Around The Web: Nothing Natural About Financial Disaster

Maybe this is the one that will finally cause people to take to the streets.

The crack investigative journalists at Pro Publica and NPR’s Planet Money have uncovered the latest evidence of how the big bankers schemed to keep their bonuses and fees coming by creating a phony market for their mortgage-backed securities, which were tumbling in value as the housing market tanked in 2006.

The Pro Publica/NPR investigation shows how the bankers from Merrill-Lynch, Citigroup and other “too big to fail” financial institutions undermined a system of independent managers who were supposed to be evaluating the value of the securities. The banks simply browbeat the managers into buying their products rather than face losing the banks’ business.

Meanwhile, the bankers continued to make money off every deal, even though the rest of us paid a high price for their continued trafficking in complicated financial trash.

Then when the entire business unraveled in the financial collapsed, these bankers got a federal rescue and a return to profitability.

Pro Publica acknowledges it’s complex material, so they’ve accompanied their investigation with a cartoon and graphs to make it easier to understand.

My WheresOurMoney colleague Harvey Rosenfield wrote recently about the falseness of the claim that either Hurricane Katrina or the financial collapse were primarily natural disasters. The NPR/ProPublica investigation is yet more evidence that the bankers’ irresponsible self-dealing turned a downturn in the housing market into full-blown catastrophes.

Writing on his blog Rortybomb, Mike Konczai hones in on the stark contrast in the fate of the bankers and many of the rest of us:  “Remember that by keeping the demand artificially high for the housing market in the post-2005, these banks created its own supply of crap mortgages. These mortgages inflated and then crashed local housing prices. Meanwhile the biggest banks got tossed a lifeline and homeowners can’t even short sale their home much less have a bankruptcy judge that can set their mortgage to the market price with a large penalty. And everyone lines up to tell those people what ‘losers’ they are, how `irresponsible’ they’ve been for being pulled into becoming the artificial supply for artificially created demand of housing debt. What sad times we are living in.”

Meanwhile the SEC is supposedly investigating the self-dealing. We’re still waiting for the tougher new SEC that the Obama administration promised. In the latest indication that we may have to wait a while longer, a federal judge has rejected the agency’s proposed $75 million settlement with Citibank over charges that the bank misled its own shareholders about the shrinking value of its mortgage-backed securities. The SEC said the bank misled investors in conference calls by saying its subprime exposure was $13 billion, when it was actually more than $50 billion. Among the pointed questions the judge asked: Why should the shareholders have to pay for the misdeeds of the bank executives, and why didn’t the SEC go after more of the executives?

The judge’s questions about accountability mirror the uneasy questions a lot of us have about this administration’s reluctance to take on the bankers whose behavior led to ruin for the country while they profited.

The Credit Wolves Stalk South-Central

Before they fell into a costly cycle of subprime refinancing, Harold and Patricia King could afford to live in their modest two-bedroom home in south-central Los Angeles. They had paid $17,500 for it in 1968 with the help of a low-interest G.I loan.They raised two children and two grandchildren there. Harold retired in 1994 after 30 years on General Motors’ assembly line. His wife retired a few years later from her clerical job with the school district. They had a monthly fixed income of $2,900 and a fixed monthly mortgage payment of less than $1,000. They could handle it.

Unlike some who were able to take advantage of the cash they squeezed from the value of their homes, the Kings have little more than financial devastation to show for it. They refinanced 10 times — eight times between 2000 and 2006 — through various financial institutions. They wound up with more than a half million dollars in debt and payments more than their monthly income. Earlier this year they joined the more than 1 million other homeowners across the country that face foreclosure.

While we’ve seen and heard lots of stories of families suffering through losing homes they could never actually afford, the King’s saga puts into sharp focus one of the overlooked aspects of the on-going foreclosure crisis –many homeowners who had traditional– and affordable – mortgage loans were sold into subprime hell via refinancing deals.

In its 2006 study, “Losing Ground,” the Center for Responsible Lending found that between 1998 and 2006, “the majority of subprime loans have been refinances rather than purchase mortgages to buy homes,” and that homeowners who repeatedly refinance face a higher likelihood of facing foreclosure.

In February, the Kings packed their belongings in boxes, preparing for the loss of their long-time home. But they decided to fight for the home they’ve lived in for more than 40 years.  With the help of their lawyer, they’ve been able to stave off foreclosure, at least through the rest of the year. They’ve gone on the offense, suing their most recent lenders earlier this year for fraud and elder abuse.

