It's already well known that Facebook and other social media networks harvest user data and sell it to companies that use that info to peddle their products to consumers. But some lenders have begun to find a new use for this information, scrutinizing Facebook, Twitter, and LinkedIn data to determine the credit-worthiness of loan applicants. It's an unprecedented practice that consumer advocates say can be unfair or discriminatory—and one that is poised to only become more prevalent in the years ahead.
Among the US-based online lenders that factor in social media to their lending decisions is San Francisco-based LendUp, which checks out the Facebook and Twitter profiles of potential borrowers to see how many friends they have and how often they interact; the company views an active social media life as an indicator of stability. The lender Neo, a Silicon Valley start-up, looks at the quality and quantity of an applicant's LinkedIn contacts for clues to how quickly laid-off borrowers will be rehired. Moven, which is based in New York, also uses information from Twitter, Facebook, and other social networking sites in their loan underwriting process.
Several international lenders have been using similar tactics for a while. Lenddo, for example, which makes loans to folks in developing countries, denies credit to applicants who are Facebook friends with someone who was late repaying a Lenddo loan. Big banks have not yet jumped on board with this controversial credit-vetting method, but consumer advocates and financial industry experts say it's probably only a matter of time.
On Monday afternoon, President Barack Obama delivered a speech from the Rose Garden to mark the fifth anniversary of the 2008 financial meltdown. Much of it was a warning to the House Republicans who are threatening to throw the country into default if Democrats don't agree to delay Obamacare. But the president, who shared the stage with a dozen or so Americans who had lost homes and jobs and have since recovered, also took the occasion to run through a highlight reel of the measures the administration took to pull the US out of the financial crisis. And the White House released an accompanying report Sunday touting the progress his administration and Congress had made in reining in risky gambling by Wall Street and helping struggling homeowners. The president glossed over a few important facts, though.
The administration and Congress have indeed made significant advances in protecting Americans from another crisis. The administration's report lists some of the most important advances so far. Some $245 billion was injected into floundering banks through the politically unpopular TARP bailout program, and yet more than 100 percent of that has been paid back. The administration forced major banks to raise $80 billion in emergency capital to fall back on in the case of another meltdown. Home prices are on the rise. The big three automakers, which received a controversial taxpayer bailout in 2009, have been profitable since 2011 and are gaining market share for the first time in over 20 years.
At the same time, the president admitted that we still have a long way to go to full recovery, and vowed to "spend every moment of every day I have left fighting to restore security and opportunity for the middle class." Here are five aspects of the still shaky economic recovery that the administration still has to work on—and that were absent from Obama's speech:
Sen. Mary Landrieu (D-La.) said Wednesday that Louisiana ought to shut down all of the oil rigs in the Gulf of Mexico until the House of Representatives agrees to fund a much-needed levee project in her state designed to protect against Katrina-type storms.
"If I could, I’d shut down every rig in the Gulf of Mexico until this United States Congress gives the people of Louisiana the money we need to keep ourselves from drowning, from flooding, and I’d turn the lights off in Washington, and in New York and in Maine," Landrieu said on the Senate floor after Republicans on the House Transportation and Infrastructure Committee introduced a water infrastructure bill stripped of funding for the Morganza-to-the-Gulf levee project.
The Morganza levee system is a planned state-federal project designed to shield 98 miles of Louisiana coast from furious storms and rising sea levels. But when the committee introduced its version of the Water Resource Development Act on Wednesday, it didn't include the $10.3 billion Morganza program that the Senate approved in May.
The extra dollars that House Republicans don't want to spend could end up saving taxpayers money in the long-run. As climate change drastically increases the risk of coastal flooding, the cost of damage will be severe. A recent FEMA report found that Hurricane Katrina put the $16 billion in the hole; Sandy cost us $25 billion. The Morganza project would cost an average $716 million a year to build and maintain but would prevent an estimated $1 billion a year in flood-related damage, according to the Army Corps of Engineers.
