“If We Build It, He Will Come”

Washington has become Wall Street’s “field of dreams.” There, the money conglomerates engage in their beloved sport of financial speculation, cheered on by a small but powerful group of public officials who have sold out the rest of the country.

Deregulation was a home run for the financial industry. Wall Street’s friends in Washington sacked the rules of the game, unleashing the hedge funds, banks, investment firms, insurance companies and other speculators who made billions before the crash, then got billions more from the taxpayers after the crash.

Meanwhile, as today’s New York Times points out, almost nothing has been done about “derivatives,” the virtual technology for the speculation that drove our economy into the dugout three years ago. Federal agencies that were supposed to issue new regulations to prevent another debacle have been tied up in knots by Wall Street lawyers.

Jobless and fearful for their kids’ future, people are furious about what happened.  But it was always going to be a daunting task to mobilize the public behind the necessary reforms when they are so complex, and anything drafted to appeal to directly to Americans’ wallets – say, by providing a cap on credit card interest rates, or low-rate mortgages, or other forms of financial relief – would have inspired the financial industry to retaliate with nuclear weapons. Neither the President nor anyone in Congress were willing to start that fight, principled as it would have been.

So it has all come down to Elizabeth Warren, the brainiac Harvard law professor who suggested, in a law review article in 2005, that Congress create a new federal agency with the mission of protecting consumers against false advertising, misleading contracts and the general thievery of the financial industry.  Democrats proposed the agency as part of the Wall Street reform legislation in 2009, and after the industry thought they had whittled it down to something they could easily live with – or simply get around – Congress created the Consumer Financial Protection Bureau and the President signed it.

Warren was the obvious person for the job, and almost immediately Americans began calling on President Obama to nominate her for the post.

What Wall Street didn’t realize at first is that it is way, way easier for Americans to get behind a human being than a thousand-page piece of legislation that has been lawyered and lobbied into mush. America has become a celebrity-driven culture, and while Elizabeth Warren is no Lady Gaga, she is one of a small number of outsiders that have occasionally busted up the D.C. establishment – just as Ralph Nader did in the 1970s, and Jimmy Stewart fictionally did in the Frank Capra movie “Mr. Smith Goes to Washington.”

Whether President Obama will nominate Warren to the position has become the defining question of his Presidency for millions of Americans, especially those who voted for "change we can believe in" in 2008.

When confronted with demands by civil rights leaders to take action against racial discrimination in the late 1930s, President Franklin Roosevelt’s legendary retort was “make me do it.” Whether he ever said that, the strategy he suggested is literally page one of the best manual for citizen empowerment and political organizing.

Let’s put it in more contemporary terms. President Obama has made it clear he doesn’t want to nominate Warren. It’s just another fight he’d rather not have. He embraces consensus, not controversy.

But the President has to know she’s the best person for the job. So the burden is on Americans to make it impossible for him not to nominate her. Part of that means punishing the people who are working against her – members of Congress, and those in the Administration – because they are doing Wall Street’s dirty work. These are the same people who let Wall Street plunder our nation and then bailed Wall Street out with our money.

My guess is, we can make Obama do it.

Consumer Financial Protection Agency / Harvey Column / Outrage / President Barack Obama / Uncategorized - 06/22/2011

Billion-Dollar Campaign Bus Leaves Unemployed Behind

Congress and the president threw the long-term unemployed under the bus last year in the deal to extend the Bush era tax cuts for the wealthiest Americans.

As the president and his fellow politicos revv up his re-election campaign bus, are they now poised to run over the 99ers, as the long-term unemployed are known?

The head of the Congressional Black Caucus, Rep. Emmanuel Cleaver, appears ready to concede without a fight that the cost of extending unemployment benefits to the 99ers is “prohibitive.”

Two members of Cleaver’s caucus, Reps. Barbara Lee and Bobby Scott have proposed H.R. 589 to fund some benefits for the long-term unemployed.

Once again, Congress appears to be unwilling to find the $14 billion to extend unemployment compensation for the more than 1 million Americans out of work for at least 99 weeks.

President Obama seems more preoccupied with fighting for the $1 billion he says he will need for his reelection campaign.

