Six months after former SEC chief enforcement officer Robert Khuzami left his post at the agency, he took a job—which pays more than $5 million a year—doing white-collar defense at Kirkland & Ellis, one of the country's biggest corporate law firms. There, he will represent the same corporations that his former agency oversees, handling cases in which firms have violated SEC rules. (Khuzami will face a one-year waiting period during which he is now allowed to have contact with the SEC, and he is permanently banned from appearing before the agency in a case in which he was previously involved.)
This kind of cross-over, financial reformers say, undermines the ability of the SEC to do its job properly. Via the Times:
The revolving door at firms like Kirkland has alarmed some watchdog groups. The Project on Government Oversight, a nonprofit group, released a study this year highlighting a pattern of former SEC officials securing favorable results from the agency.
"It can really help a Wall Street bank to show they’re represented by the former top cop on Wall Street," said Michael Smallberg, an investigator at the group. "It’s not like you see an equal number of SEC lawyers going to represent shareholders and whistle-blowers."
As provisions of the 2010 Dodd Frank financial reform act finally begin to go into effect, and banking regulators warn of a new wave of crackdowns on bad behavior on the Street, Washington insiders are becoming even more desirable for firms whose job it is to save the financial industry's hide. "You want a big name you can trot out before corporate boards," Peter Zeughauser, a consultant to big financial firms, told the Times.
Khuzami was hired to the SEC after the financial crisis and was charged with ramping up its enforcement unit. He creating new ways of tracking previously unregulated corners of Wall Street, according to the Times, and initiated a record number of actions, including lawsuits and civil penalties, against big banks.
So what's with Khuzami's change of heart? He argues that white-collar defense work is critical to a functioning justice system. "It’s both aggressive enforcement and vigorous defense that are critical to justice and fairness," Khuzami told the Times.
He added that he'll be good at the job because anyone required to police Wall Street has to know how it works.
Income inequality in America is has spiked in the past three decades, and has only worsened since the recession. But that's not the only factor contributing to the deepening divide between the rich and poor. Recent research has shown that Americans enjoy less social mobility than people in other industrialized countries—in other words, American kids are less likely than foreign kids to grow up to make more money than their parents. A new study by a team of economists at Harvard and University of California–Berkeley provides the most detailed look yet at patterns of upward mobility in the US, shedding light on why it's not so easy to pull yourself up by your bootstraps in the US of A.
The study's findings, which were first reported in the New York Times on Monday, are based on millions of earnings records. Researchers found that children born into the poorest 20 percent of households are least likely to end up in the top 20 percent of income earners (more than $70,000 by age 30) in the Southeast and the industrial Midwest. Upward mobility is particularly lacking in Memphis, Indianapolis, Atlanta, and Columbus. Poor children are most likely to be able to work their way to an upper-income life in the Northeast, Great Plains and the West, including in cites such as New York, Boston, Salt Lake City, Pittsburgh, and Seattle. Here's what that looks like, via the Times:
The researchers were surprised that what most contributed to social mobility wasn't heftier tax breaks for the poor or a stronger safety net. The difference between high-mobility and low-mobility communities has more to do with early education, family structure, and the physical geography of metropolitan areas. The Times explains:
The researchers concluded that larger tax credits for the poor and higher taxes on the affluent seemed to improve income mobility only slightly. The economists also found only modest or no correlation between mobility and the number of local colleges and their tuition rates or between mobility and the amount of extreme wealth in a region.
But the researchers identified four broad factors that appeared to affect income mobility, including the size and dispersion of the local middle class. All else being equal, upward mobility tended to be higher in metropolitan areas where poor families were more dispersed among mixed-income neighborhoods.
Income mobility was also higher in areas with more two-parent households, better elementary schools and high schools, and more civic engagement, including membership in religious and community groups.
Regions with larger black populations had lower upward-mobility rates. But the researchers’ analysis suggested that this was not primarily because of their race. Both white and black residents of Atlanta have low upward mobility, for instance.
The comparison of metropolitan areas allows researchers to consider local factors that previous mobility studies could not—including a region’s geography. And in Atlanta, the most common lament seems to be precisely that concentrated poverty, extensive traffic and a weak public-transit system make it difficult to get to the job opportunities. "When poor communities are segregated," said Cindia Cameron, an organizer for 9 to 5, a women’s rights group, "everything about life is harder."
Although location has a lot to do with whether poor kids in Indianapolis or Montgomery will be able to live better than their parents, for rich kids, geography doesn't really matter. The study found that the chance rich kids will grow up to be rich is pretty much the same across metropolitan areas around the country. Of kids who grew up one-percenters, for example, one out of three will be making at least $100,000 by the time they turn 30.
After a more than year-long political impasse, Congress appears close to a compromise plan to lower student loan interest rates, the New York Timesreported Wednesday night.
At the beginning of July, interest rates on federal undergraduate student loans—called Stafford loans—jumped from 3.4 percent to 6.8 percent after Congress couldn't agree on legislation to avert the spike. On Wednesday evening, a bipartisan group of Senators—including Sens. Tom Harkin (D-Iowa), the chair of the education committee, Joe Manchin (D-W.Va.), Lamar Alexander (R-Tenn.), and Tom Coburn (R-Okla.)—reached a deal that would set rates at 3.86 percent for the coming year. Thereafter, the rate for undergrad Stafford loans would be calculated by adding two percentage points to the rate at which the government borrows money over the long term (currently at about 2 percent), but the plan wouldn't allow that rate to rise above 8.25 percent. (For graduate student loans, the Senate plan would add 3.6 percent to the government's borrowing rate, and set a 9.5 percent interest rate cap.)