Louisiana produces a huge portion of America's domestic oil supply, but Landrieu's proposal to cut Americans off at the gas pump is not going to work. She acknowledged that she personally does not have the power to "shut down every rig in the Gulf of Mexico until Washington [gives] us what we're asking for." Her suggestion came out of exasperation: "I am tired of begging for nickels and dimes," she said. "The people in our state cannot survive without levees."
Landrieu faces a tough reelection fight in 2014.
The bill is expected to get a vote on the House floor in October. But there's still hope. After the Senate and House iron out the differences between their dueling versions of the legislation, Morganza funding could be forced into a final bill.
Update 2, Sunday September 15: Larry Summers has withdrawn his name from consideration as chairman of the Fed.
Update 1, Friday September 13: On Friday evening, Bloomberg reported that Larry Summers has severed his ties with Citigroup while the White House considers nominating him as Fed chair.
Former Treasury Secretary Larry Summers' consulting gig with the banking behemoth Citigroup could come back to haunt him if he is nominated to succeed Ben Bernanke as chairman of the Federal Reserve. Bernanke's term expires in January, and Summers and Janet Yellen, the central bank's vice-chair, appear to be front-runners for the post, with media reportssuggesting that President Barack Obama is fond of the controversy-prone Summers. But there may be a hitch with a Summers appointment. After Obama took office in 2008, he enacted sweeping ethics rules that say that no presidential appointee can work on matters directly related to a former employer for two years after taking a government job. That means that unless Obama grants Summers an exemption from the rules—a move that could be politically controversial—the former Treasury secretary will have to recuse himself from a slew of Fed decisions involving Citi, which is the third-largest bank in America. Experts say those recusals could hamper Summers' ability to run the Fed effectively.
"Citigroup is a behemoth on Wall Street, and constantly subject to Fed regulatory actions," says Craig Holman, the architect of Obama's 2009 ethics rules and currently a government affairs lobbyist for the consumer watchdog Public Citizen. "I would expect Summers would have to recuse himself quite frequently." He adds, "Recusal can be expected to be so frequent as to hinder Summers' ability to carry out his job as Fed chairman."
The Obama administration has granted dozens of ethics rules waivers since 2009, but they have mostly gone to lower-level appointees with limited conflicts of interest. Were Summers to be granted a waiver, according to Holman, it would be the most significant one yet.
If appointed, Summers might have to remove himself from consultations on penalties levied against Citi for things like sketchy foreclosure practices and inadequate anti-money-laundering protections. Nor would he be able to vote on post-financial crisis rules that Congress ordered the Fed to draft, including restrictions on CEO pay and guidelines for how much emergency capital Citi has to keep on its books. (The Fed board votes on all regulations, mergers, and applications to form new banks; it has voted 20 times so far in 2013. Penalty decisions are often delegated to staff or regional reserve banks, but the board consults on them.)
The report found that the top ten percent of earners took in more than half of the country's total income in 2012, the highest level since the government began keeping records a hundred years ago, the New York Times reported Tuesday. The study, by economists Emmanuel Saez and Thomas Piketty, also found that the top one percent alone took in more than one-fifth of all income earned by Americans, the most since 1913.
Here is what that looks like, via the Times:
The data is just the latest in a string of reports over the past couple years illustrating how gains from the economic recovery have gone to the upper crust.
Mr. Piketty and Mr. Saez show that the incomes of [the 99 percent] stagnated between 2009 and 2011. In 2012, they started growing again—if only by about 1 percent. But the total income of the top 1 percent surged nearly 20 percent that year. The incomes of the very richest, the 0.01 percent, shot up more than 32 percent.
The new data shows that the top 1 percent of earners experienced a sharp drop in income during the recession, of about 36 percent, and a nearly equal rebound during the recovery of roughly 31 percent. The incomes of the other 99 percent plunged nearly 12 percent in the recession and have barely grown—a 0.4 percent uptick—since then. Thus, the 1 percent has captured about 95 percent of the income gains since the recession ended.
Why? Mostly because of rising home values, stock prices, and corporate profits—all of which disproportionately benefit the already rich.
As Annie Lowry noted at the Times, "[E]ven after the recession the country remains in a new Gilded Age, with income as concentrated as it was in the years that preceded the Depression of the 1930s, if not more so."