What the banks’ three-year war on Dodd-Frank looks like

A fascinating account from the Sunlight Foundation of the gutting of a regulatory initiative by the kind of methodical persistence that can only be sustained by special interest groups with much to be gained from weak regulation:

In the three years since President Barack Obama signed the Dodd–Frank Wall Street Reform and Consumer Protection Act, federal regulators charged with implementing it have opened their doors to the biggest banks over and over again – 14 times as frequently as they have to representatives of consumer and pro-financial reform groups, a new Sunlight Foundation analysis finds. 

By most accounts, the banks’ besiege-the-regulators strategy has yielded rich rewards in sapping, slowing, and stymieing regulations intended to prevent another massive financial crisis. The emerging consensus is that Dodd-Frank implementation is limping, while the big banks are poised to return to being the most profitable industry in the U.S.

The website feature an interactive showing the number of meetings by sector over the three years; you can mouse over the dots to see their identities. Is it any surprise that the Giant Vampire Squid is at the top with a whopping 222 meetings, followed closely by JP Morgan with 207? Each of these giants independently dwarfs the entire "pro-reform" group, that tiny cluster of dots on the other end of the graph.

Here's a chart depicting meetings by sector over time:

From the discussion:

In the 152 weeks our data cover, we find 59 weeks in which regulators met with financial sector representatives at least once every single day (Monday through Friday), and 47 weeks in which they met with financial sector representatives at least four times. 

... By contrast, active pro-reform groups appeared in only 153 meetings logs – only about one meeting for every 14 regulators held with financial institutions and associations. Moreover, 24.2 percent of pro-reform group meetings took place on a single issue: the Consumer Financial Protection Bureau. 

...Law and lobbying firms, largely working in service of financial institutions, appeared in 707 meetings. Other, non-financial corporate interests, largely energy and agricultural companies, participated in 381 meetings. These companies are major purchasers of derivative contracts, which they use to hedge against price risk.

Imagine you're a regulator. 3,000 meetings with finance industry lobbyists, lawyers, and other corporate interests over three years, each one doing their best to explain why you should undermine the law as written in some tiny way. Would you not want to tear your hair out? Quit in despair? Or just give in to the soothing balm of lobbyist favor? What could possibly be left of the law after this barrage? Meanwhile the anti-regulation crowd has worked very diligently to kill Dodd-Frank's provisions in other ways, such as the lawsuit against the corporate tax transparency provisions sponsored by the American Petroleum Institute.

Sunlight catalogues the delays and dismantling of Dodd Frank that has been accomplished by all this lobbying and litigating and concludes:

...Collectively, the data offer a powerful testament to the oldest and still perhaps most effective technique in the lobbyist’s playbook: sheer persistence. As the Dodd-Frank law passes its third anniversary, lagging on deadlines, and increasingly defanged, the meetings log data offer a compelling reason why: the banks have overwhelmed the regulators. 

Lobbying pays, and it pays whether it is done before, during, or after legislation has been passed. This represents a major governance crisis with no redress anywhere to be found.

Lobbying pays: the skewed impact of the fiscal cliff deal, in one striking chart

From Citizens for Tax Justice:

In 2013, the richest one percent of Americans will receive 18 percent of the tax cuts while ...[t]he bottom three-fifths ... will receive 18 percent of the tax cuts. In other words, the richest one percent of Americans will receive the same share of the tax cuts as the poorest 60 percent of Americans:

 

Note that it is hard to give tax breaks to the poorest, since they aren't much in the tax net to begin with. But what explains the middle? CTJ notes that the deal made permanent 85% of the Bush income tax cuts and 95% of the estate tax cuts, which we already know were skewed toward the wealthy and have presided over the largest widening of the income gap in US history since the gilded age. That is destroying the middle--there aren't so many people in that category any more.  And the ones still in the category have much less to work with:

Why did the fiscal cliff turn into welfare for the 1%? We know the answer, it's always the same. Incidentally Matt Stoller wrote a follow up piece arguing that if we understand how lobbying corrupts policymaking in the US, we can work against it.  But I am not optimistic.

Lobbying is policy in the US. That is how governance works. There are good aspects and bad aspects to the ability of the public to influence lawmakers in a democracy; the issue is what happens to democracy when you have to pay enormous sums to play. It seems that one thing that happens for sure is that elected officials become "utterly unresponsive to the policy preferences of millions of low-income citizens.” Major social imbalance is the result when, as Nancy Folbre says:

Our most affluent citizens now have less to gain from cooperation with the rest of us than they once had. They can effectively threaten to opt out and invest elsewhere. They can also invest vast resources in lobbying and electioneering.