How much could one of those 99ers contribute to the president, or anybody’s political campaign, for that matter?

That’s what occurred to me when I read who Obama – the man who at one time was supposed to transform American politics – had chosen to run his campaign to keep his job.

That would be Jim Messina, one of the undisputed experts at raising massive corporate campaign cash, a former staffer for Sen. Max Baucus, one-time head of the one Senate’s Finance Committee and one of the top vacuums of special interest contributions ever, according to Public Citizen.

So much for the grass roots that got the president where he is today. He’s dancing with Wall Street, big pharm and the insurance industry now. Messina apparently takes a dim view of the grass roots activists and their issues, which tend to clog up his vacuum cleaner.

For the corporate titans Obama will be relying on, it’s been a very, very good recovery.

For a lot of the grass roots folks who walked precincts and made phone calls in 2008, not so much. They’ve lost jobs, health insurance, homes, savings, pensions, and security.

Minorities have been especially hard hit, USA Today reports, by a “dual system” of finance. More than 20 percent of African-Americans and Hispanics will lose their homes in the present housing crisis, the Center for Responsible Lending contends.

Meanwhile the long-term unemployed, many of them older workers, face high hurdles reentering the workforce. Younger people face their own challenges, often taking lower paying jobs when they can find employment.

The politicians may be giving up on those of us who are unemployed but we shouldn’t. Call your congressperson and demand that they find the money for H.R 589.

 

 

 

 

 

 

Martin Column / President Barack Obama / Uncategorized - 04/05/2011

Fill In the Blanks

A New Yorker story published online this morning describes yet another example of a financial debacle abetted by government corruption. As I read the first paragraph, it struck me that the basic plot is always the same – all you need to do is fill in the blanks:

In the spring of _______, as the reelection campaign of ______ was gathering momentum, a group of prominent _____ businessmen met for breakfast at the ________ to see the candidate. Among them was _____, the chief executive officer of _____, a fast and freewheeling financial institution that had brought together some of the most colorful and politically well-connected _____ in the country….

Last week’s final report of the Financial Crisis Inquiry Commission explains in intricate detail why and how the U.S. economy imploded in 2008, but isolates no single, primary cause of the crisis. The Commission says that the crisis was “avoidable” and notes that “widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets,” but this is just one Commission conclusion of many. As Joe Nocera points out, the report never gets to the bottom line.

Our report, “Sold Out: How Wall Street and Washington Betrayed America,” published in March 2009, got right to the bottom line in its title. We didn't need subpoena power or a large staff to figure out what happened, just the willingness to say what everybody in the Wall Street/Washington axis of power already knew. Between 1998 and 2008, Wall Street invested $5 billion in Washington, a combination of money for lobbying and campaign contributions that won deregulation and other policy decisions that enabled the financial industry to do as it pleased. The ensuing orgy of unbridled speculation, based on "derivatives" and other financial schemes that even the CEOs themselves didn't understand, came to a halt when the housing bubble burst and Wall Street couldn't even figure out the value of the investments it held. The financial industry panicked, threatened to shut down the system, and got the government to undertake the mother of all bailouts - trillions of dollars in loans, tax breaks and other goodies.

In short: the power of money poisoned our policies and our politics, with dire consequences for all of us who don't enjoy the special favors that only vast quantities of money can buy.

The Commission, created and appointed by Congress and composed of members of the political elite, could not possibly issue that indictment. Which is why the discussion of the bailout – the most obvious example of the special status of the privileged in our country – is a measly five pages out of 410.

The American public deserves better. In other man-made national disasters, like the explosion of the Challenger space shuttle 25 years ago, experts in the field – astrophysicists, geologists, academics – were asked to undertake an independent investigation. Their reports secured the confidence of the public, and led to remedial actions. NASA was not allowed to investigate itself, and lo and behold, it turned out that the culture at NASA was ultimately responsible for a design defect in the rocket.