The Senate compromise brings Congress close to a solution on the student loan interest rate log jam because the plan the upper chamber has cobbled together is very similar to a plan the House passed in May.
Many Senate Democrats had long resisted the idea of tying interest rates to market fluctuations. And they argued that the House Republican plan, and a similar plan in the Senate, would reduce the deficit on the backs of students and eventually lead to higher rates.
Progressive Dems are sure to be disappointed by the accord. When the House passed its student loan interest rate bill a couple of months ago, Sen. Elizabeth Warren (D-Mass.) said the plan "takes a bad situation and makes it worse… Our students should not be a profit center for the government." The Congressional Budget Office has estimated that the Senate plan would save the government $715 million over 10 years.
Congress got itself into this mess in 2007, when it passed a law that gradually lowered interest rates from a fixed 6.8 percent to 3.4 percent over five years, then allowed the rate to shoot back to 6.8 percent in 2012. Last year, no one could agree on a compromise to prevent the rate increase, so lawmakers passed a stopgap measure to extend the 3.4 percent interest rate for a year. This year, when Congress again couldn't reach a compromise, interest rates spiked up to 6.8 percent on July 1. Since then, lawmakers and the White House have been scrambling for a solution.
Alexander said Wednesday he was optimistic the Senate deal would pass the House. "The House can hopefully accept it, send it to the president, and it [can] all be done by the end of the month," he told National Journal. A vote could come by next week.
"It is truly a historic day," Sen. Elizabeth Warren said Tuesday after the Senate agreed to allow a vote on Richard Cordray to head the Consumer Financial Protection Bureau (CFPB), the consumer watchdog agency that Warren devised and helped get on its feet. "It took nearly two years, but…now the American people will have a strong watchdog in Washington," Warren continued in a conference call with reporters. "David beat Goliath."
On Tuesday evening, the Senate confirmed Cordray by a vote of 66 to 34 after Republicans agreed not to filibuster his confirmation. The vote came after Republicans spent years trying to block Cordray's appointment and attacking the CFPB in court.
The CFPB has already accomplished much to benefit consumers—forcing credit card companies to refund nearly half a billion dollars they juked consumers out of, implementing new rules to make mortgages safer, and creating a center that fields consumer complaints about shady dealings by financial institutions. But without a director confirmed by the Senate, the agency's powers were limited. Now that Cordray has been confirmed, the CFPB is fully legitimate, Warren says. "There are no more clouds. Period. This locks all the pieces in place," she told reporters Tuesday.
It was a long struggle. Senate Republicans filibustered Cordray when Obama first nominated him to head the agency in July 2011. In response, Obama used a recess appointment—a presidential appointment that happens while the Senate is on vacation and does not require Senate approval—to install Cordray in January 2012. Republicans then sued to challenge the constitutionality of Cordray's appointment. Senate Republicans intended to filibuster Cordray again this time around, demanding fundamental changes that would weaken the CFPB before they'd allow a vote. Harry Reid, the Democratic Senate majority leader, threatened to change the rules of the Senate to block the GOP filibuster. But late Tuesday, the Senate devised a truce to avert the Republicans' filibuster—and Reid's rule change.
The agency was devised by Warren after the financial crisis, who pointed out at the time that it was "impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street." The agency came to life as part of the 2010 Dodd-Frank financial reform act, and Warren has aggressively campaigned for Cordray's confirmation ever since.
But Warren is not worried. "They can introduce whatever [legislation] they want. The political stalemate is over," she told reporters, adding that any Supreme Court ruling would have few implications since Cordray now has the Senate's official approval. As she said in a statement after the Tuesday vote, "The consumer agency is the law of the land and is here to stay."
The CFPB—Warren's brainchild—was created as part of the 2010 Dodd-Frank financial reform act and is charged with protecting Americans from shady dealings on the part of banks, credit unions, payday lenders, mortgage-servicing companies, and debt collectors. Ever since its inception, Republicans have been doing all they can to kneecap the agency, whichthey say "wield[s] nearly unprecedented powers" over Wall Street, as 43 GOP senators wrote in a February letter to the president. Senate Republicans filibustered Cordray after Obama first nominated him to head the CFPB in July 2011. This prompted the president to recess-appoint Cordray six months later (meaning Obama appointed him without Senate approval while they were on recess), which then spurred Republicans to file a lawsuit challenging the constitutionality of Cordray's appointment. (The Supreme Court will review the case in the fall.)
Cordray's recess appointment term is up at the end of the year, and Republicans are again vowing to filibuster his re-nomination, unless Democrats allow key changes to the CFPB, such as forcing the agency to be subject to the congressional appropriations process so Congress can revoke its funding, and allowing other regulatory agencies to veto CFPB actions, which Democrats have refused to allow.
"I know that some Republicans and lobbyists think that this filibuster on Rich's appointment can shut down the work of the agency," Warren said Monday on the Senate floor. "They think it can shut down the agency, and protect the big banks from any meaningful consumer protection rules."
Democrats are so fed up with GOP obstruction of Obama's nominees that Senate majority leader Harry Reid (D-Nev.) is threatening to change Senate rules on executive branch nominations like Cordray's to allow simple majority of 51 senators to approve nominees instead of the usual 67 needed for to overcome a filibuster.
Warren is down with this idea. "Outside the halls of this Congress and the fancy lobbyist offices across Washington... no onethinks it's ok to cheat regular people and cut special deals for giant banks," she said. "And no one wants to take the cops off the beat so big banks can break the rules without being held accountable."