Tracking the complex cast of characters and institutions with key roles on the business side of the Kings’ plight also offers a stark reminder that the explosive growth in subprime created vast wealth that never trickled down to hard-hit communities like south-central Los Angeles, a once-vibrant largely African-American and Latino neighborhood increasingly blighted by the lasting marks of the severe recession – high unemployment and high rates of foreclosure.

Take for example Deutsch Bank, which bought the MortgageIT firm that provided one of their Kings’ refinancings. In 2009, the banking giant increased its compensation to its executive board nine-fold over the previous year, led by the bank’s president, who was paid $13 million. Deutsch Bank’s path through the rocky financial crisis was helped along by its share of more than $50 billion it got in funds from the taxpayer bailout–funds the federal government paid to insurance giant AIG, which were then passed on to AIG’s clients – what has been labeled the “back-door bailout.”

The Kings also crossed paths with a lesser-known firm called Green Tree, which at one time was hired to act as the servicer on their loan – collecting the Kings’ mortgage payments every month. Founded by Lawrence Coss, a former car salesman, the firm had made a fortune in the 1990s by loaning money to people to buy mobile homes. Around the time Harold King was retiring from GM, Coss was drawing attention as the country’s highest-paid executive, winning a $69 million bonus ­– the largest bonus of all time when it was awarded in 1996. The following year he did even better, with a $102 million bonus. However, the fat profits that got Coss the bonus later turned out to be a mirage, built from bundles of risky loans and shaky accounting. Coss had to give some of his bonus back but managed to hang onto his ranches and philanthropic foundation. If anybody had been paying attention back in 2001, the unraveling of Green Tree’s business could have provided an early warning signal of the problems to come.

But in places like south-central Los Angeles, the country’s financial institutions were on a lending spree.  The Kings originally borrowed some money against their equity to supplement their retirement income. But then a series of lenders decided that the retired couple on a fixed income were good candidates for much larger refinancing.  What they offered the Kings were adjustable-interest rate loans with low teaser rates and exorbitant closing costs, fees and prepayment penalties. The Kings readily acknowledge now that they are financially unsophisticated and didn’t understand what they were getting themselves into. The deeper they went into debt the worse they felt.

“I felt guilty; I didn’t want to discuss it,” Patricia King says now. “I knew that something was deeply wrong. You hope for the best. But nothing good ever happened.”

Eventually lenders told the Kings that they needed to find somebody with better credit if they wanted to refinance their home. They brought in their 35-year-old grandson Antonio, who at the time worked at the Coca-Cola bottling plant.

According to the Kings’ lawsuit, Antonio King informed lenders that his monthly income was $3,700 a month, but when the broker or lender prepared the application, it showed his monthly income as $10,200 a month. The application, submitted on Antonio King’s behalf, also exaggerated the value of the home, from $154,000 to $540,000.  The Kings’ lawyer, Philip Koebel said of their grandson: “He threw himself to the credit wolves.”

Koebel said Antionio King found an ad for what sounded like an attractive new loan with a monthly payment of about $1,000 a month.

The Kings didn’t understand that they were getting into a negative amortization loan. The Kings were told that they would save $1,000.00 per month in comparison to a conventional mortgage if they made the minimum payment. They were not told that the minimum payment didn't even cover the interest. They were not told that the difference would be added to the principal of their mortgage and that they would be charged additional interest on the ever increasing balance of their mortgage.

With the money they got, the Kings paid off the previous loan. But they couldn’t keep up with the new payments. Antonio tried to work out a loan modification but Green Tree, which was servicing the loan,  “was not interested in making the loan affordable to the Kings,” according to their lawsuit.  Eventually Antonio filed bankruptcy in an effort to save his grandparents’ house. His 80-year old grandfather mows lawns in the neighborhood to bring in a couple of hundred dollars a month.

The lenders have fought to have the Kings lawsuit thrown out, so far unsuccessfully. In court papers their defense lawyers characterize the lawsuit as nothing more than “vague allegations and broad generalizations.” The Kings, they say, were “reaping the rewards of the strong housing market at the time and taking cash-out payment after cash-out payment each time they refinanced the loans.”

The Kings “were clearly very familiar with the loan refinancing process,” the lenders’ lawyers contend.

Like many others, the Kings didn’t see that the world had fundamentally changed, Koebel said. “Once a mortgage loan had been a relatively simple matter; a talk with a banker and a fixed payment for life. They’re not supposed to put your home at risk.”

