doing God's work," and almost singlehandedly toppling the entire economy of Greece will do quite a number on your public image. For a general public that hardly knew who Goldman Sachs was before the crisis, the name now evokes feelings of disgust and mistrust, of "fat cat" bankers stuffing the pockets in their designer suits with taxpayer dollars in the greatest heist this country's ever seen. Quite simply, Goldman has a massive PR migraine that's only getting worse.

So, the New York Post reports, the firm's fearless, Bronx-born leader, Lloyd Blankfein, did what any rightminded corporate CEO would do: He brought in some PR muscle To spruce up Goldman's image Blankfein turned to Public Strategies, a slick Texas-based firm led by Dan Bartlett, a close confidante to George W. Bush and Karl Rove. From the Post story:

Earlier this month, Goldman clients and Wall Street analysts starting filling out an exhaustive, online questionnaire seeking to pinpoint exactly what people thought of Blankfein's firm. One question wanted survey participants to compare Goldman to other Wall Street banks—and names rivals JPMorgan Chase, UBS, Bank of America, Citigroup and Barclays. Respondents were asked to fill in blanks from least favorable to most favorable.

...

"For the first 139 years it wasn't that relevant to us to explain ourselves," Blankfein told Fortune recently. "And now it became very relevant and the press did an important thing for us, they pointed out to us that that was a deficiency in our strategy, not to reveal ourselves...I'm just trying to take pains, which we should have done all along, to make sure that people understand what we do in the world."

Yes, please, Lloyd—do explain to the people what exactly the purpose of a synthetic collaterized debt obligation is apart from a massive casino chip.

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