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MarketWatch reports today: "Senate Banking Committee Chairman Christopher Dodd, D-Conn., has dropped plans for a separate, stand-alone agency to protect consumers against credit-card and mortgage fraud in a bid to restart stalled financial reform legislation."
WILLIAM K. BLACK
Black is associate professor of economics and law at the University of Missouri, Kansas City. He was a senior regulator during the savings and loan scandal and blew the whistle on prominent politicians, including House Speaker Wright and the five U.S. senators who became famous as the "Keating Five." He was the lead staffer on the successful reregulation of the S&L industry and directed the investigations that led to convictions in many of the worst S&L frauds.
He said today: "The single most positive element of the Senate reform legislation was the creation of an independent regulatory agency dedicated to consumer protection against financial abuses. The scope of those financial abuses is staggering. What the FBI rightly warned about in September 2004: an 'epidemic' of mortgage fraud that they predicted would cause a financial 'crisis' caused the housing bubble to hyper-inflate and caused the greatest loss of working class wealth in our history. The crisis also shows that protecting consumers simultaneously protects honest lenders. A 'Gresham's dynamic' caused this crisis -- lenders that engaged in accounting 'control fraud' gained an advantage over honest lenders because accounting fraud is a 'sure thing' that produces record (fictional) profits that maximize executive bonuses. George Akerlof and Paul Romer captured this dynamic in the title of their 1993 article: 'Looting: Bankruptcy for Profit.' Lenders optimize accounting fraud by lending to the least financially sophisticated borrowers on predatory terms. Despite FBI warnings and ample warnings to the Federal Reserve in hearings (mandated by Congress -- the Fed would not have even held the hearings absent that compulsion) about endemic lender fraud and predation, the Fed refused to use its authority under HOEPA to prevent the accounting fraud and predation. Worse, Treasury and the Fed have overwhelmingly perverse institutional incentives to represent the interest of the worst financial executives -- the looters -- against the interests of borrowers.
"The proposal to amend the Senate bill to place consumer protection in Treasury, rather than an independent regulatory agency with institutional incentives to protect borrowers, is a sick joke. This is not even a case of putting a fox in charge of the proverbial chicken coop -- the foxes have already slaughtered the chickens. The only reason we were successful in reregulating the S&L industry during the Reagan administration was because the Federal Home Loan Bank Board was an independent regulatory agency. The administration hated our successful reregulation, which kept the debacle from developing into a Great Recession, and would have blocked it had we not been an independent regulatory agency. Its successor administration's, the first President Bush's, first significant legislative response to the S&L debacle (the 1989 FIRREA legislation) ended the Bank Board's independent regulatory status and made its successor (OTS [Office of Thrift Supervision]) a bureau within Treasury. OTS, of course, under the second President Bush's appointees, joined its sister bureau (OCC [Office of the Comptroller of the Currency]) in becoming an anti-regulatory disgrace. The OTS went so far as to encourage a failed S&L to file false financial statements to disguise its failure. OCC spent all of its energies successfully preempting efforts by state attorneys general to protect borrowers from predatory lenders. We are now supposed to believe that the answer to the crisis is to create another Treasury bureau? To be successful, that bureau's function would have to be negating every policy of the OCC and the OTS. That, obviously, is not going to happen. Treasury will continue to represent the financial industry at the direct expense of our nation. [James] Galbraith ('The Predator State') and [Thomas] Frank ('The Wrecking Crew') explain how and why this happens.
"Independence does not guarantee effective regulation (witness the Fed and the SEC), but it is a sine qua non for effective regulation. Four things make for effective regulation -- and independence increases the chances of each element occurring. The first is leadership. This is where even independent agencies are deeply vulnerable because the president appoints their leaders. Bush, for example, appointed Harvey Pitt, the most notorious anti-regulator, as Chairman of the SEC. However, leaders can change. Bank Board Chairman Gray is an example of this process. He was a patron of deregulation but saw that it was optimizing the S&L environment for accounting fraud.
"The second requisite is power. The agency needs effective regulatory, examination, data, and enforcement authority. An independent agency is less subject to OMB's and OPM's anti-regulatory efforts that focus on these elements.
"The third necessity is to create institutional incentives that increase the odds that the agency will seek to fulfill its regulatory mission rather than being 'captured' by the industry it is supposed to regulate. The Fed, of course, is set up in exactly the wrong manner due to the regional banks. The banks dominate the organization that is supposed to regulate them. Take a look at the 'public interest' directors of the regional Fed banks if you want to have a sad laugh.
