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CFPB AND THE BIG BANKS

July 25, 2017

CFPB AND THE BIG BANKS
The Consumer Financial Protection Bureau, brainchild of Elizabeth Warren and an agency designed to make “consumer financial markets work for consumers, responsible providers and the economy as a whole,” came into being as a part of the Dodd-Frank Act of 2010. Dodd-Frank came into being in reaction to Bush’s Great Recession, which was caused by reckless investment practices of big banks on Wall Street with their fraudulent marketing of, among other things, mortgage packages, credit derivatives and collateralized debt obligations. So what is a collateralized debt obligation (CDO)? Any money owed on a contract like payments on cars, boats, refrigerators, carpeting etc. Wall Street will securitize and package anything that moves and sell it to anybody.
Like the mortgages, CDOs were bundled together and sold to such unsuspecting buyers as police, firemen and nurse retirement funds, putting their hard-earned retirement money at risk, and like the mortgages destined for foreclosure where credit checks were missing as McMansions were being sold to buyers who were not credit worthy (especially with a downturn in the economy), all of which and along with other unregulated banking investment practices brought our economy to the edge of the cliff, and you know the rest of the story as a panicked Congress approved hundreds of billions of dollars to bail out the insolvent big banks, their insurers and vendors and even their shareholders. They were, we were told, “too big to fail,” which I thought a misuse of grammar – they had already failed, since any business that needs hundreds of billions of taxpayer dollars to survive must be logically said to have failed irrespective of the framing by such as the Wall Street Journal and politicians seeking to avoid blame.
We should as neutral observers not have been surprised when the big banks with their acts of greedy malpractice brought us to the edge of 2international depression such as we endured during The Great Depression beginning with the stock market crash of 1929. The same ingredients were there, i.e., lack of meaningful regulation, a laissez faire Congress asleep to the consequences of banking greed, and unregulated bankers who were free to try their luck in the international casino of paper exchange.
The big banks were freed from having to separate commercial banking activities from investment activities by the 1999 repeal of the Glass-Steagall Act of 1933, one of FDR’s attempts to harness a repeat of what the big banks did to bring on the international depression of the 1930s. Glass-Steagall, the creation of the SEC and FDIC and other such agencies designed to bring both regulation and order to the banking industry worked well during post-WW II years.
There were no depressions or even serious and long-lasting recessions for some 70 years afterwards, but it didn’t take long after repeal of Glass-Steagall in 1999 for the big banks to bring us and the world to our knees again, like 2007-2008, when the Dow plummeted and when unemployment, bankruptcies and mortgage foreclosures crested as Bush’s Treasury Secretary went to the Congress with his bailout plans and pleas which included not only money but temporary reduction in banking regulations to accommodate the bailouts. Even the Fed joined in the scare game by loaning the banks money at near zero interest and buying some of the banks’ shaky paper at par. In words of the street, the big guys got the money and we got the bill. So we have to raise taxes to pay for the bill, right? Nah, just put in on the bill (our deficit) like Bush did with his “credit card” war in Iraq (and later complain about sky-high deficits and overtaxed and overregulated banks and corporations as an excuse to engage in austerity economics to drive working people back into bankruptcy mode with deepening wage inequality and other labor suppression tactics designed to keep the rabble under control while making America great again).

Against such a background of near depression and a blow to our economy whose repercussions are still with us, the big banks are now trying to destroy the CFPB. Trump has signed an Executive Order on Core Principles for Regulating the United States Financial System as a first move in its destruction, an order which promises to “empower Americans to make financial decisions and informed choices in the marketplace.” Let’s see, now. John Smith, who works at the local lumberyard, can now match wits with bank lawyers who write the fine print of his mortgages and sales contracts because what Trump signed makes him magically knowledgeable to such language and the legalities associated with its use? What! This is Wall Street banks’ framing and is unrelated to reality.
The CFPB, with its power to require banks, non-banks, credit card companies and others to use language in such instruments that ordinary Americans understand along with its ability to fine those who misstate interest rates and the like is obviously a target for those predator institutions who profit greatly in our currently lopsided milieu of under-regulation, and the Congress has picked up on Trump’s directive and is currently holding hearings designed to destroy the CFPB or severely limit its reach. After all, the core mission of consumer protection by the CFPB isn’t good for business. Honesty might reduce profits.
Lisa J. Servon in the Summer Edition of The American Prospect tells us (as paraphrased) that student loan programs have made a place on CFPB’s agenda. The agency sued Navient, our largest provider of federal and private student loans, “for systematically and illegally failing borrowers at every stage of repayment by providing incorrect information, misprocessing payments, and failing to respond to borrowers’ complaints.” CFPB says that Navient deliberately steered struggling borrowers away from lower repayment options, causing them to overpay for their loans. I thought Navient’s motion for dismissal was unusually candid: It read as follows: “There is no expectation that the servicer will act in the interest of the consumer.”
Along with the also candid statement of a corporate CEO of some years ago that the job of his corporation was to make money, not to babysit the American economy, I think that is all we need to know about just how far the financialization of America has come and how Big Money controls more of our lives than our elections. Trump and the congressional stooges are set to destroy consumer protection for the rest of us under the pretext of “freedom” when it is anything but. Presumably we are to continue to be legally defined as not only prey for banking and corporate interests but stand for their bailouts when they overreach, as they did ten years ago, and unless closely regulated, will do so again. Republicans, inexplicably and in light of recent history, are calling for less regulation of the big banks!
I say that such that such policies that release the foxes into our hen house are wrong, immoral and amount to a breach of public trust by those who favor them irrespective of their political persuasion and that such people should be shown the henhouse door in the fall of 2018. What’s your take? GERALD      E

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