More than 400 amendments will likely be proposed beginning this week to change the Senate's financial reform bill, many of them in an effort to whittle down the relatively strong Wall Street overhaul offered by Sen. Chris Dodd (D-Conn.), chair of the banking committee. 110 of those amendments, according to a Senate document describing the amendments obtained by Huffington Post, come from Sen. Richard Shelby (R-Ala.), the top GOPer on the banking committee, who failed to reach a bipartisan agreement with Dodd last month. Almost a hundred more come from Sen. Bob Corker (R-Tenn.), whose talks with Dodd broke down earlier month despite reaching the "five-yard line," according to Corker.
The amendments range in scope and ambition. Some would bulk up Dodd's bill, like Sen. Jack Reed's amendment to make a new consumer protection agency independent and standalone (Dodd's version makes it independent, but houses it within the Federal Reserve). Others would weaken or radically alter what Dodd offered. Shelby, for instance, submitted an amendment calling for the merger of the Securities and Exchange Commission with the Commodity Futures Trading Commission. Another of Shelby's would strip a new Council of Regulators, designed to spot and tackle too-big-to-fail institutions, of the power to implement tougher rules for non-banks and bank holding companies, like Goldman Sachs and Morgan Stanley. One of Corker's would ban securitizing subprime mortgages altogether.
Further amendments push for "accountability and transparency reforms at the Federal Reserve" from Sen. Jim Bunning (R-Ky.), a demand that President Obama report to Congress on potential reforms of housing corporations Fannie Mae and Freddie Mac from Sen. David Vitter (R-La.), and giving a new consumer protection agency primary authority over non-bank companies, like payday lenders, from Sen. Charles Schumer (D-NY). One amendment offered by Dodd directing the Government Accountability Office to review "Repo 105" accounting gimmicks—the kind used by Lehman Brothers to cook its books—is a clear reaction to the recent report on Lehman's demise by its bankruptcy examiner.
As the Senate banking committee heads into mark-up this week, all of these amendments will come into play. While some of them would bolster the bill, many amount to death by a thousand cuts for Dodd's Wall Street crackdown. Check back here throughout the week for the latest on the maneuvering and potential gutting of the Senate's financial reform efforts.
When insurance company WellPoint announced an average 25-percent rate hike last month, President Obama and his allies wasted little time seizing the insurer's move as yet more evidence of the evil of health insurers and the need to pass major health care reform. "This rate increase underscores the urgency of passing real health insurance reform," said Kathleen Sebelius, secretary of the Health and Human Services Department.
Earlier this month, a comparable bomb dropped on Wall Street, courtesy of voluminous and exhaustive report on the downfall of Lehman Brothers. The report, thousands of pages long and numbering nine volumes, was prepared by Lehman's bankruptcy examiner. He found scores of damning evidence on the firm's legal but utterly dangerous accounting maneuvers, how it shifted losses and risk off its books to look healthier and stronger, how it deceived regulators, and how Lehman's leader, Dick Fuld, was "at least grossly negligent" in the handling of it all. The Financial Times reported this week that JPMorgan Chase, that mainstay of Wall Street, has used the "Repo 105" accounting gimmick, too. These findings are, in short, all the ammunition Obama, Sen. Chris Dodd (D-Conn.), and those clamoring for financial reform need to press for a major overhaul of how Wall Street does business. They couldn't have wished for a better opportunity.
Instead, there's been silence. Nothing from Obama, from top economic adviser Larry Summers, from Treasury Secretary Tim Geithner (more on him in a minute), from anyone, really. The SEC more or less acknowledged the report's existence, saying it would be "helpful." But that's about it. Here's Obama's big opening to highlight the worst of Wall Street's excesses and obfuscation, 2,200 pages of cold, crisp facts to back him up...and he lets the opportunity slip past. Why?
Does it prove he's too close to Wall Street? That he won't take off the kid gloves when it comes to confidantes like Jamie Dimon, CEO of JPMorgan Chase? It's worth nothing that the Lehman report does implicate one of Obama's top financial figures, Tim Geithner. Geithner, the report says, was told directly about the "Repo 105" accounting gimmick, and how Lehman used it to move toxic assets of its book to look healthier (yet never reported Repo 105 on its regulatory filings); Geithner, when interviewed by the examiner, said he didn't remember being told about Repo 105. Yves Smith at Naked Capitalism put it best: "the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and [Sarbanes-Oxley] violations." Maybe Obama doesn't want to burn one of his own so he's mostly ignoring the Lehman report.
Still, that's no excuse. Obama could easily draw on the Lehman report without dragging Geithner into the fray. So why the silence, Mr. President? The only explanations that came to mind are: (1) Obama's too wrapped up in health care vote-wrangling to bother with the Lehman report and the financial reform debate, or (2) he doesn't want to battle Wall Street. It's probably both. Nevertheless, it's sad to see top GOPers foretelling their stall tactics on financial reform and blasting "punk staffers" on financial reform while Obama—and many top Dems, for that matter—let the perfect opportunity to fight back pass them by.
For all the plaudits and praise heaped on Treasury Secretary Tim Geithner lately (profiles, for instance, in the New Yorkerand the Atlantic), consistently omitted is the abysmal failure of the Treasury's homeowner relief initiative, the Making Home Affordable program. The core of that program is the Home Affordable Modification Program (HAMP), a multibillion-dollar effort that's done next to nothing to alleviate the ongoing foreclosure crisis. (Read this and this for more.) A year into HAMP, only 170,000 people have received permanent reductions in their monthly mortgage payments. (By contrast, foreclosures last year set a new record, with 2.8 million.)
