If Congress approved the agency, it would be the first time that consumers would have a seat at the banking regulatory table.

TO BE NOTED: From the NY Times:

"Banks Brace for Fight Over an Agency Meant to Bolster Consumer Protection

By ANDREW MARTIN and LOUISE STORY

When the economy was booming, banks doled out credit to consumers like candy. People who could never afford to live their dream found pay option adjustable rate mortgages and other easy-access loans just a signature away. Credit cards put the pain of payment off to another day — never mind the fees hidden in the fine print.

On Wednesday, President Obama proposed creating a federal agency that would require banks, mortgage lenders and credit card companies to provide consumers with a more nutritious diet, financially speaking.

But what is good for consumers may not always square with what is good for banks. And the banking industry — which says it stands to lose billions of dollars — is bracing for a fight as the administration’s plan to overhaul the way the industry is regulated heads to Capitol Hill.

Banks “are really dumbfounded by the scope of this agency,” Edward L. Yingling, the president of the American Bankers Association, said. “It’s not like the current regulators don’t have all the authority they need. You don’t have to blow up the system.”

The Consumer Financial Protection Agency is the brainchild of Elizabeth Warren, a Harvard Law School professor who has come to prominence on consumer matters after years of studying the rising toll of consumer debt. She argues that the banking regulators have an inherent conflict of interest between ensuring the safety and soundness of institutions and protecting consumers.

If the administration gets its way, the agency, a sort of Food and Drug Administration for financial products, would be empowered to tell banks to tidy up their offerings and make sure consumers have the information they need to make sound financial decisions, while being protected from scams.

It could, among other things, dictate standards for some products before banks could bring them to market, and push banks to favor plain vanilla loans over more exotic home loans, which could be required to carry warnings. Unfair terms and practices among credit card issuers would also be weeded out.

If Congress approved the agency, it would be the first time that consumers would have a seat at the banking regulatory table.

“The argument for doing that is you’ll have an agency that’s only focused on protecting consumers," said Donald G. Ogilvie, chairman of the Deloitte Center for Banking Solutions. “The argument against that is you’ll have an agency that’s only interested in protecting consumers."

But it also sets up a potential turf battle among the myriad agencies that are currently tasked with protecting consumers, including the Office of Thrift Supervision, the Office of the Comptroller of the Currency and the Federal Reserve, which the banks would like to see maintain this oversight.

Banking groups are concerned about the costs a new layer of regulation might impose, and the prospect of more examiners crowding into their banks.

“You are talking about an agency that is authorized to design financial products and, in fact, say that they must be offered first, over the banks’ own products,” said Mr. Yingling.

In an interview on Wednesday, Ms. Warren said the new agency could have implications beyond consumer protection. Protecting consumers from risky products ultimately protects the entire financial system, she argued.

“This crisis started one mortgage at a time,” said Ms. Warren, who, as the chairwoman of the Congressional panel that oversees government spending on the financial bailout, has the ear of many lawmakers. “The bad products that were sold household by household not only destabilized families. When they were sliced and diced and passed along through mortgage-backed securities, they magnified risk throughout the economy.”

The agency would most likely be harder on banks that profited from high-risk products, Ms. Warren said. But it may benefit banks that offer more consumer-friendly products that are “lost in the storm of advertising” for riskier products, she said.

While banks will lobby to water down the agency’s proposed powers in Congress, the devil will be in the details. One important question is how the agency would be financed. A spokesman for the Treasury said it would be paid for in part through “fees assessed on entities and transactions across the financial sector.” While he was not more specific, there could be conflicts of interest if, for example, banks paid fees directly to the agency to seek approval for their products.

Another issue will be the division between state and federal power. State attorneys general have often cracked down on mortgage fraud, high credit card rates, payday lending and other consumer financial protection issues that the new agency would take up. Mr. Yingling, of the American Bankers Association, expressed concern that financial companies might receive uneven treatment at the state and national level.

It may also be difficult to separate “consumers” from “investors,” leaving uncertainty about whether some financial products fall under the purview of the new agency or the Securities and Exchange Commission, which monitors many investor products. A spokesman for the Treasury said the S.E.C. would maintain its power over investor protection.