One Reporter's Fight With the Fed

I didn’t know Mark Pittman, a reporter at Bloomberg News. We emailed a few times about the landmark lawsuit he instigated challenging Federal Reserve secrecy. I do know that Pittman is a genuine hero in a story which has very few.

He died too young last year, at 52. From what I gather, Pittman combined rumpled style, intellectual firepower and fierce persistence. The fight he waged to get the Fed to open its books serves as a lasting legacy and a strong reminder that one savvy, dogged person can make a real difference.

Earlier this month, Pittman’s employer, Bloomberg News Service, won yet another round in its fight with the Fed.

What Would Pecora Do?

There have been lots of positive comparisons between Phil Angelides and Ferdinand Pecora, who led an earlier investigation of Wall Street excesses that led to the Great Depression.

Pecora was a no-holds barred former prosecutor who ran his hearings with meticulous preparation and theatrical flair, and his work galvanized public support for widespread reforms.

Some have been impressed by Angelides’ reputation as a reformer from his days as California treasurer, when he tried to use the power of the state’s investments for socially worthy causes and implemented some protections for shareholders. Angelides was widely praised after public hearings earlier this year for his understanding of high finance and his scolding of the head of Goldman-Sachs, Lloyd Blankfein, comparing him to a used –car dealer.

I’ve been less impressed by Angelides, who doesn’t seem to have a grasp on the opportunity he has to marshal support for real financial reform. And he’s too cozy with a Democratic leadership that’s been soft on Wall Street in the wake of the financial meltdown.

I’m also suspicious of Angelides, the politician and former real estate developer who unsuccessfully ran for governor against Arnold Schwarzenegger, because of his close ties to the Democratic Party elite. In addition, I’m wary of the impact of Angelides' main job running a coalition promoting green technologies. That’s certainly a laudable goal, but Angelides and his Apollo Alliance aren’t going to get very far without lobbying the Obama administration and the Democrats, who would not be happy with a hard-hitting report.
Whatever drama Angelides manages to muster at any given moment, I’m concerned that his multiple roles and background will cause him to soft-pedal his investigation. Those concerns were only heightened after Angelides surfaced as part of a curious SEC report last week that cautions firms about “pay to play” in the state investment business.
According to the SEC, when Angelides was running for treasurer in 2002 he hit up a top J.P. Morgan official to co-chair a fundraising event. It wasn’t just an honorary position. The price tag for the co-chairmanship? $10,000.

According to the report, the official didn’t co-chair the event but donated $1,000 to Angelides” campaign personally ­– and helped raise $8,000 more. In asking other J.P. Morgan brass to contribute to Angelides, the official noted that that the state of California was an important client for the firm.

Just how important became clear in the next couple of years, when J.P Morgan received about $37 million in fees from the state on more than 50 bond offerings totaling $15.8 billion – overseen by Angelides as state treasurer.

In the SEC’s curious take on the matter, neither Angelides nor J.P. Morgan is accused of doing anything improper.  Angelides isn’t even mentioned by name. The agency merely uses its report to caution finance officials about not running afoul of SEC regulations.

OK, so the SEC doesn’t think Angelides did anything wrong soliciting funds from J.P. Morgan and then giving them the state's business. But the report serves as a bitter reminder that those who we’re counting on to get to the bottom of the financial meltdown are steeped in the toxic brew of cash and politics that has seeped into the core of our government.

I hope I’m proven wrong about Angelides; that his intimacy with this unseemly world has left him with a sense of sustained outrage and not empathy for it.  But it will take more than a few zingers to convince me. I mean, let’s be serious. Would Ferdinand Pecora have solicited money from J.P Morgan? Not much chance. After Pecora grilled the son of the legendary banker, J.P. Morgan, Jr. described the investigator as having “the manners of an assistant prosecuting attorney who is trying to convict a horse thief.”

Obama to Bailout Cop: Beat It!

The Obama administration, which has increasingly been adopting a can’t do attitude when it comes to putting real teeth into financial regulation, now wants to take out the teeth already in place.

Treasury officials are signaling they’d rather not have the same aggressive special inspector general overseeing the $700 billion federal bailout anywhere near their new $30 billion bank subsidy to encourage lending to small business.

I wrote about that inspector general, Neil Barofsky, a couple of weeks ago, suggesting he was one of the few public officials actually trying to protect our money rather than just acting as a rubber stamp for Wall Street’s raid on the U.S. Treasury.