Because it retreats from the fundamental truths, the Commission's report does nothing to help us come to grips with the root cause of the financial crisis: the corruption of our democracy by special interest money.  I know from more than thirty years of fighting for consumer rights – particularly in the insurance marketplace – that industry lobbyists and unlimited money to politicians almost inevitably kill  legislation that would help average people. Even the feeble, loophole-ridden campaign laws that limited how much big corporations could spend in elections are in jeopardy, thanks to the United States Supreme Court’s decision last year in the Citizens United case, which decreed that corporations have the same First Amendment rights as human beings. Here in California, the voters have the ability to go around a paralyzed legislature and put matters on the ballot for a direct vote of the people, but even this populist process is increasingly abused by special interests that want to block consumers from having their day in court, or by a single company like Mercury Insurance, who thought it could fool the voters into permitting auto insurance overcharging.

Naming a thing for what it is aids understanding, which leads to action and ultimately recovery. Absent the cleansing force of honesty, we remain rooted in fear for our kids, for America’s future. Indeed, there is something deeply foreboding about the country’s degraded democracy and disabled economy. Some of the old clichés are becoming a sickening reality. We used to idly wonder, are we Rome, a corrupt empire in the process of collapse? A thoughtful, almost poetic book by that name, written by Cullen Murphy, suggests we are.

The term “third world” was once a sneer, connoting abject poverty, corruption, gross disparities between rich and poor, the absence of government services, a state controlled by a cabal of self-perpetuating leaders. Now consider the statistics on post-collapse America, which Arianna Huffington marshals in her latest book, "Third World America."

This would be a good point to fill in the blanks in the piece I excerpted above from the New Yorker story. The missing words are: 2009, President Hamid Karzai, Afghan, presidential palace, Khalil Ferozi, Kabul Bank, Afghans. Yesterday’s New York Times reported that fraud and mismanagement at the largest bank in Afghanistan has resulted in $900 million in losses, potentially triggering a financial debacle. Kabul Bank is “too big to fail,” according to Western diplomats quoted by the Times. It's the same story everywhere, and thus it would hardly come as a surprise if U.S. taxpayers ended up funding the bailout of Kabul Bank.

Congress / Financial Crisis Inquiry Commission / Harvey Column / Too Big To Fail - 01/31/2011

Death by a Thousand "Buts"

After two years in office, President Obama has decided it's time to fix one of the colossal mistakes of his predecessor: too much federal regulation.

I don't remember George W. Bush as a consumer advocate who, in his zeal to regulate corporations, got carried away. But last week President Obama announced a new priority for his administration. Federal regulations “sometimes have gotten out of balance, placing unreasonable burdens on business—burdens that have stifled innovation and have had a chilling effect on growth and jobs,” the President explained, implying that it was in fact the government that crippled our economy, just like pro-corporate conservatives have been saying.

Faced with this threat to our national security, there was only one thing to do, and Obama stepped up. He commanded the entire federal government to review every regulation on the books and get rid of “outdated” rules and “unnecessary paperwork.” In a rousing call to arms, the President concluded: “This is the lesson of our history: Our economy is not a zero-sum game. Regulations do have costs; often, as a country, we have to make tough decisions about whether those costs are necessary.”

Obama didn’t invent the cost/benefit approach to regulation. That was concocted by big business-funded think tanks and adopted by President Ronald Reagan, who issued Executive Order 12291 immediately after taking office in 1981. Its preface is eerily similar to Obama’s, proposing “to reduce the burdens of existing and future regulations, increase accountability for regulatory actions, provide for presidential oversight of the regulatory process, minimize duplication and conflict of regulations…”

Reagan demanded that any regulation that imposed costs on businesses that exceeded its "benefits" be eliminated. The problem is that cost/benefit analysis doesn’t always take into account certain intangible considerations or values that are difficult to quantify in dollars, such as the benefits of unpolluted water or the worth of a human being. In an infamous internal memo (PDF) uncovered in litigation over the now extinct Ford Pinto’s exploding gas tank, company executives compared the cost of fixing the vehicles ($137 million) versus what it would have to pay for expected deaths and injuries ($49.5 million) and decided that the cost of repairing each car - $11 dollars – exceeded the benefits.

Government is supposed to protect us against such reasoning, not use it as a guiding principle.