The president’s proposal resembles legislation introduced a few months ago by Senator Richard J. Durbin, Democrat of Illinois. He acknowledged the idea of an agency faced a fight on Capitol Hill.

“Never underestimate the banks,” he said."

“The banks get it,” Mr. Fine said. “They understand you need a strong political action committee to get access to the fund-raisers.

Man acts from motives relative to his interests; and not on metaphysical speculations.

TO BE NOTED: From the NY Times:

"Back to Business
Ailing, Banks Still Field Strong Lobby at Capitol

By STEPHEN LABATON

WASHINGTON — As he often does, President Obama took the opportunity in a bill-signing ceremony last month to remind Congress “to do what we were actually sent here to do — and that is to stand up to the special interests, and stand up for the American people.”

But Mr. Obama did not mention that the measure he was signing, the Helping Families Save Their Homes Act, was missing its centerpiece: a change in bankruptcy law he once championed that would have given judges the power to lower the amount owed on a home loan.

It had been stripped out three weeks earlier in a showdown between Senate Democrats and the nation’s banks, including many that are getting big government bailouts.

As Congressional Democrats and the White House crow about multiple victories over the financial industry, including new rules for credit card issuers, banks are quietly savoring an even bigger victory of their own.

The defeat of the bankruptcy proposal is a testament to the enduring influence of banks, even as the industry struggles financially and suffers from its role in the economic crisis.

It also shows that in the coming legislative battles that will shape the future of the economy, the financial industry — through a powerful and well-financed lobbying force — may have a far stronger hand to play than might seem evident.

Documents and interviews with lawmakers, lobbyists and administration officials show that the banks defeated the bankruptcy change — the industry picturesquely calls it the “cramdown” provision — by claiming that it would push up interest rates and slow the housing market’s recovery, even though academic studies have countered such claims.

The industry also steadfastly refused offers to negotiate over a weaker version. And it poured millions of dollars into lobbying: four of the industry’s top trade groups spent nearly as much on lobbying in the first three months of this year as they did in all of 2001.

But an industry strategy of dividing the Democrats had the most success.

One target was Senator Mary Landrieu, the moderate Democrat from Louisiana. On April 1, about 30 bankers from Louisiana crowded into a room off the Senate floor to press their view that the bankruptcy measure would force them to raise mortgage rates and hurt the very homeowners Congress was seeking to help.

Donnie Landry, a senior executive vice president at MidSouth Bank of Lafayette, La., recalled that last year Ms. Landrieu had “not been very receptive to some of our concerns. But this time she could not have been more cordial,” even helping them get to see Senator Christopher J. Dodd, the Connecticut Democrat who is the chairman of the Senate banking committee, while they were at the Capitol.

Ms. Landrieu was among 12 Democrats joining 39 Republicans to vote against the measure, while Mr. Dodd was one of the 45 Democrats and independents who supported it — still 15 votes shy of the 60 needed to shut off a filibuster.

Aaron Saunders, a spokesman for Ms. Landrieu, told reporters at the time that the senator had voted against the measure because of the concerns raised by Louisiana bankers that the provision could cause mortgage rates to rise.

Throughout it all, the banks took advantage of the Obama administration’s seeming ambivalence. Despite its occasional populist rhetoric, the White House was conspicuously absent from weeks of pivotal negotiations this spring.

“This would have been a much different deal if Obama had pressed it,” said Camden R. Fine, head of the Independent Community Bankers of America and one of the chief lobbyists opposing the bankruptcy change. “The fact that Obama effectively sat it out helped us a great deal.”

Surprising Ease

In the end, the banks’ startling success in defeating the provision, which was pushed hardest by Senator Richard J. Durbin, Democrat of Illinois, caught even their lobbyists by surprise. Not only did they defeat the cramdown provision, but the banks walked away with billions in new bailout money.

The housing bill Mr. Obama signed on May 20 saves banks and credit unions at least $13 billion in special fees that they would have had to pay to replenish dwindling deposit insurance funds.