Barofsky has issued a series of scathing reports raising questions about federal officials’ handling of the Troubled Asset Relief Program.

Treasury officials contend that although the $30 billion would come from unspent TARP funds, it’s technically not TARP. So Barofsky should butt out. Their real reason for not wanting Barofsky around is simple: the banks don’t like him looking over their shoulders.

You can’t blame the banks for that. No doubt it’s a lot more fun to spend your federal handout without some nosy former federal prosecutor scrutinizing every move you make.

But for the Obama administration to go along with it is troubling and baffling. The president promised an unprecedented level of accountability, understanding that openness would go a long way toward restoring credibility in the financial system and the government’s ability to oversee it.

But Treasury officials appear to be more concerned with keeping the bankers happy than they are with keeping them honest.

The news about Barofsky surfaced as the administration appeared to be backing away from its recent embrace of former Fed chief Paul Volcker, who favors limits on bank size and risky financial trading. Predictably, the financial titans were balking at the proposals.

The administration’s move against Barofsky is both bad policy and bad politics. It seems designed to hand live ammunition to the mistrustful antigovernment troops of the Tea Party.

Meanwhile, Congressional Democrats have been quiet on the issue. The president and the Democrats have accomplished what at one time would have been seen as a nearly impossible task: handing the mantle of accountability and openness over to Republicans, who are howling with outrage over the idea of keeping Barofsky away from the small-business lending subsidy.

Rep. Darrell Issa, R-Ca., said earlier this week: “Denying SIGTARP the ability to defend taxpayers sends a chilling message that IGs who conduct real oversight will be punished for holding this Administration accountable.”

At the very least, the administration needs to come to its senses and regain its commitment to transparency. Let Barofsky do his job. The administration should be paying better attention to his criticisms, not trying to get rid of him.

"Apology Accepted, Captain Needa"

It’s not about “sorry” anymore.

Even before the Wall Street titans were sworn in last week, it appeared as if the goal of the Financial Crisis Inquiry Commission’s chair, Californian Phil Angelides, was to wring an apology from the men whose companies led the nation into an economic abyss. Whereas most Americans, let me venture, would like to wring their necks.

About twenty-five years ago, I wrote about “inseki jishoku,” the Japanese tradition of accepting responsibility for one’s actions and resigning one’s position as penitence. “These social balancing mechanisms are powerfully ingrained within the Japanese culture. In business activity, they create by necessity a ‘state of intimacy’ among management and employees,” William Ouchi, a management expert, told me at the time. I suggested that there would be less corporate crime in this country if American CEOs embraced a similar approach. 

That never happened.

So what would be the point of a symbolic apology from the titans of the Money Industry – assuming they would be willing to offer one (they tried hard not to, in the event)?

No amount of apology is going to salve the grievous wound in the American psyche as the banks’ profits and bonuses break records.

Like most Americans, I am having a hard time getting my head around how these companies can claim to be earning a “profit” and their executives billions of dollars in extra compensation after American taxpayers were forced to pitch in trillions of dollars to keep the companies afloat.

The truth is that they were able to get away with it because no one in Washington ever imposed any kind of quid pro quo for the bailout.

No cap on the exorbitant interest rates we now pay to borrow our own money from the credit card companies, for example.

No relief for people trying to keep up with their mortgages and pay the rest of the bills.

If symbolism is what this is all about, I say we’ve moved beyond the “apology” stage. How about sending some of these people to jail for twenty years? Or is it "legal" to destroy an economy and cost Americans their life savings and jobs? I had hoped the Angelides investigation would be the beginning of an intensive investigation that, like the Watergate hearings, would lead to holding people criminally accountable for their actions. Not so far, at least.

As I watched the politicians and the leaders of Goldman Sachs, Chase and Bank of America sashay around an apology at the witness table, it reminded me of a scene from the Empire Strikes Back. Han Solo and the Millenium Falcon have just managed to elude Darth Vader’s entire fleet of starships. Informed that Vader wants an update on the search, Captain Needa replies, “I shall assume full responsibility for losing them, and apologize to Lord Vader.”  Vader, using the Force, strangles him. “Apology accepted, Captain Needa.”

Sol Price, Capitalist Hero

In the pantheon of contemporary American capitalism, there are few living heroes. Now there is one fewer. Sol Price, the legendary retailer, unprecedented philanthropist, counselor to people and presidents alike, died last month at the age of 93. He was a mentor and a friend to many including myself, a modest man whose straightforward approach to his business and the nation’s could be epitomized by the question to which this web site is dedicated: “where’s our money?”

