Would you buy a subprime-loan crisis from this man? A new New York Timesinvestigation reveals that used car dealers are doling out giant loans to millions of poor Americans with bad credit. Many of these dealers are using the same negligent lending tactics that subprime mortgage lenders used before the 2008 financial crisis, including ignoring or fabricating information about borrowers' income, employment, and ability to repay.
Even though this new subprime market is a fraction of the size of the mortgage market, the used-car loan bubble poses substantial risks to banks still recovering from the recession. Delinquent loans are piling up. Banks had to write off an average of $8,541 on each delinquent auto loan in the first three months of 2014, the Times reports. The Office of the Comptroller of the Currency, a federal Wall Street regulator, has warned that banks are taking on too many low-quality auto loans. And it's not just banks that would be affected if too many used car loans go sour. Auto lenders are pooling bad loans just as subprime mortgage lenders did, and then slicing them up and selling them to investors including hedge funds and pension funds.
One of the main reasons car dealers are courting another subprime meltdown is that congressional Republicans pushed to amend the 2010 Dodd-Frank financial reform bill in order to exempt auto dealers from oversight by the Consumer Financial Protection Bureau (CFPB). Granted, lawmakers from both parties were under lots of pressure from dealers as the massive legislation was being drafted. Between 2009 and 2010, the industry spent nearly $8.5 million on lobbying. The industry argued that because it was part of Main Street, not Wall Street, car dealers didn't need to be included in the Dodd-Frank bill, which was designed to prevent the kinds of high-finance shenanigans that caused the 2008 financial crisis.
The dealer exemption ultimately "made it into the House bill because Democrats jumped on board," says one consumer advocate who opposed the provision, "but Republicans were certainly the main driver behind the exclusion." Rep. John Campbell (R-Calif.), a former Orange County Saab dealer, proposed the amendment to Dodd-Frank that would exclude auto dealers—his former colleagues—from CFPB oversight. On October 22, 2009, the measure came up for a vote in the House financial services committee and passed 47 to 21. Twenty-eight out of twenty-nine Republicans voted in favor, as did 19 of 42 Democrats. The Senate's version of Dodd-Frank originally did not contain the Campbell amendment. But in May 2010, Republican Sen. Sam Brownback of Kansas introduced a provision that would all but force his colleagues to accept the House's amendment when the two chambers met to hammer out a final bill.
In a speech on the Senate floor, Brownback repeated the industry's line. "There's not a single auto dealer on Wall Street," he said. "None of them. Not a one. You can go up there today and try to buy a car and you can't get one. These are Main Street businesses." The Brownback provision passed 60 to 30, with 37 Republicans, 22 Democrats, and 1 independent (Sen. Joe Lieberman of Connecticut) voting in favor. The dealer exemption stayed in the final bill.
Car dealers are subject to other types of federal financial rules, but if it weren't for Campbell and Brownback's efforts, there'd be another watchdog overlooking shady auto dealers, consumer advocates say. The Federal Trade Commission has the authority to crack down on car dealers, but has not yet done so. The FTC is slower to act than the CFPB, advocates say, in part because Congress controls its funding.The CFPB is financed by the Federal Reserve. (The FTC declined to comment on whether it is investigating car dealers' negligent lending practices, but noted that the agency has previously taken action against dealers "for deceptive and unfair business practices.")
The CFPB can police dealers indirectly through its oversight of auto lenders who pay dealers a commission for making loans. But because the CFPB has no direct oversight of sketchy car dealers, "abuses continue for longer than they should," says Chris Kukla, the senior vice president at the Center for Responsible Lending. Lisa Donner, the executive director of Americans for Financial Reform, agrees. If Republicans hadn't gotten their way, "There'd be a supervisor paying attention in a different way. We might not be seeing what we are seeing now."
On Friday afternoon, President Barack Obama demanded that Russian separatists in eastern Ukraine adhere to a cease fire, and he slammed Russian President Vladimir Putin for not keeping his vow to de-escalate in the Ukraine and for continuing to provide weapons and training to the rebels. Obama confirmed media reports noting that US intelligence has determined that a missile fired from the rebel-held area downed the Malaysian Airlines passenger plane, killing over 300 people. Obama announced that one US citizen was on the flight. Watch the speech here:
Most women working in the sciences face sexual assault and harassment while conducting fieldwork, according to a study released Wednesday that is the first to investigate the subject.