The outcome left some Democrats frustrated and fuming. “This is one of the most extreme examples I have seen,” said Senator Sheldon Whitehouse, Democrat of Rhode Island, shortly before the vote, “of a special interest wielding its power for the special interest of a few against the general benefit of millions of homeowners and thousands of communities now being devastated by foreclosure.”

The lament was a far cry from the outlook in January, when banking lobbyists believed their situation was hopeless. Some 10,000 homes were being foreclosed on every day. A new president who had campaigned in favor of the proposal — and who co-sponsored similar legislation as a senator — was about to take office.

While Republicans had defeated the measure in 2008, Congress was now more solidly in Democratic hands.

The industry’s worst fears began to come true in early January when Senator Charles E. Schumer announced that he had persuaded Citigroup to endorse the idea. Mr. Schumer had held discussions with Vikram S. Pandit, Citigroup’s chief executive, and Lewis B. Kaden, a vice chairman. Mr. Schumer then spoke to other top executives, including Jamie Dimon, chief executive of JPMorgan Chase, hoping to peel more big banks away from the opposition.

Housing advocacy groups argued that it was unfair that bankruptcy judges have had the authority since 1978 to modify mortgages on vacation homes, farms and even luxury yachts, but not on primary residences. They also argued that a string of federal programs to help reduce foreclosures had been ineffective because of resistance by lenders and investors who own pools of loans, all of whom stand to lose money when a mortgage is modified.

Those arguments won the day in the House, which adopted the legislation on March 5 by a 234-191 vote.

In the Senate, where Republicans were looking for a chance to recoup after narrowly failing to block Mr. Obama’s huge stimulus package, the banks argued that the proposal interfered with their contractual rights.

But the real threat was to their profits. The proposal would have shifted negotiating power to the millions of troubled homeowners who could use the threat of bankruptcy to wrest lower monthly payments from lenders. The banks claimed that that would force them to raise rates.

That claim is in dispute. For one thing, the legislation would not have applied to new mortgages.

Moreover, until a Supreme Court decision in 1993, some bankruptcy judges had modified mortgages on primary residences, and recent studies by Adam J. Levitin, an associate law professor at Georgetown University Law Center, concluded that those modified mortgages did not result in increases in lending rates.

Still, Mr. Durbin knew he had a fight on his hands. Within his own party, moderates were badly split. Some, like Senator Tim Johnson of South Dakota and Senator Thomas R. Carper of Delaware, represent states that are the corporate home to major banks. The industry has showered both lawmakers with campaign cash.

Senator Carper’s three largest contributors this election cycle have been executives and political action committees at Citigroup, Bank of America and JPMorgan Chase, according to the Center for Responsive Politics, which tracks money and politics. Out of the $4.6 million he has raised, some $375,000, or 8 percent, has been from banks, credit unions and related trade groups.

Senator Johnson has raised about $6.2 million, of which at least $280,000, or 4.5 percent, has come from groups opposed to the legislation.

Compromise Falls Flat

To win industry support in enlisting more of his colleagues, Mr. Durbin approached the trade associations.

Shortly after negotiations began, the American Bankers Association abandoned the talks, saying there was no compromise they could ever support. Soon after, Mr. Fine’s community bankers also left the talks, having refused a demand by Mr. Durbin to publicly announce support for the principle of allowing bankruptcy judges to reduce mortgage payments.

Mr. Durbin next sought a compromise with credit unions and three large banks — Bank of America, JPMorgan Chase and Wells Fargo. In April, at a delicate stage in the talks, Mr. Durbin gave the banks a proposed compromise that was marked not to be circulated, a senior Congressional aide involved in the talks recalled.

Within six minutes, the memo was distributed to the entire Republican caucus — along with a warning from Senator Mitch McConnell of Kentucky, the minority leader, to stay away from it. The compromise went nowhere.

While Mr. Obama reaffirmed his support for the proposal shortly after becoming president, administration officials barely participated in the negotiations, a factor that lobbyists said significantly strengthened their hand. Lawmakers who have discussed the issue with the administration said that the president’s senior aides had concluded that a searing fight with the industry was simply not worth the cost.

Moreover, Timothy F. Geithner, the Treasury secretary, did not seem to share Mr. Obama’s enthusiasm for the bankruptcy change.