On Friday, more than a thousand friends of Sol Price packed a San Diego ballroom to mark his passing.

One of them was Jim Sinegal, who was just a kid when he met Sol while unloading a bunch of mattresses at FedMart, Sol’s first venture into retailing, back in the nineteen fifties in San Diego. Sinegal was there in 1976, when Sol and his son Robert pioneered the “big box” membership store. Its features are commonplace now, but back then, they were a revolution in retailing: the stores relied on word of mouth rather than paid advertising. Expenses were cut to the bone by building concrete warehouses and locating them where real estate was less costly. Hours were limited. Instead of tens of thousands of stocked items, you’d find only thousands. But they’d be top quality, and, because they were bought in bulk and overhead was so low, much cheaper for the consumer. And for a long time, the stores refused to accept credit cards – because Sol did not like the idea of his customers going into debt.

Sol always considered himself an agent of the consumer. “We tried to look at everything from the standpoint of, Is it really being honest with the customer?” Sol told Fortune Magazine in 2003. “If you recognize you’re really a fiduciary for the customer, you shouldn’t make too much money.”

They called the company the Price Club. I always found it fascinating that he was born with a last name so nearly eponymous with the savings ethic that marked his retail philosophy. Today, after a 1993 merger, the $71 billion company is known as Costco. It has 566 stores, with over 56 million members. Sinegal is its President.

(A note for those who consider invention the province of the young: Sol was 60 years old when he started the Price Club.)

Sam Walton, the founder of WalMart and later Sam’s Club (names he acknowledged cribbing from FedMart and Price Club), said, “I guess I’ve stolen – I actually prefer the word ‘borrowed’ - as many ideas from Sol Price as from anybody else in the business.” But in contrast to the WalMart approach, Price offered employees high wages, employment stability, full health care coverage and invited unions to represent store workers.

Sol’s honesty and integrity were the core of his being, and guided his conduct as a businessman. Sinegal told the story of how Price refused to set up restrooms separated by race in Texas. How he once persuaded a hosiery supplier to cut his wholesale price deeply upon the promise of volume sales, but when the volume failed to materialize, Sol repaid the wholesaler the difference, a gesture unheard of then – or now.  Or how he refused to lowball the owners of a bankrupt company forced to sell their assets. “Never kick a man when he is down,” Sol said.

“It is impossible to make him bigger in death than he was in life,” Sinegal said Friday.

Sol became famous around the world for his business acumen, but it was his philanthropy that distinguishes him from so many other ultra-rich.  “Sol told me, ‘we make money so we can give it away,’” recalled Sherry Bahrambeygui, a young, super-smart lawyer he recruited to help manage the Price family’s business and charitable endeavors.

Sol lived the quintessentially American rags to riches story, and I saw that background reflected both in his demeanor – he was direct, to the point, and would not tolerate flattery or prevarication – and in his careful, frugal approach to everything he did, from how he lived to his businesses and philanthropy.

The son of a labor organizer, Sol grew up during the Great Depression and decided to study law, graduating from University of Southern California Law School in 1938. During World War II, he practiced law by day, but spent his nights training maintenance workers to service engines at a San Diego airfield. Unlike most businessmen, who often whine about lawsuits and support efforts to roll back consumer protection laws, Sol was a strong supporter of the right to go to court. All of his actions were guided by his strong sense of what was just and fair.

Though his personal wealth was estimated at $500 million, he lived in a modest home, drove himself to work until he no longer could, used pencils rather than pens, and, I’m pretty sure, wore a Timex watch.

Sol instituted his most ambitious philanthropic project close to home. Working with local officials, Sol, his son Robert and a small staff operating out of his office in LaJolla revitalized the dilapidated City Heights section of San Diego. He, his family and their charities donated over $150 million to build schools, housing, a library, recreational facilities, a police station, and provide a host of family services to City Heights residents. No detail was too small to escape his attention; he was known to insist on the particular kind of shrubbery to be included in the landscaping. His work at City Heights confirmed his belief that the most efficient and effective way to provide health care to kids was through the school system – an approach that was briefly contained in the health care legislation now before Congress.

