Weekly Audit: Why Elizabeth Warren Should Head New Consumer Financial Protection Bureau

Bumped from the diaries with timestamp updated and fold added.

This piece makes good arguments for putting Warren in charge of the CFPB, against Tim Geithner's wishes. I would encourage you to sign this petition from Bold Progressives after signing. Usually petitions don't amount to much (a handful of signatures on a well-known or popular issue? Please), but in this case, they've already got 160k names for an obscure topic. Now that's democracy in action. - Nathan

by Zach Carter, Media Consortium blogger

With the Wall Street reform bill finally cleared through Congress, activists and intellectuals are pushing hard to make sure that this bill isn’t the last word Congress utters about Big Finance. We need deeper and more robust reforms, but it’s also critical to ensure that the new bill is implemented as effectively as possible. Part of that means appointing officials with a proven record as robust reformers—people like Elizabeth Warren.

Too-big-to-fail lives on

What more do we need to keep Big Finance from ravaging the middle class? As Stacy Mitchell notes for Yes! Magazine, the bill Congress just signed off on doesn’t really address the core problems posed by our out-of-control banking system. Too-big-to-fail is alive and well, and lawmakers must push to break up the megabanks during the next legislative cycle or risk another economic calamity. Mitchell writes:

“Since the collapse, giant banks have only grown bigger and more powerful, and less responsive to the needs of the real economy. While the financial reform bill includes several worthwhile measures, it will not set the industry right or entail a fundamental alteration of its scale and structure.”

There are still some great reforms in the current round of legislation, among them the creation of a strong new Consumer Financial Protection Bureau (CFPB) to write and enforce rules on mortgages, credit cards, overdraft fees and more. The first person to head this new regulatory body will be tremendously important to its future. They will set the tone for the bureau’s operations and establish a culture that will define it for years to come.

There's more...

Obama's Last Test

The final financial reform package has been dramatically watered down and is riddled with loopholes. But its supporters (and some critics) say that we shouldn't worry because it at least allows regulators to get tough on the financial industry later -- if they think it's necessary. That is actually true. It does have such provisions.

So, who those regulators are could not be more important. Right now, Tim Geithner is leading the charge to make sure the regulators are as weak and banker-friendly as possible -- as usual. So, he is fighting against Elizabeth Warren.

I don't write this to encourage the president to pick Warren as the head of the Consumer Financial Protection Bureau. That pick is the most obvious thing in the world -- if he cares to actually do consumer protection. Everybody on the planet knows this, and that's precisely why Geithner is fighting against her.

No, I write this to give you a way of knowing for yourself if this financial reform legislation has any chance of working or if it was a Democratic joke all along to pretend they're doing something while continuing to pocket corporate contributions.

Warren is not the only pivotal regulator. I think Gary Gensler at the Commodity Futures Trading Commission is even more important. He's a reformed reformer. He used to work at Goldman Sachs and previously helped to deregulate the industry in the first place. But he has been one of the toughest voices for financial industry reform recently (see, redemption is possible for him and this administration). And his agency can regulate derivatives, stop fraud and limit speculation. That's more important than the Consumer Financial Protection Bureau, which looks to protect consumers on a more micro level.

So, if in a year Elizabeth Warren and Gary Gensler are gone, then you know that it was all a sham. The industry won again and we never really had a chance. If they are still there and they're doing their job of protecting American consumers and taxpayers, then there is hope. We might just pull this economy out before the banks crash it again.

Of course, this is an over-generalization. And our fate is not bound up in just two people. I wouldn't want to put the same kind of faith in them that people did in Obama and hope that everything works out just fine. But they are important indicators. They give us a sense of which direction we're going to go.

The early signs are not good. The Obama administration is reaching out to the Business Roundtable as we speak to see how they can quietly loosen regulations on them again. The CEO of Citigroup says financial reform will not impact their derivative trading at all. And Elizabeth Warren is teetering on the edge as the tools of Wall Street attack her.

We can rally. There can be change. We can have hope. But it's all up to Obama. Which way is he going to go? Is he a smart tactician that's actually going to bring real change in subtle ways through strong regulators or does he think he can play the Washington game a little better and trick us into thinking he gave us real reform while gutting the regulators and protecting the status quo?

No more excuses about the wrong advisors. He can choose right now between good and bad advisors. And everyone knows who is actually trying to do real reform. What's it going to be? You'll know the character of the man by the people he chooses. And you'll also know the economic fate of our country.

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Follow Cenk Uygur on Twitter: www.twitter.com/TheYoungTurks

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Obama's Last Test

The final financial reform package has been dramatically watered down and is riddled with loopholes. But its supporters (and some critics) say that we shouldn't worry because it at least allows regulators to get tough on the financial industry later -- if they think it's necessary. That is actually true. It does have such provisions.

So, who those regulators are could not be more important. Right now, Tim Geithner is leading the charge to make sure the regulators are as weak and banker-friendly as possible -- as usual. So, he is fighting against Elizabeth Warren.

I don't write this to encourage the president to pick Warren as the head of the Consumer Financial Protection Bureau. That pick is the most obvious thing in the world -- if he cares to actually do consumer protection. Everybody on the planet knows this, and that's precisely why Geithner is fighting against her.

No, I write this to give you a way of knowing for yourself if this financial reform legislation has any chance of working or if it was a Democratic joke all along to pretend they're doing something while continuing to pocket corporate contributions.