Mr. Geithner was lobbied by the industry early. Two days after he was sworn in, he invited Mr. Fine from the community bankers to his office for a private meeting. The association, with influential members in every Congressional district, is one of Washington’s most powerful trade groups.

A senior adviser to Mr. Geithner said the administration supported the cramdown proposal, but it preferred that distressed homeowners seek to modify their loans through the Treasury’s new $75 billion program, which rewarded banks if they modified home loans, rather than through bankruptcy court.

Mr. Durbin acknowledges that it was a mistake not to call on the administration for help.

“If I would have known how it would unfold, I would have called on the White House earlier to get involved,” he said.

Deal Now, Pay Later

While Mr. Durbin had trouble rounding up Democratic votes, Republican leaders kept their members — and potential renegade banks — in line.

Senator Jon Kyl, the Arizona Republican leading the charge against the bankruptcy change, told bankers there would be consequences if they dealt with the Democrats. According to an April 20 e-mail message between industry officials in touch with Mr. Kyl, he told them “not to make a deal with Durbin and then come looking to Republicans when they need help on something like regulatory restructuring.”

In an interview, Mr. Kyl, the Senate’s No. 2 Republican, did not recall whether he had made the statement, although he remembered telling bankers that he could not defend them if they did not first defend themselves. “I very pointedly said, ‘Don’t make a deal with Durbin on this. You don’t need to. If he has the votes he wouldn’t be dealing,’ ” Mr. Kyl recalled.

There was no counterweight to that legislative muscle. Bankrupt homeowners do not have a political action committee or lobbyists.

Mr. Fine reports that the political action committees run by his association alone have built a war chest of nearly $2 million, a 40 percent jump over the last year, even though members have had to cut other expenses in the recession.

“The banks get it,” Mr. Fine said. “They understand you need a strong political action committee to get access to the fund-raisers. That’s where the lawmakers are.”

Carl Hulse contributed reporting, and Kitty Bennett contributed research."

still the most powerful lobby on Capitol Hill. And they frankly own the place

TO BE NOTED: From Salon:

"Top Senate Democrat: bankers "own" the U.S. Congress Dick Durbin's confession ought to be major news, yet it won't be. Why not?

Glenn Greenwald

Apr. 30, 2009 |

Sen. Dick Durbin, on a local Chicago radio station this week, blurted out an obvious truth about Congress that, despite being blindingly obvious, is rarely spoken: "And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place." The blunt acknowledgment that the same banks that caused the financial crisis "own" the U.S. Congress -- according to one of that institution's most powerful members -- demonstrates just how extreme this institutional corruption is.

The ownership of the federal government by banks and other large corporations is effectuated in literally countless ways, none more effective than the endless and increasingly sleazy overlap between government and corporate officials. Here is just one random item this week announcing a couple of standard personnel moves:

Former Barney Frank staffer now top Goldman Sachs lobbyist

Goldman Sachs' new top lobbyist was recently the top staffer to Rep. Barney Frank, D-Mass., on the House Financial Services Committee chaired by Frank. Michael Paese, a registered lobbyist for the Securities Industries and Financial Markets Association since he left Frank's committee in September, will join Goldman as director of government affairs, a role held last year by former Tom Daschle intimate, Mark Patterson, now the chief of staff at the Treasury Department. This is not Paese's first swing through the Wall Street-Congress revolving door: he previously worked at JP Morgan and Mercantile Bankshares, and in between served as senior minority counsel at the Financial Services Committee.

So: Paese went from Chairman Frank's office to be the top lobbyist at Goldman, and shortly before that, Goldman dispatched Paese's predecessor, close Tom Daschle associate Mark Patterson, to be Chief of Staff to Treasury Secretary Tim Geithner, himself a protege of former Goldman CEO Robert Rubin and a virtually wholly owned subsidiary of the banking industry. That's all part of what Desmond Lachman -- American Enterprise Institute fellow, former chief emerging market strategist at Salomon Smith Barney and top IMF official (no socialist he) -- recently described as "Goldman Sachs's seeming lock on high-level U.S. Treasury jobs."