The report surveyed 516 women (and 142 men) working in various scientific fields, including archeology, anthropology, and biology. Sixty-four percent of the women said they had been sexually harassed while working at field sites, and one out of five said they had been victims of sexual assault. The study found that the harassers and assailants were usually supervisors. Ninety percent of the women who were harassed were young undergraduates, post-graduates, or post-doctoral students.
"Our main findings…suggest that at least some field sites are not safe, nor inclusive," Kate Clancy, the lead author of the study, said in a statement. "We worry this is at least one mechanism driving women from science."
Many university science programs require students to complete fieldwork. Those who do work in the field are more likely to receive research grants. Consequently, women scientists "are put in a vulnerable position, afraid that reporting harassment or abuse will risk their research and a professional relationship often critical to their academic funding or career," the Washington Post noted.
The study comes as Congress investigates the response of US colleges to campus sexual harassment and assault. Two out of five colleges and universities have not conducted any sexual assault investigations in the past five years, according to a recent survey by the office of Sen. Claire McCaskill (D-Mo.).
Men vastly outnumber women in the sciences. According to Census data, women make up only about a quarter of the workforce in science, technology, engineering and math fields.
On Monday, the Department of Justice slapped Citigroup with a $7 billion penalty for misleading investors about the toxic mortgage products it peddled that helped cause the financial crisis. Though it's the largest civil penalty in history, it's not nearly a harsh enough punishment, consumer advocates say.
In the mid-2000s, Citigroup assured investors that the subprime mortgage loans it packaged and sold as securities for billions of dollars were high quality. But the bank knew that many of those underlying loans would likely never be paid back. A Citigroup trader at one point even stated in an internal email that he "would not be surprised if half of these loans went down… It's amazing that some of these loans were closed at all."
Despite the historic size of this settlement, consumer advocates insist that the government should have gone much further. And they cite six ways the massive Citi settlement falls short.
1. It's not a $7 billion fine. Citigroup will pay $4.5 billion to settle federal and state civil claims related to the shoddy securities. The other $2.5 billion will underwrite loan modifications and principal reductions on mortgages—which the bank is required to do anyway—and finance some affordable rental housing construction.
2. It didn't really hurt Citigroup. The settlement did tank the bank's second quarter profits, but it did not even pull earnings into the red. After the deal was announced, Citigroup's stock climbed 3.6 percent, indicating investors thought that Citigroup dodged a bullet. The settlement deal is simply the "cost of doing business," says John Taylor, the president and CEO of the National Community Reinvestment Coalition, a housing advocacy group. Citi will "pay these fines and move on."
3. Shareholders foot the bill, not Citigroup executives. The Citi officials responsible for the decision to mislead investors should have been the ones to foot the penalty, says Marcus Stanley, the financial policy director at Americans for Financial Reform. When the burden of the settlement falls on shareholders, the punishment is diluted. No individual officials are held accountable; consequently, other bank officials may not be sufficiently deterred from committing future misdeeds. (The deal does not absolve Citigroup officials from future civil or criminal charges.)
4. This should have been a criminal case, not a civil case. "If the evidence shows fraud, there should be a criminal case," says Bart Naylor, a financial policy advocate at the consumer watchdog group Public Citizen.
5. The settlement's consumer provisions might not pan out. It's unclear if all the funds directed toward struggling homeowners will actually end up helping them. There's precedent for this concern. In the National Mortgage Settlement, a $25 billion agreement with five major banks in 2012 over flawed foreclosure practices, much of the supposed homeowner relief dispensed as part of that deal has benefited banks more than homeowners.
6. Citi should have gone to trial. The Justice Department should have taken Citigroup to trial instead of settling out of court, Taylor says. A trial would have brought to light the details of how Citi screwed investors and how much it profited as a result. The negotiations for this settlement were largely conducted behind closed doors. A trial also could have given the government leverage to exact a harsher punishment against Citi. (There is, of course, the possibility that Citi could have prevailed in a trial.)