Warren is not the only pivotal regulator. I think Gary Gensler at the Commodity Futures Trading Commission is even more important. He's a reformed reformer. He used to work at Goldman Sachs and previously helped to deregulate the industry in the first place. But he has been one of the toughest voices for financial industry reform recently (see, redemption is possible for him and this administration). And his agency can regulate derivatives, stop fraud and limit speculation. That's more important than the Consumer Financial Protection Bureau, which looks to protect consumers on a more micro level.

So, if in a year Elizabeth Warren and Gary Gensler are gone, then you know that it was all a sham. The industry won again and we never really had a chance. If they are still there and they're doing their job of protecting American consumers and taxpayers, then there is hope. We might just pull this economy out before the banks crash it again.

Of course, this is an over-generalization. And our fate is not bound up in just two people. I wouldn't want to put the same kind of faith in them that people did in Obama and hope that everything works out just fine. But they are important indicators. They give us a sense of which direction we're going to go.

The early signs are not good. The Obama administration is reaching out to the Business Roundtable as we speak to see how they can quietly loosen regulations on them again. The CEO of Citigroup says financial reform will not impact their derivative trading at all. And Elizabeth Warren is teetering on the edge as the tools of Wall Street attack her.

We can rally. There can be change. We can have hope. But it's all up to Obama. Which way is he going to go? Is he a smart tactician that's actually going to bring real change in subtle ways through strong regulators or does he think he can play the Washington game a little better and trick us into thinking he gave us real reform while gutting the regulators and protecting the status quo?

No more excuses about the wrong advisors. He can choose right now between good and bad advisors. And everyone knows who is actually trying to do real reform. What's it going to be? You'll know the character of the man by the people he chooses. And you'll also know the economic fate of our country.

Young Turks on You Tube

 

Follow Cenk Uygur on Twitter: www.twitter.com/TheYoungTurks

Become a Fan of The Young Turks on Facebook: www.facebook.com/tytnation

 

 

Senator Dodd's Sense of Urgency Long Overdue

The New York Times reports that Connecticut Senator Chris Dodd, the Chairman of the Senate Banking Committee, will unveil his own financial sector regulatory reform proposal on Monday after being unable to reach on a compromise measure with the GOP members on the committee.

The chairman of the Senate Banking Committee, hoping to break a months-long logjam on the biggest overhaul of financial regulations since the Depression, will unveil his own proposal on Monday, without yet having a single Republican endorsement.

The chairman, Christopher J. Dodd, Democrat of Connecticut, said on Thursday that the committee would take up the bill on March 22.

The breakdown in bipartisan talks dimmed hopes for a sweeping rewrite of Wall Street’s rules, nearly two years after the collapse of the investment bank Bear Stearns started a financial crisis that has cost taxpayers hundreds of billions of dollars.

Mr. Dodd suggested that he was acting out of a sense of urgency. The House adopted a regulatory overhaul — a priority of the Obama administration — in December on a largely party-line vote. But bipartisan negotiations in the Senate have repeatedly faltered over several critical points, notably the creation of a consumer financial protection agency to regulate mortgages, credit cards and other products.

While it's worth waiting to see what Senator Dodd's proposals actually are and if they include a stand alone independent Consumer Finance Protection Agency and a reigning in of esoteric derivative instruments, it is a relief to hear that Senator Dodd now has a "sense of urgency." It has long been clear that the Republicans are not interested in governing. With their interminable delays, they have sought, and frankly largely succeeded, in derailing the agenda of the Obama Administration. While it may not be too late to actually achieved wide-ranging reforms, that window of opportunity is now measured in just months. The hour of getting down to business is now.

Elizabeth Warren on the Commercial Real Estate Sector

The Congressional Oversight Panel's February oversight report, "Commercial Real Estate Losses and the Risk to Financial Stability," is now available for download (pdf). The report expresses concern that a wave of commercial real estate loan losses over the next four years could jeopardize the stability of many banks, particularly community banks. Commercial real estate loans made over the last decade - including retail properties, office space, industrial facilities, hotels and apartments - totaling $1.4 trillion will require refinancing in 2011 through 2014. Nearly half are at present "underwater," meaning the borrower owes more on the loan than the underlying property is worth. And as I reported back in late November, the commercial real estate mortgage default rate has risen to a 16 year high.

Here's the latest overview (4Q09) of the CRE market from Real Estate Econometrics, an industry group that tracks the CRE sector:

Rising Default Rates
The national default rate for commercial real estate mortgages held by depository institutions rose from 2.88 percent in the second quarter of 2009 to 3.40 percent in the third quarter. Over the same period, the multifamily mortgage default rate increased by 44 basis points, rising from 3.14 percent to 3.58 percent. These increases are consistent with reeconometrics' projections for the commercial mortgage default trajectory in 2009.

Variation Across Banks; Concentration Risk
The analysis shows that banks with similar concentrations in commercial real estate may exhibit marked differences in delinquency and default rates. In particular, an analysis of loan performance at the 5,015 institutions with the largest exposures to commercial real estate shows no statistically significant relationship between concentration and default rate.

Increases in Non-Accrual Balances
The balance of commercial mortgage loans 30 to 89 days past due increased from $12.7 billion to $13.2 billion between the second and third quarters. The balance in default, which includes mortgages 90 days or more past due and loans in non-accrual status, increased by $5.7 billion, to $37.1 billion.

Updated Projections
Reeconometrics projects that the default rate for bank-held commercial mortgage will rise to 4.0 percent by year-end 2009 and will peak in 2011. The largest losses will occur at regional and community banks, principally due to higher concentrations in commercial real estate. At 29.0 percent, commercial real estate concentrations are greatest among banks with $100 million and $1 billion in assets.

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