I was working at Public Citizen Congress Watch in Washington, D.C. at the time, and Reagan’s disdain for government regulation  became the centerpiece of his Administration agenda. James Watt, Reagan’s controversial appointee to the Interior Department, sacked the agency, turning it into a mouthpiece for oil, mining and other industries supposedly regulated by the agency. The Reagan Administration’s deregulation of savings banks led to reckless investments, fraud and corruption, necessitating a bailout – sound familiar? – that ultimately cost taxpayers about $124 billion.

Is history repeating itself? In a nod to those who supported him as a candidate because of his forceful speeches against special interests and corporate abuses, President Obama was careful to acknowledge the importance of “child labor laws,” “the Clean Air Act” and federal rules against “hidden fees and penalties by credit card companies.” In a nod to the elephant in a pink dress sitting on the divan in our living rooms, the President noted that “a lack of proper oversight and transparency nearly led to the collapse of the financial markets and a full-scale Depression.” “Where necessary, we won't shy away from addressing obvious gaps” in federal rules, Obama insisted.

It's painfully obvious that the President hoped his foray into Reagan-style anti-regulation rhetoric would curry favor with Wall Street, its wholly-owned subsidiary, the U.S. Chamber of Commerce, and their toadies in Congress. They’ve been very, very mad at the President ever since he had the temerity to sign a toothless financial reform bill that left the financial industry free to revert to its pre-bailout speculative ways, not to mention the hopelessly compromised health care law that requires every American to buy health insurance from private insurance companies starting in 2014, but does not effectively regulate how much we have to pay them.

Obama went so far as to announce his new regulatory policy in a guest column for the Wall Street Journal's editorial page, where at least one attack on Obama is on the menu every day.

This latest gesture of appeasement didn’t work out as the President hoped, though. "Yes, but" was the nearly universal response from the intended recipients of the President’s largesse, as Associated Press reporter Tom Raum reported. For your convenience, I’ve highlighted the “but factor”:

“Obama’s action is ‘a positive first step,’ said Thomas J. Donohue, president of the U.S. Chamber of Commerce, the nation’s biggest business organization. But, Donohue added, ‘a robust and globally competitive economy requires fundamental reform of our broken regulatory system.’ He called on Congress to 'reclaim some of the authority it has delegated to agencies.’"

“The National Association of Manufacturers said it ‘appreciated’ Obama’s call for a regulatory review, but called for Obama to demonstrate results by ‘delaying poorly thought-out proposals that are costing jobs,’ listing the EPA’s proposals to regulate greenhouse gases as a prime example."

A “spokesman for House Speaker John Boehner, called Obama’s review a welcome acknowledgment that government regulations have economic consequences. But he said the president should take bolder steps immediately.”

"David Walker, former U.S. comptroller general, said in an interview that it was ‘fully appropriate to engage in a baseline review of existing federal regulations.’ But Walker, head of a balanced-budget advocacy group called Comeback America Initiative, questioned having the agencies themselves hunt for harmful regulations. ‘We need to have an independent review process that has transparency,” he said. Walker said many of today’s regulations date back to the 1950s and need to be revamped.”

For a little conjunctional variety, here's the response of House Majority Leader Eric Cantor:

“Obama’s executive order ‘shows that he heard the same message I did in the last election - that Americans are sick and tired of Washington’s excessive overreach and overspending.’ ‘While I applaud his efforts, we must go further,’ Kantor added. He proposed more aggressive steps to strike down ‘needless and burdensome’ regulations that plague businesses and stifle job growth.”

President Obama still doesn’t understand that his political opponents will never voluntarily support anything he does, short of a complete capitulation (and perhaps not even then). This is not just a matter of interest to the political class. If the White House spends the next two years trying to placate the implacable, the rules, regulations and legislation needed to restore the economy and protect the public health and safety are never going to see daylight.

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Congress / Financial Crisis / Financial Reform Legislation / Harvey Column / President Barack Obama - 01/24/2011

A Yes Vote for a National Ballot Initiative

While the long-predicted tsunami of voter anger is about to break across the national political landscape, oddly enough this may just be one cataclysmic event that California won’t experience. Yesterday the New York Times has pronounced the House of Representatives all but lost to the Democrats, but today’s Los Angeles Times reports that Jerry Brown’s lead over Meg Whitman doubled over the last month.