Meanwhile, the above-linked Huffington Post article which reported on Durbin's comments also notes Sen. Evan Bayh's previously-reported central role on behalf of the bankers in blocking legislation, hated by the banking industry, to allow bankruptcy judges to alter the terms of mortgages so that families can stay in their homes. Bayh is up for re-election in 2010, and here -- according to the indispensable Open Secrets site -- is Bayh's top donor:

Goldman is also the top donor to Bayh over the course of his Congressional career, during which Bayh has received more than $4 million from the finance, insurance and real estate sectors:

In a totally unrelated coincidence -- after the Government, as Matt Taibbi put it, enacted "a bailout program that has now figured three ways to funnel money to Goldman, Sachs"-- this is what happened earlier this month:

Goldman reports $1.8 billion profit

Goldman Sachs reported a much stronger-than-expected first-quarter profit Monday, bouncing back from its worst quarter as a public company. . . .

In reporting its results a day earlier than expected, New York-based Goldman said it earned $1.81 billion, or $3.39 a share, for the quarter ended March 31. Analysts surveyed by Thomson Financial were looking for a profit of $1.64 a share.

Goldman shares, which have surged more than 70% during the past month, continued rising late Monday, gaining about 4.7% for the day.

Nobody even tries to hide this any longer. The only way they could make it more blatant is if they hung a huge Goldman Sachs logo on the Capitol dome and then branded it onto the foreheads of leading members of Congress and executive branch officials.

Of course, ownership of the government is not confined to Goldman or even to bankers generally; legislation in virtually every area is written by the lobbyists dispatched by the corporations that demand it, and its passage then ensured by "representatives" whose pockets are stuffed with money from those same corporations. Just as one example, as Jane Hamsher reported about Bayh:

Bayh's little "lobbyist problem" is considered by many to be what tanked his Vice Presidential aspirations. His wife Susan earns about $837,000 a year serving on seven corporate boards, among them Wellpoint, a health insurance company for which Bayh helped secure a $24.7 million dollar grant. She's on the board of ETrade, even as Bayh is on the Senate Finance Committee.

Bayh wants people to believe he's a "moderate" who sits in the "center."

Center of K Street, maybe.

Meanwhile, the only citizen protests relating to this mass robbery are driven by anger at the government for treating bankers too harshly and unfairly -- one of the most classic manifestations of what Taibbi, in a separate piece, so aptly calls the "peasant mentality":

After all, the reason the winger crowd can’t find a way to be coherently angry right now is because this country has no healthy avenues for genuine populist outrage. It never has. The setup always goes the other way: when the excesses of business interests and their political proteges in Washington leave the regular guy broke and screwed, the response is always for the lower and middle classes to split down the middle and find reasons to get pissed off not at their greedy bosses but at each other. That’s why even people like [Glenn] Beck’s audience, who I’d wager are mostly lower-income people, can’t imagine themselves protesting against the Wall Street barons who in actuality are the ones who fucked them over. . . .

Actual rich people can’t ever be the target. It’s a classic peasant mentality: going into fits of groveling and bowing whenever the master’s carriage rides by, then fuming against the Turks in Crimea or the Jews in the Pale or whoever after spending fifteen hard hours in the fields. You know you’re a peasant when you worship the very people who are right now, this minute, conning you and taking your shit. Whatever the master does, you’re on board. When you get frisky, he sticks a big cross in the middle of your village, and you spend the rest of your life praying to it with big googly eyes. Or he puts out newspapers full of innuendo about this or that faraway group and you immediately salute and rush off to join the hate squad. A good peasant is loyal, simpleminded, and full of misdirected anger. And that’s what we’ve got now, a lot of misdirected anger searching around for a non-target to mis-punish . . . can’t be mad at AIG, can’t be mad at Citi or Goldman Sachs. The real villains have to be the anti-AIG protesters! After all, those people earned those bonuses! If ever there was a textbook case of peasant thinking, it’s struggling middle-class Americans burned up in defense of taxpayer-funded bonuses to millionaires. It’s really weird stuff.