The Citi deal is one of several lukewarm settlements the government has entered into with banks in recent years over financial crisis-related wrongdoing. In November, JPMorgan Chase agreed to pay a record $13 billion for selling toxic mortgage products in the run-up to the financial crisis. Some experts say the fine should have been 22 times higher.
Last year, Sen. Elizabeth Warren (D-Mass) sent a letter to the Justice Department, noting she was concerned that the Obama administration was letting big banks off too easy: "If large financial institutions can break the law and accumulate millions in profits, and if they get caught, settle by paying out of those profits, they do not have much incentive to follow the law."
Three years ago, Senate Minority Leader Mitch McConnell (R-Ky.) was a huge cheerleader for the controversial budget plan proposed by Rep. Paul Ryan (R-Wis.) that would have partially privatized Medicare and slashed social spending programs. Now McConnell, who's in a tough reelection fight, is backing away from his support and trying to suggest he was not an outright champion of this draconian budget measure.
In an ad released this week, McConnell's Democratic opponent, Alison Lundergan Grimes, attacks the GOP senator for backing Ryan's 2011 budget proposal, which would have essentially ended Medicare as a guaranteed federal program, slashed Medicaid, and repealed Obamacare. In the ad, an elderly Kentucky man named Don Disney asks why McConnell voted to raise his medical costs by thousands of dollars a year—referring to a provision in the Ryan budget that, according to the Congressional Budget Office, would hike out-of-pocket costs for Medicare beneficiaries by $6,000.
McConnell's campaign fired back, pointing out that the senator did not vote for the proposal itself, but rather only voted in favor of bringing the measure to the Senate floor for a vote. "There is no way to speculate" what McConnell would have done regarding a final vote on the Ryan budget, his campaign insists.
But that's cutting the legislative sausage rather thin. The vote on whether to bring the Ryan plan to the Senate floor for an up-or-down vote was the key vote—and McConnell voted in favor of the proposal. It was only because the majority Democrats blocked the bill from reaching a final vote that McConnell did not have a chance to officially vote for passage of the budget proposal. But McConnell himself bragged about having "voted" for the Ryan budget. And he repeatedly praised the Ryan plan and expressed support for the measure.
In a speech on the Senate floor in April 2011, McConnell called Ryan's budget a "serious and detailed plan for getting our nation's fiscal house in order." He maintained that it would "strengthen the social safety net."
That month, he also called Ryan's budget "a serious, good-faith effort to do something good and necessary for the future of our nation and…for the good of the nation," according to Congressional Quarterly.
In May 2011, McConnell, appearing on Fox News, vowed to vote for Ryan's proposal. He said Ryan's plan was "a very sensible way to go to try to save Medicare."
Even though the Senate never held a final vote on the Ryan budget, McConnell's backing for the plan—which included large tax cuts for the wealthy—was full-throated and unambiguous. "He's probably relieved that it never came to a final vote," says Ross Baker, a professor of political science at Rutgers University.
In responding to the Grimes ad, McConnell's campaign also took issue with the charge that he voted to raise medical costs for Kentucky seniors by $6,000 each. The campaign claimed that this figure is out of date because Ryan's subsequent budget plans—which also were not passed by Congress—would raise Medicare beneficiaries' out-of-pocket costs by much less. Yet Paul Van De Water, a senior fellow at the nonprofit Center on Budget and Policy Priorities, says that the Grimes campaign "accurately" cited what the 2011 plan would have done.
Ryan's 2011 budget would have slashed Medicare by $389 billion by raising the eligibility age and partly privatizing the program, dramatically increasing costs for new retirees. Under the same plan, funding for Medicaid would have been slashed by 35 percent over 10 years. The proposal additionally would have ended Obamacare, preventing millions from obtaining affordable health insurance. At the time, Senate majority leader Harry Reid warned the Ryan budget "would be one of the worst things that could happen in this country if it went into effect."
As the McConnell-Grimes race—one of the most closely watched Senate contests of the year—heats up, Grimes is attempting to tar McConnell with the extreme budget plan that he once embraced. McConnell, the veteran Capitol Hill wheeler-and-dealer, is trying to wiggle out of the trap through a legislative loophole—creating a false impression and distancing himself from his party's policymaker-in-chief.
His campaign did not respond to a request for comment.