That might have something to do with Whitman’s obscene spending for the post – Californians have a tradition of rejecting the candidacies of people who treat high office as a new found hobby – and it couldn’t have helped that Whitman hired (and then cruelly fired) an undocumented housekeeper.

But wait. The Times’ polling also showed that in California, “Democrats have gained strength and GOP motivation has ebbed slightly in the last month.”

So what’s up with California voters? People elsewhere might attribute it to the weather, or our mythical blessed out state. But that’s not it: 81% of Californians told the pollsters that the state is “seriously off on the wrong track.”

I have a theory to explain why California voters aren’t reflecting the national trend, and it’s based on a political safety-valve unique to California: our often-maligned ballot initiative process.

This year, as in most elections, California voters will not only fill over a dozen federal, state and local elective offices. They will get to decide some major public policy issues, including legalization of marijuana, reapportionment, climate change, and majority rule in the state Legislature – a total of nine ballot propositions.

Californians rightly complain about the initiative process – that it’s increasingly invoked by the powerful special interests, that we shouldn’t have to do the politicians’ jobs for them – but the fact is, we love initiatives. Ballot measures empower Californians, giving us the opportunity – for better or worse – to shape our own destiny.

For many Californians, politicians are already a lost cause. What excites and inspires people to pay attention to politics here is the dynamic, creative and often chaotic opportunity to sidestep the political establishment and take matters into their own hands.

“For all the problems ballot initiative politics present today, the ballot measure offers the best part of modern politics,” says California citizen leader Jamie Court in his new book, “Raising Hell.” That’s “the ability to directly change injustice, without the main problem with politics today, politicians who are too corrupt or inept to make changes.”

In most states, angry voters can only vent their frustration by choosing from an often deeply unsatisfying list of candidates, a  desperate exercise in the “lesser of two evils.” When politicians are the only available target, the electorate’s outrage is by necessity narrowly focused. And it also gets amplified, like when you pump water through a fire hose. So it’s “throw the bums out” – as is likely to happen next week throughout the nation, whether or not they deserve it. Then the voters get to welcome a whole new bunch of bums.

Ballot initiatives offer a much more precise weapon: for example, an initiative to roll back auto insurance premiums, like I wrote in 1988, in the middle of public indignation over skyrocketing insurance premiums, when California lawmakers were too afraid of their industry patrons to do anything about it.

I’m as angry as everyone else these days about how Washington and Wall Street got together and betrayed us. If we had a national initiative process, I’d propose a cap on the interest rates banks and credit card companies can charge us for borrowing our own money from them.

Harvey Column - 10/25/2010

Financial Firm Finds Profit Center in Fallen Warriors

When it comes to battling the fine print that rules the financial realm, the nation’s military families have been taking a beating.

And the government officials who were supposed to be protecting the solders have been MIA.

Earlier this summer I wrote about how members of the military mobilized in a losing effort to have the nation’s auto dealers covered by the newly created Consumer Financial Protection Agency.

The nation’s military was no match for the lobbying firepower of 18,000 well-organized car dealers.

Now, thanks to Bloomberg News, we’ve learned how top Obama administration officials signed off on a secret deal that allowed the country’s second biggest life insurance company to make millions of dollars off life insurance policies for the families of deceased veterans.

It turns out that in 1999, authorities made a verbal agreement with Prudential Life to allow them to withhold the lump-sum life insurance payments the company was supposed to hand over to some 6 million veterans’ families. Instead, the life insurer were permitted to offer the survivors a checkbook, which amounted to an IOU known as “retained-asset accounts.” Meanwhile, the insurer would deposit the lump sum into its own accounts earning eight times as much in interest from the settlements as they paid to the military families.

What’s worse, those accounts weren’t even insured by the Federal Deposit Insurance Corporation.

So what happened when the Obama administration discovered the shameful deal?

Remember, this wasn’t the Bush administration, that believed that the best way to protect consumers was to let financial institutions run amok. These were Obama people, who had been sobered up by the financial collapse, who knew the dangers that lurked when financial deals were done in the dark, who promised to toughen financial regulations.

Did the Obama administration jump in and call the whole disgraceful thing off? Hardly. Bloomberg found that Obama administration officials in 2009 turned what had been a verbal agreement into a written one. Though a committee filled with top administration officials, including Timothy Geithner, was supposed to be monitoring government life insurance programs, when the committee actually had a meeting, those officials didn’t bother to show up.