One might think it would be a big news story for the second most-powerful member of the U.S. Senate to baldly state that the Congress is "owned" by the bankers who spawned the financial crisis and continue to dictate the government's actions. But it won't be. The leading members of the media work for the very corporations that benefit most from this process. Establishment journalists are integral and well-rewarded members of the same system and thus cannot and will not see it as inherently corrupt (instead, as Newsweek's Evan Thomas said, their role, as "members of the ruling class," is to "prop up the existing order," "protect traditional institutions" and "safeguard the status quo").

That Congress is fully owned and controlled by a tiny sliver of narrow, oligarchical, deeply corrupted interests is simultaneously so obvious yet so demonized (only Unserious Shrill Fringe radicals, such as the IMF's former chief economist, use that sort of language) that even Durbin's explicit admission will be largely ignored. Even that extreme of a confession (Durbin elaborated on it with Ed Schultz last night) hardly causes a ripple.

* * * * * *

Here's Jane Hamsher, with Rachel Maddow, in February, assessing the motives of people like Evan Bayh and analyzing who owns and controls them (begins at the 3:00 minute mark):

-- Glenn Greenwald"

"permitting bankruptcy modification as an alternative to foreclosure would, if anything, benefit lenders."

I read a lot of posts about this, but I like Justin Fox's take:

"In what strikes me as a pretty major change of heart( IT IS ), Citigroup has signed on to Illinois Democrat Dick Durbin's effort to give bankruptcy judges the power to rewrite the terms of mortgages. Reports the WSJ:

The cramdown bill would apply to all mortgage loans, including but not limited to subprime loans, written any time prior to the bill's date of enactment. It allows judges the ability to lower principal( THIS IS THE KEY TO LONG TERM SUCCESS ) or interest rate, extend the term of the loan, or any combination of the three. "Cramdown" refers to the ability of judges to lower a mortgage principal( ESSENTIAL ) so that it is equivalent to the current market value of a home.

The banking industry thwarted such efforts by Durbin in 2007 and 2008. The WSJ portrays the deal as partly a PR effort on the part of Citi, which needs good PR these days. I'd like to hope that it also might mark the beginning of a realization on the part of bankers that being tough on bankruptcy law isn't always good business for them. Banking industry lobbyists slipped the provision restricting judges' ability to modify mortgages into the big bankruptcy reform act of 1978, and had argued in recent years that changing the law would result in a big rise in mortgage rates.( BS )

But the available evidence actually doesn't back this up. As I wrote a couple of weeks ago:

Georgetown Law professor Adam Levitin and Columbia economics graduate student Joshua Goodman gathered this evidence recently by taking advantage of a quirk in judicial history. Between 1979 and 1993, about half of all federal judicial districts interpreted bankruptcy law to mean that judges could modify first-home mortgages, while the other half interpreted it to mean they couldn't. The Supreme Court put an end to this in 1993 by ruling that the latter approach was what the law called for. Levitin and Goodman examined mortgage data from before then, and concluded "that mortgage markets are largely indifferent to bankruptcy modification outcomes." The reason for this, they contend, is that "lender losses in foreclosure would be greater than in bankruptcy, and so permitting bankruptcy modification as an alternative to foreclosure would, if anything, benefit lenders."( THAT'S WHAT I WAS ARGUING CONTRA FELIX SALMON. )

The bankers seem to be learning this lesson. They're still insisting that the bill only apply to past mortgages, not new ones. But it's a step forward. Maybe next it will begin to dawn them that, as some economists argue, the tougher personal bankruptcy rules they pushed through Congress in 2005 made the current financial crisis worse."

I think that they now realize that the price of houses are still declining and that the government might not favor them with a bailout of some kind. Hence, it's in their interest to allow this concession. Of course, the puzzling aspect is why they just don't do this themselves. I'm still a bit leery of this concession until I understand Citi's reasoning.

"Just returned from the final Obama rally in Manassas, VA--my first campaign rally since 1992!"

Terry Michael with a moving post on the election of President Obama:

"As I've said, Barack and Michelle Obama seem to me better dressed versions of Paul and Jeanne Simon. I see a meme stream from Paul to Obama, via David and Dick Durbin, who was Paul's administrative assistant when he was Lt. Governor--kind of amazing, actually. I sort of feel the Obama Administration will be the Paul Simon presidency I never got to have."

I hope it works out that way.