Now comes the news, via the nonpartisan Congressional Budget Office, that HAMP, which was initially projected to spend $50 billion helping homeowners, will only spend 40 percent of that, or $20 billion. What that means for beleaguered homeowners is that far less help is on the way from an already wounded program. Which shouldn't come as a surprise. Whereas Obama himself said in February 2009 that the Making Home Affordable program "will help between 7 and 9 million families restructure or refinance their mortgages," the Treasury Department's goal, in the case of HAMP, has always been to "offer" 3 to 4 million modifications to homeowners—with no guarantee for help.
The revision for HAMP as well is no surprise given criticism from watchdogs like the Congressional Oversight Panel. Last October, the COP said in its monthly report that "[i]t increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now." In other words, the program was outdated a mere six months after it began. And the CBO's recent findings only confirm what others, like the COP, have stated: that Geithner and Obama's tepid homeowner rescue has fallen far short of providing the kind of relief to lift the country out of its housing and economic slump.
As our ownreportershaveshownmany times, the US Chamber of Commerce, a lobbying behemoth that's only gaining power by the day, tends to run fast and loose with statistics, facts, even reality. On the financial reform front, the Chamber's latest assault on a new consumer protection agency—proposed by the House and Senate—fits their M.O.
At a press conference this week, Andy Pincus, counsel for the Chamber, laid out for reporters the core of the Chamber's opposition to a consumer protection agency. Essentially, Pincus said creating an agency like the one proposed by the House and Senate would layer on burdensome new regulation and bureaucracy, and moreover would choke off credit to small businesses. As a result, he said, those businesses won't have the funds to hire new employees, pay existing ones, and will ultimately fail, he said:
"Small businesses rely on credit vehicles that are often consumer credit because the small business is just a person…So the question is: How heavily are those kinds of credit vehicles going to be regulated? Are they going to cost more? Or are some of the regulations going to ban those forms of credit entirely on the grounds that they're abusive, whatever that means?"
In one sense, Pincus is right: Most small businesses are average consumers who get off the ground using the same kind of credit you and I have—namely, their credit cards. The Chamber's logic stops there, however. A consumer protection agency, if anything, would crack down on predatory credit card practices, not unlike the Credit CARD Act already in place. The consumer agency in the House bill would not only rein in on predatory practices sure to be harmful to small business owners, but would exempt retailers and other merchants who extend credit and layaway plans to consumers from oversight. (The Senate bill, while in its early stages, would do much of the same.) In short, these kinds of changes would help small business owners, not hurt them or cut off their access to credit.
Pincus also claimed that a new consumer agency might ban forms of credit used by small businesses. Perhaps if a small business owner had taken out a toxic subprime mortgage with a floating interest rate for her business, then yes, that owner might have to look for a new mortgage. One with better terms. Not much of a loss there.
In reality, the Chamber's position that a new consumer agency will choke off credit to small businesses just doesn't make sense. "There's no basis for it," says Tim Duncan, chairman of the organization Business Leaders for Financial Reform. "It's so detached from reality. There's nothing to indicate that that's true." And numerous business organizations actually support the consumer agency, including the US Women's Chamber of Commerce, the US Hispanic Chamber of Commerce, and the American Made Alliance. "For the most part, this is a real positive for business owners because they have to personally finance their own businesses," Duncan says. As for the US Chamber, Duncan adds, "I don’t think people are taking seriously the quality of their argument. The more they say this stuff, the more they dig their hole deeper in the ground."
Is China, soon to surpass Japan as the world's second-largest economy, a massive, dangerous bubble? According to one man who's witnessed financial calamity at close range, the answer is an unabashed Yes. "As I see it, it is the greatest bubble in history with the most massive misallocation of wealth," said James Rickards at a recent conference in China, according to Bloomberg News. Rickards is the former counsel for the infamous hedge fund Long-Term Capital Management, an all-star, Nobel Prize-powered fund that proceeded to melt down in 1998 and almost drag the global economy down with it. (For more on LTCM, read Kevin Drum's "Capital City" cover story.) Whether his role helping save LTCM burnishes or blemishes his record is for you to decide, but his time there clearly colors his view of China today. Bloomberg reported that Rickards argued that "Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan."
Echoing Rickards, a recent World Bank report warned of inflation and a property bubble in China. (Here's a PDF of the report's overview.) The World Bank suggested that China tighten up its overall monetary policy by raising interest rates to contain a housing bubble—something, you'll remember, former Fed Chairman Alan Greenspan and current chair Ben Bernanke failed to do.)
To be sure, there are some startling parallels between China's housing boom and the US' bubble circa 2003-2007. There's the economics—$560 billion of real estate was sold in China last year, the Times reported recently, an 80 percent increase from 2008—and the blinding details, too, like the home with crocodile skin bedposts and doors inlaid with Swarovski diamonds. Or the anonymous investor in Shanghai who bought 54 apartments in a single day. Or the $3 billion "floating city" in the north of China. The key question here is whether China's in a boom or inflating a bubble—and without a Chinese version of, say, the Case-Shiller housing index, it's hard to decipher what exactly is going on in the Middle Kingdom.
Figuring out whether China is indeed in the middle of a bubble—or a massive Ponzi scheme—is a lot tougher than in the US simply because China's government is so opaque. Reliable data is hard to come by, which makes it far more difficult to understand what continues to fuel China's rise—and if that's a good thing or not. If it is a bubble, though, the ramifications of it popping could be just as disastrous and far-reaching as the US' recent financial implosion.