Six years after the financial crisis, the largest US banks are likely still too-big-to-fail, according to a study released Thursday afternoon by the Government Accountability Office (GAO). That means that these massive financial institutions are still so important to the wider financial system that they can expect the government to bail them out again if they are close to collapse.
Even though the GAO study found that this advantage banks enjoy dropped off significantly in 2013, "this is a continuing issue," Sen. David Vitter (R-La.), who has introduced legislation aimed at ending bank bailouts, told Bloomberg Thursday. "Too-big-to-fail is not dead and gone at all. It exists."
During the financial crisis, the government forked out $700 billion to bail out the nation's biggest banks. The 2010 Dodd-Frank financial reform act imposed new requirements on Wall Street designed to prevent this from happening again. The law gave federal Wall Street regulators more authority to dismantle failing financial institutions, mandated that banks hold more emergency funds on hand, and required banks to submit to yearly stress tests to ensure that they can withstand another crisis.
How effective these measures have been in ending too-big-to-fail is still an open question, and subject to heated debate in the halls of Congress. Otherreports have found that even after Dodd-Frank, big banks still enjoy a huge advantage over smaller, community banks in terms of lower borrowing rates, thanks largely to the perception that they can't fail. Many investors believe the government will still bail out large, systemically important banks if they are again faced with collapse, whereas the economy can afford to lose a local bank or two. As a result, the biggest US banks benefited from a $70 billion too-big-to-fail subsidy in 2012, according to a March report by the International Monetary Fund.
On Tuesday evening, the federal government dealt a huge blow to McDonald’s, which has for over a year and a half been the target of worker protests and lawsuits over its low wages and questionable labor practices.
McDonald’s has long maintained that as a parent company, it cannot be held liable for the decisions individual franchises make about pay and working conditions. On Tuesday, the general counsel at the National Labor Relations Board (NLRB) ruled that this is nonsense, saying that the $5.6 billion company is indeed responsible for employment practices at its local franchises. That means that the company is no longer shielded from dozes of charges pending at regional NLRB offices around the country alleging illegal employment practices.
"McDonald’s can try to hide behind its franchisees, but today’s determination by the NLRB shows there's no two ways about it," Micah Wissinger, an attorney who brought a case on behalf of New York City McDonald's workers said in a statement Tuesday. "The Golden Arches is an employer, plain and simple."
The Fast-Food Workers Committee along with the Service Employees International Union has filed numerous complaints against the company with the NLRB since November 2012. Most recently, workers filed seven class action lawsuits against McDonald’s corporate and its franchises in three states alleging wage theft. The NLRB consolidated all these complaints into the case it decided on Tuesday, which focused on whether McDonald's corporate can be considered as a "joint employer" along with the owner of the franchise.
Since the fall of 2012, fast-food workers at McDonald's, Burger King, and KFC franchises around the country have been striking to demand a $15 minimum wage and the right to form a union without retaliation. The strikes recently went global. Organizers say Tuesday's ruling will lend workers new momentum in their ongoing battle against the fast-food mega-chain.
If you put out a complaint box for customers of US banks and financial firms, you will get hundreds of thousands of complaints. That's what the Consumer Financial Protection Bureau—which was set up by Elizabeth Warren before she became a US senator—has discovered. And the bank that has drawn the most complaints is Bank of America. Wells Fargo, JPMorgan Chase, and Citibank were other top targets of consumer wrath.
In June 2012, the CFPB launched a consumer help center where Americans can lodge complaints against banks and financial institutions they believe are ripping them off. The information in the center's data base is public. So you can tell which Wall Street entities provoke the most gripes. Ranked by number of complaints, the top five most reviled institutions are Bank of America, Wells Fargo, Equifax, which is a credit-reporting agency, JPMorgan Chase, and Citibank. Debt collectors, mortgage servicers, and student loan servicing companies also fall within the top 20. As of this weekend, consumers had filed over 265,000 complaints. Bank of America earned 38,833 complaints, Wells Fargo drew 26,055, and JPMorgan Chase was the subject of 20,057. Check it out:
These numbers show that bigger is not necessarily better. The number of complaints largely corresponds with the size of the bank. JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo are the largest four US banks by assets. All other banks on the list above are among the 20 largest.