"The fourth requirement is to develop a professional regulatory culture. This takes time, and it can be lost. The examiners and supervisors need to value expertise and be dedicated to their statutory mission. They should have no interest in party. (To this day, I do not know the political affiliations of my three regulatory colleagues that I joined in meeting with the 'Keating Five.') They must believe that (some) regulation can succeed or they will be defeated from the beginning. They must limit their use of power and avoid conflicts of interest. Good regulators do not have enemies lists even when their opponents do have such lists. Michael Patriarca (the top S&L regulator in the West) exemplified this element. His order to us with regard to Charles Keating's Lincoln Savings (the most infamous 'control fraud' of the S&L debacle) was that we would always walk 'square corners' in our regulation of that S&L and every other S&L. Self-restraint is essential, but so are two related cultural elements -- integrity and courage. Chairman Gray knew that reregulating the industry would destroy his career. Michael Patriarca persisted in recommending that Lincoln Savings be taken over even when Chairman Gray's successor (Danny Wall) made clear that he was enraged by that recommendation and even though Wall's chief of staff warned Patriarca that Keating was so powerful and vicious that 'they can get you in ways you'll never know you've been gotten.' (Note that despite a track record of unmatched regulatory success and integrity neither the Bush nor the Obama administration has appointed Patriarca as a regulatory leader or even sought his advice.)"
Black is also a white-collar criminologist. His research focuses on elite frauds ("control frauds") that control seemingly legitimate organizations and use them as "weapons" of fraud -- and the financial crises such frauds produce.
A nationwide consortium, the Institute for Public Accuracy (IPA) represents an unprecedented effort to bring other voices to the mass-media table often dominated by a few major think tanks. IPA works to broaden public discourse in mainstream media, while building communication with alternative media outlets and grassroots activists.
"A key player in the extreme MAGA House majority now admits what anyone paying attention has suspected all along," said one watchdog group.
Through their actions in recent months, House Republicans have made clear that they view the debt ceiling standoff as a hostage situation that they can exploit to advance their political agenda—which includes draconian cuts to social programs and massive handouts to the fossil fuel industry.
On Tuesday, just days before the June 1 "X-date," Rep. Matt Gaetz (R-Fla.) came right out and admitted it, telling reporters that "my conservative colleagues for the most part support Limit, Save, Grow, and they don't feel like we should negotiate with our hostage."
Semafor's Joseph Zeballos-Roig published audio of Gaetz's comments on Twitter:
\u201cThere\u2019s a lot of interest in the Gaetz audio, so here it is. I conducted a brief interview with him before a House vote earlier today to get his views on debt limit talks. @semafor \n\nH/t @joeposner @thejulianlim\u201d— Joseph Zeballos-Roig (@Joseph Zeballos-Roig) 1684866850
The Limit, Save, Grow Act is legislation that Republicans passed in a party-line vote last month, staking out their position that the debt ceiling shouldn't be raised unless rich tax cheats are protected and an axe is taken to spending on federal nutrition assistance, Medicaid, affordable housing, childcare, and other key programs.
The House GOP, officially led by Speaker Kevin McCarthy (R-Calif.) but heavily influenced by the far-right Freedom Caucus, has held to that position, threatening to force a debt default and unleash global economic chaos unless their demands are met.
Gaetz, a member of the House Freedom Caucus, suggested Tuesday that the deal McCarthy struck with his far-right flank to secure the speakership—specifically the rule allowing just one lawmaker to call a vote to unseat the speaker—has kept the Republican leader committed to debt ceiling brinkmanship.
"I believe the one-person motion to vacate has given us the best version of Speaker McCarthy and I think he's doing a good job," Gaetz said Tuesday.
Democratic lawmakers and progressive watchdog groups saw Gaetz's remarks as a frank acknowledgment of what they've said since the start of the debt ceiling standoff.
"A key player in the extreme MAGA House majority now admits what anyone paying attention has suspected all along: Congress Republicans consider the U.S. economy and millions of jobs a 'hostage' while making unreasonable austerity demands that especially hurt low-income veterans and seniors," said Jeremy Funk, spokesman for Accountable.US. "Anyone who doubts the looming default crisis and recession is not entirely manufactured by the MAGA majority need only give the fringe Freedom Caucus a call and hear it from the horse's mouth."
Rep. Brendan Boyle (D-Pa.), the top Democrat on the House Budget Committee, wrote on Twitter that "Matt Gaetz just admitted Republicans are holding the U.S. economy hostage."
"The pro-default extremists in the GOP are willing to risk economic calamity to force their cruel cuts on American families," Boyle wrote. "House Democrats will not let that happen."
Boyle is leading a longshot procedural effort known as a discharge petition to force a vote on a debt ceiling increase as the Republican leadership remains committed to pursuing deep spending cuts that Democrats in the House and Senate have dismissed as nonstarters.
Not a single House Republican has signed the discharge petition, and two Democrats—Reps. Jared Golden of Maine and Ed Case of Hawaii—have yet to sign.
With negotiations between the White House and Republicans at a standstill, a growing number of congressional lawmakers—including prominent progressives such as Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.)—are imploring President Joe Biden to use his 14th Amendment authority to unilaterally avert a default, an option the president has thus far resisted.