Another project arose from the loss of a grandson to cancer at age fifteen. The Aaron Price Fellows program enrolled promising high school students in a special curriculum that taught about government and civic involvement. One of its graduates, San Diego City Councilman Todd Gloria, joked on Friday that some might say a “ten pound bag of rice” was Sol’s legacy. Not so for the six hundred Price Fellows. “I would not be where I am today were it not for Sol Price,” Gloria said. When asked to identify themselves, dozens of Price Fellows in the audience stood up – a diverse group of young, smart, eager people who will be California’s next generation of leaders.

An unabashed Democrat and liberal, Sol supported many advocacy groups, from Public Citizen and the Urban Institute in Washington, D.C., to the Center for Public Interest Law at the University of San Diego, and the group I founded in 1985, Consumer Watchdog.

Asking Sol for money was nothing like anything I had ever experienced. At our first meeting, in the 1990s, I had barely said hello before he gruffly sent me away, with instructions to come back with an organization budget and a profit and loss statement. I was taken aback. “Non-profits aren’t supposed to make a profit,” I protested. He chuckled that chuckle that I quickly learned preceded a shaking of his head and then a short but tough lecture. “What happens if your expenses are greater than what you bring in?” he asked. “Why should I invest in something that might not be around?” I returned with the data, which we poured over, Sol all the while questioning my assumptions, my strategies, asking me where every penny went, forcing me to consider how we could do our work more effectively (even if it ended up costing more). Once he was satisfied with the plan, Sol became a major supporter.

After electricity deregulation turned into a costly scam in 2000 and Consumer Watchdog took a lead role in trying to protect Californians against a taxpayer bailout of the energy industry, Sol helped us raise money from people he knew all over the state. I recall one day asking for his views on various possible solutions to the crisis. He imparted some wisdom that clearly had served him well. “You don’t always have to have all the answers. Sometimes it’s important just to ask the right questions.”

Sol’s support for well-run non-profit groups was widely recognized. What was less well known is how he took care of the people he came in contact with. Sherry Bahrambeygui described Sol as having an ability to connect with individuals in a deeply personal way. I experienced it as an almost uncanny sixth sense. One day in the fall of 1997 I drove down to his office, intending to discuss a grant for Consumer Watchdog. But when I sat down, he said to me, “what about your own financial situation? What’s your plan for the future?” In truth I had been so absorbed in my work that I’d too often neglected those matters. What made him ask remains a mystery to me. But we then spent many hours together, me and the founder of Costco going through my own finances! I later learned that I was one of many to whom he had offered personal advice and assistance.

For years after that, I would visit him every month, sometimes with my family. The man who was brutally honest and laser-like when scrutinizing a balance sheet or a business proposal was also a witty storyteller who liked to talk politics and history with friends and family over dinner. His insights into human nature were entertaining and often eerily prescient. He knew everyone and enjoyed connecting people. Among those he introduced me to were his close friends Brian and Gerri Monaghan, who became my friends as well. On Friday, they whispered to me with a laugh that if Sol had been in attendance at his memorial he would have left after fifteen minutes – he was never comfortable being the center of public attention, much less adoration.

I saw Sol just a few weeks before he died. His wife Helen had passed the year before, and he seemed, for the first time, weary. He was distant and uncharacteristically quiet. Yet when I wondered aloud why people seemed to grow more conservative as they grow older, a twinkle came back into his eye and he said, “I think it’s because they sense their own mortality and become more fearful.” I saw no fear in his eyes. I will always be grateful that I had one last chance to thank him for all he had done.

There were many poignant moments at last Friday’s tribute – laughs, gasps at previously unheard anecdotes, and the occasional swiping away of tears as people recalled, publicly or privately, their own moments with Sol. But the time I choked up was at the very end, after Robert spoke about his mom and dad’s 78-year marriage, then thanked the crowd and left the podium. There was polite applause, and it seemed that it was time to go. But then something changed; the applause grew louder, and suddenly everyone was standing, and, facing the now-empty stage, clapping their hands together in a sustained thunder for many minutes – a last ovation for Sol.

In an age defined by forgettable billionaires who built little but monuments to their own narcissistic folly, Sol Price left a remarkable and enduring legacy. He changed corporate America’s relationship with consumers and the lives of the many thousands of people who knew him.

Open Letters to Sens. Feinstein and Boxer

NO COMPROMISE TOP 10

As the debate over financial reform moves to the Senate I’ve written a couple of open letters to my senators. I’m not endorsing any particular legislative proposals but I do outline the items that shouldn’t be compromised.

Feel free to borrow my ideas for letters to your own senators, or to disagree. Whether you agree or disagree, I’d like to hear what you think.