I am still puzzled as to how on earth the NY Times managed to get their headline so wrong. Yves Smith calls it a big lie, and I would have to concur.

AIG PR Blitz “Thanks” Taxpayers For Bailouts

Something went horribly wrong in AIG's public relations department:

what is the message here from AIG?
“I needed money so I stole your car, robbed a liquor store, and now I am giving you your car back and I left a portion of the liquor store loot…”

And I'm proud of that. Thank you, America!

The PR dept didn't completely fail though: they were smart enough to disable the comments section:

At some point, government has got to be accountable.

Here in Quebec, we have perhaps the highest tax burden in North America, and it appears we are using a lot of that money to line the pockets of all too many of our elected leaders.  Tax and development experts have long argued that if you could only get the masses paying taxes, they will demand their governments be accountable to them for how those taxes are used (this has been the argument for salient taxes like the VAT, which everyone feels the pain of daily).  This shameful abuse of taxpayers ought to get people into the streets banging pots.

One fraudulent voter, and 3 things as likely to occur as that

a 3-mile-wide meteorite hitting the earth.   finding an orange lobster.  And one vote actually impacting the outcome of an election.  These three things have about the same percentage chance of happening as a person fraudulently voting in Florida.

This is because among the 10 million voters on Florida's rolls, a months-long search for a virtual tidal wave of fraudulent voters by Republican leaders in the state has turned up but one: a Canadian citizen who pretended to have U.S. citizenship so he could own a gun and vote.  Perhaps not in that order.  The Globe and Mail has the story here.  The man pled guilty and faces a sentence of up to five years and deportation back to Canada; most of the remaining 179,999 persons identified as potentially fraudulent voters were cleared:

Under pressure from the [Florida] governor, the state’s electoral officials had initially flagged more than 180,000 names (many of them Hispanic-sounding) for checking. All but 2,600 of those initially flagged – some of whom turned out to be not only citizens, but military veterans with service in Afghanistan and Iraq – were quickly determined to be bonafide citizens and restored to the voter rolls. 

After further investigation, only one name – Mr. Sever’s – was sent to law-enforcement authorities last spring. Six other “suspect” cases, in a state with more than 10 million names on the voters’ list, are still being investigated.

All that effort to catch one in ten million: curbing voter fraud is a costly lottery.  From Slate:

Here’s the paradox of the new voter ID crackdown, of the 38 states that have debated or passed legislation that puts more demands on voters. The new laws—and in Florida, new executive campaigns—ask voters to show driver’s licenses at the polls, or prove their eligibility with birth certificates, or prove that they’ve never had a felony, or prove that they are citizens of the United States.

Doing that involves navigating your state’s bureaucracies. Those bureaucracies have been shrunk or frozen by years of belt-tightening. They rely on data from other cost-cutting organs of the state. Imagine giving some endomorphic amateur athlete a low-calorie diet and limited access to a gym. He’s training for a mile-long fun run, so there’s no pressure. All of a sudden, you panic about the threat of Sprinting Fraud or something, and you inform the runner of his new task: Run a timed 3.5-mile circuit, tomorrow.

The calorie restriction imagery is apt.  Starve-the-beast led to the strangling of administrators; now those same administrators are meant to spend what little resources they have left to chase after a problem that statistically doesn't even exist, in the meantime cutting off some 2.2 million eligible voters.  A strategy in which the taxpayers, the administrators, and democracy lose should not be a winning strategy.  Yet as we well know, non-voting by certain constituencies will help certain politicians claim victory.

The private sector really is doing ok, or, why workers collaborate in their own self-destruction

If by private sector you mean US corporations, which are making more profit than ever:

From Business Insider.  But not if by private sector you mean wage earners.  As we know median wages have plunged in the US; this article shows that in addition wages as a percentage of GDP are at an all-time low:

The author comments that "[o]ne reason companies are so profitable is that they're paying employees less than they ever have as a share of GDP. And that, in turn, is one reason the economy is so weak: Those "wages" are other companies' revenue."


The juxtaposition thus paints a zero-sum picture: that as wages fall, corporate profits rise.  We've seen other charts that show corporations and managers claiming most or all productivity gains over the last several decades at least.

Richard Murphy responds: "the reason why we have a crisis is that the wealthiest and companies got too rich whilst most got left behind so the wealthiest and companies lent the rest of us their excess wealth through debt arrangements which people could not repay."