Rep. Alexandria Ocasio-Cortez (D-N.Y.), who has said the 14th Amendment "should be on the table," pointed to Gaetz's comments Tuesday as further confirmation that Republicans are not negotiating in good faith.
"I want to be clear about what the Republican Party is taking hostage. It is not Democrats. It is the entire U.S. economy," Ocasio-Cortez toldCNN late Tuesday. "It is extreme, and it is not acceptable."
Rep. Ilhan Omar (D-Minn.) added on Twitter that Gaetz and the GOP "are playing a dangerous game and, like every hostage situation, someone is likely going to be hurt."
"We have to rescue the American people," she wrote.
An earlier version of this story incorrectly described Rep. Brendan Boyle (D-Pa.) as a Republican.
While a DOJ attorney declined to disclose the government's position, one observer said it seems to be: "Stop trying to make us... get rid of the debt ceiling. That sort of thing is for high-level insiders only, not pesky labor unions that are going about it all wrong."
With a "significant gap" remaining between what House Republicans and White House negotiators want to resolve the debt limit fight, a federal judge on Tuesday scheduled a hearing next week for a related lawsuit brought by a union for government workers.
Attorneys for the National Association of Government Employees (NAGE)—which represents about 75,000 workers across federal agencies—sued President Joe Biden and Treasury Secretary Yellen in the U.S. District Court for the District of Massachusetts earlier this month. The union's legal team requested emergency action by the court in a filing on Friday.
During a Tuesday videoconference, Judge Richard Stearns gave the U.S. Department of Justice (DOJ) until May 30 to file a response detailing the department's position on presidential authority relating to the public debt and scheduled a hearing for May 31—the eve of the so-called X-date, or when Yellen warns the government could run out of money.
While NAGE wants a decision from the court before the X-date, Stearns, an appointee of former President Bill Clinton, "sounded skeptical of arguments from the union's lawyers that disaster for the nation is impending if he did not put the case on an even faster track," according toPolitico.
"If the emergency is as dire as you think it is, I would think that it's within the power of the president to address it using executive branch authority," the judge said. He added that "I understand there are time constraints, given that events are developing probably even as we're meeting, that probably make a decision prior to June 1st impossible."
Politico also noted that during the conference, DOJ lawyer Alexander Ely declined to disclose the department's position on whether the 14th Amendment's declaration that "the validity of the public debt of the United States... shall not be questioned" means the president can disregard the debt limit on constitutional grounds.
\u201cAs I read this, the government's position in the suit is:\n\n"Stop trying to make us to get rid of the debt ceiling. That sort of thing is for high-level insiders only, not pesky labor unions that are going about it all wrong."\n\nAh, the eternal cry of elites against activists.\u201d— David Rosen (@David Rosen) 1684867753
Thomas Geoghegan, an attorney for NAGE, said that "what we're faced with, I fear, is that the government doesn't really have a position on this, but there is no time to prevent irreparable injury."
As Common Dreamsreported Monday, Revolving Door Project executive director Jeff Hauser argued that not only should U.S. Attorney General Merrick Garland "refuse to defend the unconstitutional legal incoherence that is the debt ceiling," but also the DOJ should "file papers supporting the National Association of Government Employees' request, and should do so as soon as possible."
"NAGE's argument is sound," Hauser said. "While President Biden may be willing to keep channels open until the very last minute with nihilistic, bad-faith Republican lawmakers, the Justice Department's obligation is to the Constitution, which is unequivocal."
The American Prospect executive editor David Dayen—who has been closely following the case—noted on Twitter that the DOJ and NAGE's formal request for the Tuesday conference states that "defendants intend to file an opposition to plaintiff's emergency motion for preliminary injunction."
Law Dork's Chris Geidner responded that "it's not necessarily opposition to the underlying arguments. It's possible that their opposition is either to a court ordering this or employees, through litigation, ordering them to do so. I'd think it would be unusual for any executive to argue otherwise."
The Tuesday conference came as the head of another union representing federal workers sent a letter to the White House.
"Many federal agencies that deliver services directly to the public, like the Social Security Administration, are already at the breaking point from years of inadequate funding," American Federation of Government Employees national president Everett Kelley wrote to Biden, warning the House GOP's proposed spending cuts "would be an economic and humanitarian calamity."
"I urge you not to yield to threats but instead to heed the advice of many legal scholars who have concluded that you have the inherent power, and indeed the duty, to avoid a default under the Constitution's 14th Amendment," Kelley added. "You have additional authorities to mint platinum coins under 31 USC § 5112. Please use these authorities now before it is too late."
