Banking Law Prof Blog

USA Today Editorial on Consumer Financial Protection

Here's a link to my editorial in today's USA Today online, "It's Time to Give Consumers a Fair Shake."  I raise some of the reasons to support strong consumer financial protection.  In future posts, I'll be reviewing the details of the Senate financial reform legislation.

Link to editorial: http://www.usatoday.com/news/opinion/forum/2010-05-21-graham21_ST_N.htm?csp=34

(ag) May 21, 2010, in Consumer Protection, Financial Regulatory Reform

University of Houston Consumer Law Symposium

University of Houston Law Professor Richard Alderman has assembled a great lineup of speakers and topics, including:

• An opening panel on the Consumer Debt/Credit Crisis
• Global Response to the Financial Crisis
• Settlement, Collection, Modification
• Labels, Warnings, Behavioral Studies, Virtual Worlds

Link to conference brochure for May 21 and 22:  http://www.law.uh.edu/ccl/CCL_SpringBrochure2010.pdf

(ag) May 20, 2010, in Consumer Protection

The Carper Amendment and Federal Preemption of State Consumer Protections

As the Senate struggles toward finalizing financial reform legislation, it passed an unfortunate amendment that restricts the ability of states to adopt and enforce consumer protections.  According to the Carper amendment, which passed yesterday, federal regulators could preempt state rules on a case-by-case basis; however, state regulators can enforce federal consumer protections.

The argument for uniformity among the 50 states only works if the uniform standard is a good one.  We have seen that federal protection of consumers during the recent (and ongoing) financial crisis has been uniformly inadequate.  Where is the value in a uniformly inadequate standard that turns a willfully blind eye towards consumer financial protection?

(ag) May 19, 2010, in Consumer Protection, Financial Regulatory Reform

Brooksley Born - Another American Hero

In response to my posting about "What If Women Ran Wall Street," one reader reminds us to include Brooksley Born.  What if federal regulators had listened to her 1990s warnings about derivatives?

LInk:  http://www.pbs.org/wgbh/pages/frontline/warning/

(ag) May 17, 2010, in Economy, Financial Regulatory Reform

A Proposal for Ending TBTF

George Washington University Law Professor Arthur Wilmarth sets out a plan to end "Too Big to Fail" in Friday's American Banker:  "Viewpoint:  Create Narrow Banks to Fight TBTF." 

A subscription to American Banker is required to read the banking newspaper, but Professor Wilmarth's idea is to create two tiers of banks.  One is essentially a community bank, limited to activities "closely related to banking" and not affiliated with insurance or securities entities.  The other is a narrow bank that could be part of a financial conglomerate -- but without the capability to borrow at the lower interest rate available in the market to FDIC insured banks and then funnel these lower cost funds up to the holding company and affiliates. 

Here's a link to a webcast by Professor Wilmarth on "Glass Steagall and the 2010 Economy:"  

http://wwww.c-spanvideo.org/program/293425-5

(ag) May 17, 2010, in Financial Regulatory Reform

American Law Institute

The American Law Institute's Annual Meeting will be in Washington, D.C. next week.  I'm looking forward to my first annual meeting since election to membership last fall.  One of the highlights will be the dinner on Tuesday evening -- at which Solicitor General Elena Kagan was scheduled to speak.  Due to her nomination to the Supreme Court, the keynote speech will be delivered by former Solicitor General Seth Waxman.

Here are the program notes about Mr. Waxman:

 Mr. Waxman served as Solicitor General from 1997 through January 2001. He currently is a partner and Chair of the Appellate and Supreme Court Litigation Practice Group at Wilmer Cutler Pickering Hale and Dorr. Considered to be among the country’s premier Supreme Court and appellate advocates, Mr. Waxman has delivered 56 oral arguments in the Supreme Court. He won landmark rulings in several Supreme Court cases, including Boumediene v. Bush, in which the Court ruled that foreign citizens held at Guantanamo Bay have rights under the Constitution to challenge their detention in U.S. civilian courts; Roper v. Simmons, in which the Court declared unconstitutional the death penalty for juvenile offenders; and McConnell v. FEC, in which the Court sustained the constitutionality of the Bipartisan Campaign Reform Act. Mr. Waxman was recently elected to be president of Harvard’s Board of Overseers for 2010-2011, a role he will assume after commencement later this month.

 Needless to say, I'm looking forward to this and other annual meeting sessions. 

(ag) May 15, 2010.

Sears, Kmart, Wal-Mart and the Unbanked

Check cashing, bill pay, wire transfers and other financial services for those who don't have a bank account, may have poor credit, and primarily use cash -- Sears, Kmart, and Wal-Mart are working on business plans to address these needs. 

Link to story:  http://cfsinnovation.com/system/files/AmericanBanker_SLepo_Sears_May2010.pdf

(ag) May 14, 2010, in Consumer Protection, Financial Literacy

What If Women Ran Wall Street?