Since Bloomberg revealed the deal earlier this summer, more than 10 years after it was struck, elected officials have leaped into action to condemn Prudential’s actions and demand investigations. While the Obama administration didn’t make the original deal, they formalized it rather than calling it off. It’s another unfortunate example of the Obama administration going soft while the financial industry takes advantage of consumers.

But they have the opportunity to make it right. It will be tough. The administration would have to admit a mistake. As of June 30, Prudential had made $662 million in interest off the lump-sum settlements.

Prudential has offered a pathetic paternalistic excuse, saying the company was actually helping emotionally distraught families by withholding their money during their time of grief.

The Obama administration should demand that Prudential return that windfall to veterans’ families. The company can certainly afford it. It received $4.5 billion last December when it got out of a securities brokerage joint venture with Wells Fargo. Since posting a $1.6 billion loss in the fourth-quarter of 2008, the company has recovered nicely, posting seven quarterly profits, most recently for more than $1 billion. The company’s stock posted a whopping 64 percent gain last year. The company’s CEO, John Strangfeld, is doing OK too, with total compensation of $18.4 million in 2009, though that was down from his 2008 payday, which amounted to $21.6 million.

President Obama has taken some admirable steps to improve veterans’ care after years of Bush era neglect. He should do the right thing and make Prudential turn over the profits it made from the nation’s war dead to their families.

Martin Column / Outrage / President Barack Obama - 10/01/2010

Around the Web: Rookie Senator Fumbles Financial Reform

The news media / blogosphere have been having too much fun at the expense of the former Cosmo model who could be the key 41st vote if Republicans decide to kill financial reform.

It’s no shock Sen. Scott Brown would oppose it, given the enthusiastic support he got from Wall Street in his recent election, taking the Massachusetts seat long held by Ted Kennedy.

But Brown apparently got a little flustered when a reporter asked him to explain what exactly he was opposed to. It was one of those trick questions: What areas in the bill would Brown like to see fixed?

Brown responded by asking what the reporter thought. “Well, what areas do you think should be fixed?” Brown said. “I mean, you know, tell me. And then I’ll get a team and go fix it.’’

Eat the Press’s Jason Linkins snorted on Huffington Post: “Yes. Some reporter may want to point out the epic collapse of the derivatives market to Scott Brown, and he will assemble a team of... I don't know...sled dogs? To fix it? Is that good? Will that work?”

Brown told the Globe he opposed a consumer financial protection agency because it would add another layer of regulation.

“Which is, of course, true,” pointed out Washington Monthly’s Political Animal Steven Benen. “ That's the point of the legislation. The financial industry went unchecked and nearly destroyed the global economy. That's why the legislation is being considered – to bring oversight and accountability through regulation.”

Brown also faces some hard second-guessing on a novel argument he made against financial reform on Face the Nation last week: it’s a jobs killer. He asserted that it would cost his state 35,000 jobs – about 17 percent of the state’s financial sector workforce.

When the Globe followed up to nail down Brown’s source for that statement, his staff told the newspaper he got the figures from MassMutual, an insurance company based in the state that has opposed financial reform.

But company officials said Brown had misunderstood them; they were talking about job losses the state had already suffered. Even those figures were grossly inflated, the Globe found. According to the state’s Executive Office of Labor and Workforce Development, the state has lost about 19,000 jobs in the financial sector, which includes the insurance industry, and also at banks, securities firms, investment management companies, and real estate businesses.

A MassMutual official insisted the company agreed with Brown anyway; similar losses could result from financial reform, he insisted. Sen. Brown stood by his earlier statements.

Whatever. A Globe columnist found Brown’s projections, as well as MassMutual’s, preposterous. “The idea that anything in the Senate bill could create additional job losses on a similar scale as the damage caused by the earthquake in the real estate and brokerage industries is simply nuts,” Globe columnist Steven Syre wrote.

Perhaps sensing an opportunity in Brown’s confusion, President Obama put in phone call to Brown from Air Force One.