As Matt Bruenig, president of the think tank People's Policy Project, highlighted in a blog post Tuesday, minting the coin isn't Biden's only option—he could also have the Treasury "issue bonds with a face value of $0 that only paid its holders a set amount of interest each year for a certain number of years. In this scenario, people would still buy the bonds in order to receive the interest, but there would be no principal and thus no face value."
"My current thinking on the best way for Biden to deal with the debt limit is to sell zero-principal bonds," Bruenig wrote. "These would not count as debt under the wording of the debt limit statute because they have a $0 face value. If this was challenged, then the administration has three different defenses to the challenge: that zero-principal bonds do not contribute to the debt limit, that the debt limit is unconstitutional, and that illegally selling bonds is no more unconstitutional than illegally raising taxes, selling assets, or cutting spending.
"But whichever course of action Biden chooses," he concluded, "we should be clear that he has other options than agreeing to crack the whip against America's poor."
"Harlan Crow thinks he is the law," remarked one legal expert. "The billionaire and his lawyer apparently believe they get to stop congressional investigations if they so choose."
Legal experts and U.S. Senate Judiciary Chair Dick Durbin on Tuesday derided billionaire Harlan Crow's refusal to answer the panel's questions regarding years of gifts—including luxury vacations and private school tuition—bestowed by the Republican megadonor upon Supreme Court Justice Clarence Thomas and his family.
In a letter to Durbin (D-Ill.) responding to requests for information about the private jet, yacht, and upstate New York resort owned by Crow and his holding companies, Michael Bopp of the law firm Gibson Dunn—which represents Crow—asserted that the Judiciary Committee "has not identified a valid legislative purpose for its investigation and is not authorized to conduct an ethics investigation of a Supreme Court justice."
Durbin responded to Bopp's letter with a statement arguing that the missive "did not provide a credible justification for the failure of Mr. Crow and three corporate entities to respond to the committee's written questions."
"First of all, the committee did not receive individual responses from anyone representing the three companies," Durbin said. "That is untenable since the gifts and access to justices that these companies provided are highly relevant to the committee's legislative efforts on ethics reform."
\u201cSCOOP: Here's the letter that Justice Clarence Thomas's benefactor Harlan Crow sent to the Senate Judiciary Committee last night. His lawyers, from top firm Gibson Dunn, are arguing Congress doesn't have the authority to investigate the Supreme Court.\n\nhttps://t.co/PAtQvK7a8S\u201d— Emily Birnbaum (@Emily Birnbaum) 1684861388
"Second, the letter claims that Congress lacks authority to enact ethics legislation that applies to Supreme Court justices—a claim belied by multiple congressionally enacted ethics laws that Chief Justice [John] Roberts highlighted as applying to Supreme Court justices in his April 25 'Statement on Ethics Principles and Practices,'" Durbin continued.
"Further, Mr. Crow's letter relies on a separation of powers defense when Mr. Crow does not work, and has never worked, for the Supreme Court," the senator added. "Harlan Crow believes the secrecy of his lavish gifts to Justice Thomas is more important than the reputation of the highest court of law in this land. He is wrong."
Chris Geidner, a former legal editor and Supreme Court correspondent for BuzzFeed News, wrote on his Law Dork Substack:
What is perhaps most remarkable about the letter is not even its dismissal of the congressional oversight request—which absolutely must be followed at the earliest possible moment by the committee's issuance of a subpoena—but, rather, the underlying basis for that decision. In the letter, Bopp concludes—again, on Crow's behalf—that "Congress lacks the authority" to pass ethics legislation relating to the Supreme Court.
Bopp cannot state that as a matter of law—and dismiss Durbin's request based on that knowledge. This is so because Chief Justice John Roberts himself has acknowledged that Congress has already passed ethics legislation that applies to the justices. What's more, Roberts also explained in 2011 that the court has never addressed whether Congress can do so but that the justices "nevertheless comply with those provisions."
"Harlan Crow thinks he is the law," Geidner contended. "The billionaire and his lawyer apparently believe they get to stop congressional investigations if they so choose."
\u201cthe tl;dr of this letter is "the separation of powers means supreme court justices can do whatever they want & congress can't do shit about it."\n\n(can't wait to read neil gorsuch's ~fantastico~ rewriting of this into a supreme court opinion.)\u201d— Leah Litman (@Leah Litman) 1684863630
MSNBC legal analyst Jordan Rubin, a former Manhattan prosecutor, quipped that Crow's "arrogant and misguided" response to Durbin "practically begs for a subpoena."
Rubin's remarks echo
progressive calls to subpoena both Crow and Thomas.
In addition to Durbin, Senate Finance Committee Chair Ron Wyden (D-Ore.) has also asked Crow to account for gifts he gave to Thomas and his family, and called the billionaire's rationale for not doing so "a joke."
"The bottom line is that nobody can expect to get away with waving off finance committee oversight, no matter how wealthy or well-connected they may be," Wyden said earlier this month.