Now consider Yves Smith's post today in response to sociologist Claude Fischer, who asks "Why Don't Americans Take Vacations?" and answers with rugged individualism and something about the American way.  Nonsense, says Yves, the right answer is, because of a systemic and steady diet of anti-labor propaganda.  Yves points us to a related article of interest by Mark Ames from 2006, "We're not going on a summer holiday," which says:

vacation time has been slowly disappearing for American workers ever since the Reagan Revolution, which ushered in a violent shift in corporate culture away from the paternalistic post-New Deal model towards the current stock-price-is-God model. According to Harvard economist Juliet Schor, in the 30 years before Reagan's presidency American workers were getting more and more vacation time; however, in the 1980s, that trend suddenly reversed. By the time Reagan left office, Americans got three and a half fewer days off per year, on average.

Ames says at the same time corporate managers have vastly increased their leisure time and pursuits.  A glance at the FT's How to Spend It can certainly confirm the market for vacation by the ultra-rich.  For Ames the most amazing aspect is that

the designated victims in this drama - America's workers - are such willing collaborators in their own existential demise.

...according to a New York Times article, British workers get more than 50% more paid holiday per year than Americans, while the French and Italians get almost twice what the Americans get. The average American's response is neither admiration nor envy, but rather a kind of sick pride in their own wretchedness, combined with righteous contempt for their European worker counterparts, whom most Americans see as morally degenerate precisely because they have more leisure time, more job security, health benefits and other advantages. 

We have seen a related version of this in the public outrage ginned up over the "generous" health and pension packages of public sector employees that has allowed conservative governors to eviscerate worker's benefits and their rights in the process--c.f. Wisconsin.   A constant stream of propaganda tells us that public sector workers must be stripped of their many unearned and undeserved benefits.  There is no equally powerful alternative stream of propaganda demanding better health and pension benefits for all workers.   There is no alternative stream painting a picture of life as an American worker when wages stabilise to global median levels.  The result seems to perfectly illustrate Ames' willing collaboration in self-destruction.

Why don't politicians support public institutions?

Catherine Rampell talks about the vicious cycle that occurs when budget cuts lead to understaffing and inefficiency, which leads to declined trust government institutions, which leads to further cuts. Writing  in response to Tyler Cowan's post on the loss of trust in government, she argues that trying to cut government jobs or government spending will erode public trust further, using the Post Office as a case in point:

Because it is still waiting for Congressional approval to make many of these changes, the Postal Service is cutting costs by reducing staff levels and hours at existing facilities. Reducing costs in the way that’s most politically expedient rather than most efficient and economically sensible means that service will most likely get worse, customers will lose confidence in the agency, market share will fall further and the agency will be forced to make more drastic and possibly inefficient cuts.

Rampell could have looked to the IRS for a similar and I think very troublesome example of this problem.  It seems so perverse to me that politicians can decry and claim to crack down on tax evasion,  while using the next breath to argue that IRS funding should be cut in the name of efficiency in governance.  Tax compliance is a big project and it requires expertise and resources.  Cut those and I think you should expect compliance to fall accordingly.  Less compliance leads to less revenues being collected leads to even more pressure on the budget.   That's a very vicious cycle and moreover it is the fundamental source of all the budget pressure for all the other institutions of government.  But why do politicians let this happen?  Isn't it in their interest to have strong institutions creating virtuous cycles?


From Cowan's post:

 State and local governments are controlled by politicians and, indirectly, by voters. And for better or worse, those voters have lost faith in the social returns of these jobs and our ability to afford them. The voters have responded by looking to cut expenses, and they’ve chosen state and local government employment as a target.

From this we may well extrapolate to the conclusion that politicians undermine government because even though stronger government would be better for politicians as a whole, each individual politician's re-election hinges on satisfying a public that has lost trust in government.

Cowan says all would be well if we could just wait for prices to rise again:

The slow cure for this problem is to allow asset prices, along with perceived wealth and trust, to return to or exceed the previous levels over time. Americans would then spend and invest more money, bolstering both aggregate demand and supply, and in both the private and public sectors. But the process would be cumbersome, partly because trust is more easily destroyed than restored.  

This sounds sort of ridiculous to me as a strategy.  Probably because I am not an economist but I do read children's books and I have heard this story before.

Cowan goes on to talk about the various fixes available to governments, but concludes that basic trust in government needs to be restored before any big policies can be implemented.  I think it's certainly true that lack of trust in government is spurring NGO interest in transparency in tax matters, c.f. the EITI and CBCR movements, UK Uncut's suit against HMRC, Oxfam's suit against the SEC, etc.  I don't see rising prices doing much for the core concerns there.

Why do we subsidize oil & gas?

Easy: because politicians can't get re-elected when fuel prices seem high.