What’s your bottom line on what financial reform should contain?

OPEN LETTER TO SEN. DIANNE FEINSTEIN

Dear Sen. Feinstein:

Throughout the economic crisis, you have continued to raise serious questions about whether the bailout was protecting the financial industry or the public. Now is the time to turn that skepticism into constructive action.

Sen. Feinstein, voters are counting on your continuing leadership to make sure Congress provides real financial reform to prevent future meltdowns and bailouts stemming from reckless practices and lack of government oversight.

Though you voted for the bailout, at the time, in September 2008, you compared the  preparations for the so-called financial rescue to the build-up to the war in Iraq. "There is a great deal of cynicism among those of us who have to live with having voted to go into Iraq based on misinformation and intelligence that later turned out not to be truthful," you said.

On March 23 of this year, you were among a group of senators who met with President Obama to express concern that his administration’s proposals didn’t go far enough, and that his economic advisers were many of the same people who oversaw the deregulatory fever that played such a key role in our financial crisis.

Unfortunately, Sen. Feinstein, your concerns have been borne out.

Financial reform as passed by the House of Representatives is filled with loopholes. Lobbyists from financial firms recently rescued from ruin by taxpayers have mounted a fierce campaign to maintain a system in which “too big to fail” institutions” can manipulate the regulatory system.

The good news is that Sen. Chris. Dodd has proposed much stronger legislation, the Restoring American Financial Stability Act of 2009.  By all accounts, his proposal faces a bruising battle as the financial industry gathers all its forces to protect its interests. Sen. Dodd has indicated that compromise is inevitable.

But Sen. Feinstein, the stakes are too high to compromise on the most important aspects of reform. Some of these are contained in Sen. Dodd’s proposal. Others are contained in other legislative proposals under consideration in the session about to begin.

Please help make sure that these key elements of reform are not the victims of compromise:

• Vote against the confirmation of Ben Bernanke to another term as Federal Reserve chair. He was at the center of the bubbles before the meltdown and also helped engineer a bailout that profited Wall Street while Main Street suffered.

•Reinstate a modern-day form of Glass-Steagal, as proposed by Sens. McCain and Cantwell.

•Audit the Federal Reserve, as proposed in legislation sponsored by Reps. Paul and Grayson, which would open up the operations of the institution to public scrutiny for the first time.

•Reconsider and approve judicial cram-downs, which would give bankruptcy judges the power to lower mortgage payments. This would put real teeth in the Obama Administration’s anti-foreclosure efforts.

In the Dodd bill:

• Support creation of a strong, independent Consumer Financial Protection Agency, with regulatory oversight of the Community Reinvestment Act (not provided in the House bill)

•Support creation of a an Agency for Financial Stability, responsible for identifying, monitoring and addressing systemic risks posed by large complex companies and their products, with the authority to break up firms if they pose a threat to the financial stability of the country

• Remove exemptions (contained in the House reform bill) for banks and credit unions with assets of less than $10 billion – about 98 percent of deposit-taking institutions in the country.

• Bar pre-emption (also allowed in the House bill), which would let states, if they choose, to pass tougher financial regulations for nationally chartered banks.

• Don’t exempt other consumer-financial businesses,  such as auto dealers from oversight by the Consumer Financial Protection Agency (as the House bill does.)

• Give two agencies, the Commodities Futures Trading Commission and the Securities and Exchange Commission broad authority to force derivatives markets onto exchanges where they pose less risk.

I’m urging you to put everything you’ve got behind this fight to protect consumers and homeowners. Voters put their trust and faith in you to see that their interests are protected, not compromised away. We’re relying on you to convince your colleagues to put the public’s interests ahead of the private profits and the power of the financial giants.

Sen. Feinstein, your skeptical instincts have been right since the Bush administration tried ramrod through a 3-page $700 bailout. Now everyone in the country can plainly see how that bailout benefited the large financial institutions but did little for small business, consumers and  homeowners. Thank you for your raising the right questions in the past. Thank you for helping us get back on the right track now.

Sincerely,

Martin Berg

Editor

WheresOurMoney.org

AN OPEN LETTER TO SEN. BARBARA BOXER

Dear Sen. Boxer:

Voters are counting on your continuing leadership to make sure the promise of real fundamental financial reform becomes a reality.

In 1989, you were one of a handful of senators to vote against repeal of the Glass-Steagall Act, the Depression-era law that had kept banks’ traditional business separate from their riskier speculative business.