The president probably didn’t bring up the question posed by Washington Monthly’s Benen: “Do you ever get the feeling that maybe Scott Brown isn't quite ready for prime-time, and that his service in the Senate is more humiliating than it should be?”

Around the Web / Martin Column - 04/21/2010

Around the Web: Can WAMU be the Blue Cross of Financial Reform?

During the debate over health care reform, the public was galvanized by the disclosure of  outrageous insurance rate increases by Blue Cross.

It was that public outrage that finally got the healthcare legislation passed over Republican opposition.

Now Senate backers of  a strong overhaul of the financial system hope that televised hearings on the details of the reckless lending, incompetent management and multiple regulatory failures that sank the nation’s largest savings and loan will fuel support for financial reform in the face of relentless opposition from Wall Street.

The hearings got underway Tuesday in the Senate’s Permanent Subcommittee on Investigations, headed by Sen. Carl Levin,D-Michigan.

In strong contrast to hearings  held recently by the congressionally appointed committee to investigate the financial crisis, Levin’s opening hearing was tough, pointed and thorough. Levin said he intended for the hearings to serve as a case study for what happened at financial institutions during the meltdown. He compared WAMU’s selling and packaging of  high-risk option ARM and no-doc loans to dumping “pollutants into a river.”

Calling Washington Mutual’s former CEO Kerry Killinger “a forgotten villain of the financial crisis", Fortune’s Colin Barr sets the stage here. Business Week recounts the testimony here. CSPAN carried the hearings live they can be viewed here.

The star witnesses from WAMU were Killinger and former Chief Operating Officer Stephen Rotella. Killinger testified that WAMU was unfairly targeted by regulators because it not “too clubby to fail” as were larger financial institutions. Killinger insisted WAMU could have worked its way out of the crisis if regulators hadn’t eventually shut it down.

On Friday, we’ll hear from the regulators, who were well aware of WAMU’s questionable lending and securitization but continued to find that the savings and loan was financially sound.

Around the Web / Martin Column / Outrage - 04/13/2010

Don’t Dump the Government, Sue It!

When our government institutions fail us through incompetence or corruption – the financial collapse being Exhibit A – what is the solution? That’s the question I posed a few weeks ago.

The Tea Partyers increasingly seem to advocate getting rid of government altogether, or at least the federal government. They (and the health insurance industry) are getting a lot of mileage these days by arguing that the Wall Street debacle shows government cannot be trusted to regulate health care. It’s not a crazy argument, but their solution is.

When government fails, the answer is not to get rid of government, but to force it to work better. How?

To start, citizens should be given “standing to sue” the federal government. It might surprise you to learn that the courts have often rejected the right of citizens to go to court to enforce state and federal laws. When I worked for Congress Watch, the D.C.-based lobbying group founded by consumer advocate Ralph Nader, back in the late 1970s, one of our top goals was to make sure that when Congress passed a law, no matter the subject, it gave Americans the right to sue if a federal agency failed to enforce that law, conducted itself in an arbitrary manner, spent taxpayer money improperly, or if the law was unconstitutional. We were often unsuccessful, defeated by lobbyists for big business who hoped to later subvert the agencies with impunity. Nader has written frequently about this tool of democracy, and it’s also covered in an excellent biography of the Nader consumer organizations by David Bollier that is now available online.

Can you imagine how much economic damage could have been  avoided if citizens had been able to sue the federal agencies that unilaterally stopped regulating the Money Industry over the last decade?

A lot of Americans don’t like litigation – because they have never seen how it can work to protect their interests as consumers or taxpayers. But suing the government is a crucial, even life-saving right that is part of the law in some states, including California. For example, my colleagues at Consumer Watchdog and I sued the California Department of Managed Health Care when it suddenly started permitting HMOs to evade state laws and deny autistic children medically-necessary treatments. The agency’s misconduct began after intense behind-the-scenes lobbying by the heath insurance companies. The trial will be held this fall in a Los Angeles Superior Court and based on a recent preliminary ruling by the judge, we are looking forward to forcing this renegade agency to follow the law.

No doubt the prospect of litigation against the government raises fears of wasted taxpayer resources. But court rules allow judges to block truly frivolous cases. And I believe the costs would be more than offset by the benefits to Americans.