The majority of complaints targeting Bank of America—over 27,500 of them—concern mortgage practices, including foreclosure processing. In 2012, Bank of America, Citi, Chase, Wells Fargo, and Ally Bank—the nation’s five largest mortgage servicers—entered into a $25 billion settlement with 49 states and the federal government over the banks' use of faulty foreclosure documents. (Bank of America recently agreed to pay a fine of $16.6 million to the Treasury Department to settle allegations that it processed nearly $100,000 in transactions for drug traffickers between 2005 and 2009.)
Out of the 26,055 complaints filed against Wells Fargo—which is accused of directing minority borrowers into subprime loans in the lead-up to the financial crisis—close to 6,000 concerned issues consumers had with their checking or savings accounts, including complaints over fees and charges. In 2010, Wells was ordered to pay hundreds of millions of dollars to customers for manipulating debit card transactions in order to rack up overdraft fees.
About 5,100 of the consumer complaints about Citibank concerned mortgages and foreclosures. Earlier this month, the Department of Justice slapped a record penalty on Citi for violations on the investor side of the bank's mortgage business. The DOJ fined Citi $7 billion for telling investors that the toxic mortgage-backed securities it sold in the mid-2000s were high-quality.
Over 3,700 of the complaints against JPMorgan Chase concerned problems with consumer bank accounts, including disputed fees. Last September, the Consumer Financial Protection Bureau ordered Chase to fork over $309 million to 2.1 million customers for charging them for services such as identity theft protection and fraud monitoring without obtaining consent.
Americans filed over 5,000 complaints with the consumer agency regarding debt collection, more than 27,000 over mortgage servicing practices, and north of 5,500 concerning student loan servicing.
Update, Friday July 25: On Friday, the House passed Rep. Lynn Jenkins' (R-Ks.) child tax credit legislation, which would expand the credit for upper-middle class American families. The bill received the support of 212 Republican and 25 Democrats.
On Friday, the House will vote on a Republican bill that ignores an expiring tax credit for millions of low-income families, while handing one to better-off Americans.
The bill, introduced by Rep. Lynn Jenkins (R-Ks.), changes the way the federal child tax credit works by raising the eligibility cap for married couples. At the same time, the legislation would allow a 2009 child tax credit increase for low-income families to expire at the end of 2017. Here's how that would play out in the coming years. A married couple with two children that bring in $160,000 a year would get a new annual tax cut of $2,200, according to an analysis by the left-leaning Center on Budget and Policy Priorities (CBPP). A single mother with two kids who makes $14,500 a year would lose $1,725 annually.
"The big winners would be the more-affluent families who would become newly eligible for the [child tax credit]," tax experts at the CBPP noted Tuesday. "The losers would be millions of low-income families who are doing exactly what policymakers often say they want these people to do—working, even at low-wage jobs."
Here's a look at how poor, middle-class, and wealthier Americans would be affected by the bill, via the CBPP:
A spokesman for Jenkins explains that the reason the bill ends up extending the child tax credit to wealthier Americans is that it gets rid of the marriage penalty, which treats a married couple's total income differently than the sum of two separate incomes. The way the child tax credit is currently structured, a single person making up to $75,000 is eligible for a full credit. But for a married couple filing jointly, full credit eligibility cuts off at $110,000 instead of at $150,000, the couple's combined total income. Jenkins' bill moves the full credit cut-off to $150,000. (As income increases above these thresholds, the child tax credit phases out slowly. Under Jenkins' bill, for instance, a couple with two kids could still get the credit if they make up to $205,000.)
Jenkins' office adds that the reason that the legislation does not extend the low-income child tax credit increase is that this provision doesn't expire until the end of 2017, and future legislation can address it.
But a Democratic aide familiar with the bill says this justification is disingenuous, adding that if GOPers wanted to extend the low-income provision, they would. All 22 Republicans on the House ways and means committee voted for Jenkins' bill, while all 15 Dems on the committee voted against it. "[Republicans] can say whatever they want," the aide says. But "they are prioritizing making permanent [all the tax provisions] that they want to be permanent, and getting rid of everything else." For instance, Republicans are already pushing to extend another tax measure that expires at the end of 2017 that is designed to help parents and students pay for college expenses.
The Democratic staffer adds that if Jenkins' bill were to become law, and the low-income provision were left hanging on its own, it would be very difficult to "galvanize Congress into action" to pass a separate extension for the measure. "What carries it along is that it's bundled together," he says. Chuck Marr, one of the authors of the CBPP study, agrees that the most obvious way for the House to extend the low-income measure would be to include it in Jenkins' bill.
Even if the legislation passes the House, the bill—which would cost the government $115 billion over ten years—has little chance in the Democratic-controlled Senate.
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."