Though you were in the small minority opposing the deregulatory fever sweeping Washington, your vote showed tremendous leadership, courage and prescience.

You withstood the pressures from financial industry lobbyists and contributors as well as the demands of your own party. As you know, then-President Clinton and his economic advisers, after initially opposing the repeal, eventually made a deal to sign off on the dismantling of Glass-Steagall.

We all know what happened over the last decade – record profits for financial institutions while the economic foundation for American families has gotten increasingly shaky. Voters have watched with dismay as the massive federal bailout has helped create even fewer financial institutions, with even greater wealth and wielding even more political power.

Neither the Obama administration’s proposals nor the bill passed by the House of Representatives offer sweeping reform, nor do they do anything to break up the power of the “too big to fail” institutions. They also don’t do enough to ease the threat these banks continue to pose to the rest of the economy.

Now Sen. Christopher Dodd has proposed much stronger legislation, the Restoring American Financial Stability.  By all accounts, his proposal faces a bruising battle as the financial industry gathers all its forces to protect its interests. Sen. Dodd has indicated that compromise is inevitable.

But Sen. Boxer, the stakes are too high to compromise on the most important aspects of reform. Some of these are contained in Sen. Dodd’s proposal. Others are contained in other legislative proposals under consideration in the session about to begin.

Please help make sure that these key elements of reform are not the victims of compromise:

• Vote against the confirmation of Ben Bernanke to another term as Federal Reserve chair. He was at the center of the bubbles before the meltdown, helped engineer a bailout that profited Wall Street while Main Street suffered, and has fought increased transparency in the financial system.

• Reinstate a modern-day form of Glass-Steagall, proposed by Sens. McCain and Cantwell.

• Audit the Federal Reserve, as suggested in the proposal by Reps. Paul and Grayson, which would open up the operations of the institution to public scrutiny for the first time.

• Reconsider and approve judicial cram-downs, which would give bankruptcy judges the power to lower mortgage payments. This would put real teeth in the Obama Administration’s anti-foreclosure efforts.

In the Dodd bill:

• Support creation of a strong, independent Consumer Financial Protection Agency, with regulatory oversight of the Community Reinvestment Act (not provided in the House bill).

• Support creation of a an Agency for Financial Stability, responsible for identifying, monitoring and addressing systemic risks posed by large complex companies and their products, with the authority to break up firms if they pose a threat to the financial stability of the country.

• Remove exemptions (contained in the House reform bill) for banks and credit unions with assets of less than $10 billion – about 98 percent of deposit-taking institutions in the country.

• Bar pre-emption (also allowed in the House bill), which would let states, if they choose, to pass tougher financial regulations for nationally chartered banks.

• Don’t exempt other consumer-financial businesses,  such as auto dealers from oversight by the Consumer Financial Protection Agency (as the House bill does).

• Give two agencies, the Commodities Futures Trading Commission and the Securities and Exchange Commission broad authority to force derivatives markets onto exchanges where they pose less risk.

I’m urging you to put everything you’ve got behind this fight to protect consumers and homeowners. Voters put their trust and faith in you to see that their interests are protected, not compromised away. We’re relying on you to convince your colleagues to put the public’s interests ahead of the private profits and the power of the financial giants.

Sen. Boxer, you were right in 1989 when you were in the minority. Now everyone in the country can plainly see the wreckage from the great deregulatory experiment you opposed. Thank you for your vision. Thank you for helping us get back on the right track now.

Sincerely,

Martin Berg

Editor

WheresOurMoney.org

If You Can't Explain it, You Can't Regulate it

Imagine if government officials who controlled some crucial aspect of our lives, say the war in Afghanistan, spoke about it in public only in another language.

Greek, say.

Only those who understood Greek would be able to talk about it or ask questions.

Now imagine that those who controlled the policy were unelected, appointed by a mysterious group of Greek-speaking weapons manufacturers whose business would benefit from the war.

Got it?

That’s about what we have in the U.S. Federal Reserve, a quasi-government agency that speaks in its own language, whose members are appointed by banks, and are not accountable to anybody else.

Sympathy For The Devil

After all the poor bankers have been through, they can’t even go to Chicago for their annual conference and enjoy their Roaring 20s cocktail party without having to contend with a bunch of protestors.

What do these protestors want, for Pete’s sake?
It wasn’t like the bankers were partying and playing golf the whole time. A hundred of the more than 1,500 in attendance took time off to help fix up a house they had foreclosed on.