Today marks the tenth anniversary of President Clinton’s signing of the Commodity Futures Modernization Act (CFMA). At passage, the bill was said to establish “legal certainty” for derivatives. In other words, the bill assured bankers that they wouldn’t face any legal consequences in the United States when they manipulated, defrauded, and colluded their way to billions in profits using financial derivatives that no one understood.
The CFMA led to serious consequences for the rest of us, including the exacerbation of the housing bubble and the subsequent bank bailouts and foreclosure crisis; the California electricity crisis; periodic food and energy price spikes that have hit consumer pocketbooks hard; and, of course, the continued reign of an unaccountable shadow banking sector over the economy.
Tom Carper has proposed an amendment to the financial reform bill that would severely weaken consumer protections to the point where it is understood to be one of the more destructive changes to the bill. Yesterday, Zach Carter wrote an excellent piece analyzing its potential consequences for financial reform:
There are two consumer protection amendments getting serious attention on the Senate floor this week, one of them positive, one of them incredibly destructive. Both revolve around the concept of “preemption”—the ability of federal regulators to block states from enforcing laws aginst banks that operate within their borders. Over the past decade, state regulators tried to crack down on subprime outrages, but federal regulators stepped in to protect the megabanks. If we want to establish a fair financial system, we have to empower states to take action against abusive banks.
That’s what makes a new amendment from Sen. Tom Carper, D-Del., so dangerous.
At OpenLeft, Chris Bowers has called the amendment “the most dangerous to Wall Street reform.”
In 2008, economist Nouriel Roubini popularized the term “shadow banking system” to describe the non-bank financial institutions that eventually helped spur the collapse of the financial system: highly-leveraged hedge funds, investment banks, and the like. This shadow system fueled Wall Street profits for years before eventually necessitating massive bailouts of the financial sector.
These days, a “shadow bank lobby,” has played a prominent role in shaping the financial reform process, pushing amendments that will weaken consumer protections, water down regulation of the Wall Street casino, and increase the likelihood of continuing fraud and future bailouts. I discuss this “shadow bank lobby” in Big Bank Takeover, the report on the big banks’ army of lobbyists released yesterday by the Campaign for America’s Future.
Over the course of the financial reform process, the six biggest banks and their trade associations have waged an historic assault on democracy, hiring hundreds of revolving door lobbyists and spending hundreds of millions of dollars to push their legislative agenda, according to a report released today by the Campaign for America’s Future.
The report, Big Bank Takeover: How Too-Big-To-Fail’s Army of Lobbyists Has Captured Washington, shows how the six too-big-to-fail banks have hired 243 lobbyists who once worked in the federal government, including 202 who used to work in Congress, with others having worked at the Treasury, the White House, or a relevant federal agency like the SEC. (I authored the report, with assistance from researchers at LittleSis.org).
This translates into an average of 40 revolving door lobbyists per big bank.
The Goldman-Paulson fraud suit threatens to throw a spotlight on a realm of Wall Street that has escaped most scrutiny throughout the financial crisis: the hedge fund industry. Top hedge fund managers profit from Wall Street’s business model of fraud and collusion more than any CEO at the big banks, but tend to evade accountability because of the opacity of their industry and their extraordinary power.
One such hedge fund manager is Richard Perry. Perry, a former Goldman Sachs trader, became known as one of the subprime winners in 2007 — one of the hedge fund managers who saw the crisis coming, and placed profitable bets that the housing market would collapse. Perry reportedly shorted $3 billion in subprime-related securities, netting a $1 billion profit on the trade.
Around the same time, in late 2006 and 2007, Perry’s hedge fund, Perry Corp, began buying up shares in a certain financial management company that had a close business relationship with Goldman Sachs. His stake grew from 5% to 8% (around $30 million in early 2007), to the point where Perry Corp was disclosed as a major shareholder in the company in the prospectus for one CDO put together by Goldman in August 2007.
That company: ACA Capital, the same firm wrapped up in the Goldman Sachs-John Paulson CDO deal that the SEC has deemed fraudulent.
The death toll in the West Virginia mining explosion has climbed to 25, the worst mining accident since 1984, and the company that owns the mine, Massey Energy, is coming under intense scrutiny for a record of safety violations that suggests it could have done far more to guard against disasters like the one that occurred on Monday.
Think Progress has compiled extensive data on violations at Massey’s Upper Big Branch Mine, where the accident occurred, showing that the company has been cited a staggering 3,007 times since 1995 for violations at that mine, with assessed fines of $2.2 million (Massey is currently contesting $1.1 million of that amount).
Disregard for worker safety was central to Massey’s business model: keep labor costs low to keep profits running high. That meant breaking unions and issuing memos like this one from CEO Don Blankenship which informed mine superintendents that “RUNNING COAL” was more important than any safety-related activity in the mines.
The LittleSis.org/AlterNet citizens’ investigation of the Bubble Barons concluded last night, after a month of digging deep on the super-wealthy individuals who benefit most from our bubble economy. Thanks to all who participated! I am currently working on a final piece on the investigation and our findings.
In the meantime, to give you an idea of how much information the bubble baron research crew dug up, take a look at the following two network graphs. The first one shows a snapshot of LittleSis.org data on the bubble barons prior to the investigation. The second one shows this network graph after the investigation. The nodes represent bubble barons and the organizations and individuals they are connected with, and the lines represent relationships between them.
A network graph of the bubble barons, before the investigation (click through for the full-size image):
Score one for Wall Street. The student loan industry has convinced Senator Blanche Lincoln to vote against the healthcare reconciliation bill on the grounds that it contains “matters unrelated to healthcare” — code for student loan reform, as David Dayen notes.
How did the student loan industry secure Lincoln’s support? The same way they found other Senatorial defenders for their wasteful subsidies: the power of money, deployed through a combination of campaign contributions and strategic lobbyist hires.
In Lincoln’s case, the simplest answer is Kelly Bingel. Bingel has been lobbying for the student loan industry since mid-2009, and is extremely close to Lincoln. She was the Senator’s chief of staff from 2003 to 2005, and a longtime Lincoln aide before that. She has since joined Mehlman, Vogel, Castagnetti, a lobbying firm which has played a central role in the healthcare fight, lobbying for AHIP, PhRMA, and many other insurance and pharmaceutical companies.
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Stephen Schwarzman and David Rubenstein are co-founders of two of the largest private equity firms in the world, the Blackstone Group and the Carlyle Group. Both are under investigation by the bubble baron research group, with seanhartnett and Dan doing a tremendous job researching their networks and following their money.
As it turns out, Schwarzman and Rubenstein are closely connected to one another through a number of shared institutional affiliations. So far, Dan and seanhartnett have connected both of them to JP Morgan, the Council on Foreign Relations, the Asia Society, the Business Council, and the Kennedy Center for Performing Arts. Rubenstein rises to the top of Schwarzman’s interlocks tab, and vice versa.
Two days ago, Dan noticed that Rubenstein was succeeding Schwarzman as chair of the Kennedy Center, and wrote a note:
One of the major objectives of the bubble barons investigation is to figure out where, exactly, all that money is going. Where are these billionaires investing their money? Which politicians do they support? Which charities benefit from their largess?