Standing to sue is one of many proposals for systemic reform that you don’t hear much about, because they aren’t sexy. They involve changes to the internal mechanisms of government. But if they were adopted, government would operate far more effectively and with much greater accountability to the public.

Harvey Column - 03/23/2010

AIG Founder Asks “Terrorists” for Help

One of the particularly infuriating aspects of the financial crisis is the unapologetic hypocrisy of the Wall Street titans.

These devotees of free markets didn’t hesitate to grab the taxpayer life preservers blithely tossed to them by the U.S. Treasury when they were about to go under. Taxpayers never got a “thank you,” much less “I’m sorry,” from these geniuses who nearly destroyed our economy.

But one among them has set himself apart. I refer to Maurice Greenberg, the founder of American International Group, or AIG. In its prime, AIG was possibly the largest insurance company on the planet, selling everything from life insurance to environmental liability coverage for big corporations.

Greenberg was used to the royal treatment accorded the billionaires at the top of the Money Industry. He pulled in $20 million in 2004 from AIG and an off-the-books executive slush fund the company setup for its top execs.

Like many of his peers at that level, Greenberg was a major player in American politics. AIG and Greenberg’s charities donated tens of millions of dollars to grease the wheels in Washington and keep his company free of regulation.

But unlike many of his insurance brethren, who had figured out that they were usually better off keeping their thoughts to themselves, Greenberg never hesitated to pronounce his views, especially when he thought it was good for business. So Greenberg put himself and his behemoth insurance company at the forefront of “tort reform” – an insurance industry inspired propaganda effort to blame trial lawyers and personal injury lawsuits (“torts”) for higher insurance premiums.

“Tort reform” conveniently diverted public attention from the fact that insurance companies were raising rates in order to offset investment losses in the stock market  - often while friendly state insurance regulators looked the other way. There was another benefit, too. The “solution” advocated by the insurance companies was to restrict the rights of Americans to have their day in court. This usually involved capping damages or attorneys fees, both of which enabled insurance companies to pay out less in claims, and keep more money for themselves. Too many willing state legislatures fell for this trick, though California voters ultimately got it right and capped the insurance industry’s premiums.

Back in 2004, when George Bush and the Corporate Republican Establishment were firmly in control of Washington, “tort reform” was high on their list of priorities. In fact, they expanded their attack, targeting the class action lawsuits that consumers often bring against corporations. Greenberg was a particularly vociferous cheerleader for the push to limit the ability of injured or ripped-off consumers to undertake a class action.

Referring to legislation that would restrict consumers’ ability to bring a class action lawsuit, Reuters reported in 2004 that "Greenberg likened the battle over reforming class action litigation to the White House's 'war on terror.’” Reuters quoted Greenberg as saying, “It's almost like fighting the war on terrorists….I call the plaintiff's bar terrorists."

That was 2004. A year later, Greenberg himself was in a world of legal trouble (PDF). He was ousted in 2005 after an investigation by New York Attorney General Elliot Spitzer found that AIG had engineered a series of sham transactions intended to make AIG’s financial picture look better. In 2006, AIG paid $1.6 billion to settle a variety of charges.

Then came the financial collapse. AIG was at the forefront of the form of Wall Street gambling known as “credit default swaps,” under which AIG would sell insurance on packages of subprime mortgages known as “derivatives.” Though long gone, Greenberg remained AIG’s biggest shareholder, so he lost billions when AIG’s credit default swaps went into default and the Bush Administration took over the company in exchange for a taxpayer bailout that now totals $182 billion.

Ever since then, Greenberg’s been insisting on justice… for himself.

Demanding an investigation of the government’s decision to seize AIG, Greenberg suggested “class-action lawsuits that put people under oath in depositions and discovery.”

A fervent deregulator, Greenberg now blames the federal government for failing to regulate his industry. “I don’t recall any regulator coming to look at the [insurance] holding companies, and if they did, it was a very superficial job,” according to a report on a speech Greenberg gave last year.

In a speech in February, Greenberg had this to say about improving America’s judicial system: “We go around the world preaching about the importance of the rule of law…. We better take a look at America and make sure we have the rule of law here first.”

AIG / Harvey Column - 03/15/2010