Treasury Secretary Timothy Geithner raised this question in jest recently -- but we've good three good answers in all seriousness:  SEC Chairman Mary Sharpiro, FDIC Chairman Sheila Bair, and Chairman of the Congressional Oversight Panel for the Troubled Assets Relief Program Elizabeth Warren.  Think about it!

Link to story:  http://news.yahoo.com/s/time/20100513/us_time/08599198895300

(ag) May 13, 2010, in Economy

Financial Reform Legislation in the U.S. Senate - Amendments

Here's a fact sheet on various amendments that have been and are being considered for financial reform legislation in the U.S. Senate.

Link:  http://www.reuters.com/article/idUSTRE64B2XM20100512

A vote on the Volcker Rule to prevent banks from proprietary trading should come this week.

Link:  http://www.reuters.com/article/idUSWAT01445320100511

Subjecting auto dealers to Consumer Financial Protection oversight is another big controversy.  President Obama strongly supports including them in coverage -- after all they do extend consumer credit.

Link:  http://www.reuters.com/article/idUSTRE64B50I20100512

(ag) May 13, 2010, in Congress, Financial Reform Legislation

Why Goldman Sachs "Innovations" Failed

Bloomberg Business Week discusses Peter Drucker's core principles of  "innovation" - that it is market driven and serves the customer.  According to this standard, the Collateralized Debt Obligations that Goldman Sachs used to bet against its own customers did not meet the definition of a beneficial, sustainable innovation.  In fact, the ATM may be the only really beneficial financial innovation in quite some time.

The message is that calling something an "innovation" does not make it a good thing.

Link to "Goldman Sachs:  Failure of Innovation," by Rick Wartzman

(ag)  May 12, 2010, in Economy, Financial Regulatory Reform

Bailing Out the Euro

As threat of sovereign debt default by Greece and the weaker European Union currencies impacts the unified currency, the European Commission, the International Monetary Fund, and Central Banks around the globe have established a $1 trillion bailout to keep the Euro from imploding.

Link to story:  http://www.npr.org/templates/story/story.php?storyId=126661417

(ag) May 12, 2010, in Economy

Fannie Mae & Freddie Mac - The Next Financial Problem to Fix

The secondary mortgage market is a critical component of the U.S. financial structure and the heart of it is broken.  Fannie Mae needs $8.4 Million in additional government aid to survive.  Congress must tackle restructuring the secondary mortgage market soon

Options on the table include:

1.  More of the same:  Reprivatize these mortgage giants.  Not good.  We've seen the head's I win, tails you lose nature of that.

2.  Nationalize them.  Again, probably not good because it adds so much to the national debt and to taxpayer exposure.

3.  Eliminate them.  Not possible.  Our economy depends on liquidity provided by a strong secondary mortgage market.

4.  Downsize them.  This looks like the best option -- but it won't be easy.

Link:  http://www.csmonitor.com/Money/2010/0510/Fannie-Mae-wants-8.4-billion-more-in-federal-aid

(ag) May 11, 2010, in Fannie Mae/Freddie Mac

Greek Financial Crisis - Is There Anything New Under the Sun?

Here's an insightful review of a book that places the current Greek financial crisis in the context of past financial crises.  The book is This Time is Different:  Eight Centuries of Financial Folly by Carmen M. Reinhart and Kenneth S. Rogoff. 

The review is "Our Giant Banking Crisis - What to Expect" by Robin Wells and Paul Krugman.  The review also considers two other related studies: 

World Economic Outlook, April 2009: Crisis and Recovery
by the International Monetary Fund
available at [www.imf.org](http://www.imf.org)

World Economic Outlook, October 2009: Sustaining the Recovery
by the International Monetary Fund
available at [www.imf.org](http://www.imf.org)

The review's lead paragraph gives the flavor:  "Lately, the big concern roiling financial markets has been fear of Greek default. The risks seem obvious: Greek government debt is at levels that have historically signaled deep trouble for middle-income nations, and debt is still rising rapidly thanks to a large deficit. Meanwhile, Greece is suffering a severe recession in large part because costs have gotten far out of line with the rest of Europe. And one more thing: Greece has a long history of default—in fact, the nation has been in arrears on its debt for half its modern history."

The review looks at increased government as a means of softening a severe recession -- but cautions that this approach has its limits.  The impact of financial deregulation in creating the current financial crisis is well worth noting, as is the continued political strength of the U.S. financial industry.

LInk to Review:  http://www.nybooks.com/articles/archives/2010/apr/19/our-giant-banking-crisis/?pagination=false 

(ag) May 11, 2010, in Economy

 

My Father, My Hero

O.B. Graham (December 19, 1914 - May 1, 2010)