financial reform

The “Obama Law” Devastates Impoverished People in the World’s Second Poorest Country, The Congo

by Hans Bader on August 9, 2011 · 6 comments

in Deregulate to Stimulate, Economy, Employment, International, Legal, Politics as Usual, Property Rights, Regulation, Sanctimony, Trade, Zeitgeist

People are going hungry, pulling their children out of school due to poverty, and joining criminal gangs to make ends meet in the poorest region of the Congo, the world’s second-poorest country.  Residents of this African nation attribute this economic devastation to what they call “the Obama Law” — provisions of the 2010 Dodd-Frank financial “reform” law backed by Obama that have created a virtual embargo on minerals produced in the Congo’s desperately-poor mining towns. As David Aronson notes in The New York Times,

The “Loi Obama” or Obama Law — as the Dodd-Frank Wall Street reform act of 2010 has become known in the region — includes an obscure provision that requires public companies to indicate what measures they are taking to ensure that minerals in their supply chain don’t benefit warlords in conflict-ravaged Congo. . . the Dodd-Frank law has had unintended and devastating consequences, as I saw firsthand on a trip to eastern Congo this summer. The law has brought about a de facto embargo on the minerals mined in the region, including tin, tungsten and the tantalum that is essential for making cellphones.

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Barney Frank Used Influence with Fannie Mae, the Failed Mortgage Giant Bailed Out by Taxpayers

by Hans Bader on May 26, 2011

in Bailout Watch, Economy, Legal, Property Rights

Former House Banking Committee Chairman Barney Frank (D-Mass.) tenaciously opposed efforts to reform Fannie Mae and Freddie Mac, the government-sponsored mortgage giants that were bailed out at a cost to taxpayers of between $148 billion and $363 billion. Now it turns out that he got his boyfriend a “handsomely rewarded gig at Fannie Mae” while Frank “was helping to inflate the housing bubble” by pushing affordable housing mandates and policies that encouraged Fannie Mae to buy up risky mortgages.

Fannie Mae and Freddie Mac engaged in massive accounting fraud and other abuses. But Fannie Mae’s collapse was not entirely due to bad policies of its own making. Pressure from liberal lawmakers like Frank to buy up risky mortgages was also a factor in triggering the mortgage crisis, judging from a story in the New York Times. For example, “a high-ranking Democrat telephoned executives and screamed at them to purchase more loans from low-income borrowers, according to a Congressional source.” The executives of government-backed mortgage giants Fannie Mae and Freddie Mac “eventually yielded to those pressures, effectively wagering that if things got too bad, the government would bail them out.”

Despite his key role in causing the financial crisis, Frank became even more influential after President Obama took office. As the New York Times noted, the massive financial overhaul later passed in response to the financial crisis is “largely the product of extensive conversations” between the Obama administration and “Representative Barney Frank of Massachusetts and Senator Christopher J. Dodd of Connecticut.” That law, known as the Dodd-Frank Act, harms the economy, and violates both the Constitution’s separation of powers, and private property and equal-protection rights.

Frank’s co-sponsor of the Dodd-Frank Act, Senator Chris Dodd, left office in disgrace after ethical lapses. As Victor Davis Hanson notes, Dodd “got a sweetheart deal on an Irish ‘cottage’ from a crooked stock-trader,” “receiving it for hundreds of thousands of dollars less than its market value,” “got two preferential discount mortgage interest deals from the now-bankrupt Countrywide,” “got a sweetheart profit deal from a condo joint-buy with crook Edward Downe, Jr.,” “intervened with the Clinton administration to get the felon Downe pardoned,” and “misrepresented the value of his Irish cottage that he obtained via the agency of the dubious Mr. Kessinger.”

Dodd-Frank Financial “Reform” Violates Property Rights and Equal-Protection Guarantees

by Hans Bader on January 9, 2011 · 2 comments

in Bailout Watch, Economy, Legal, Property Rights, Regulation

Last week, I described how the Dodd-Frank financial “reform” law passed last summer violates constitutional separation-of-powers safeguards by giving unaccountable bureaucrats the power to seize companies and legislate through administrative fiat.  But that is not the only way Dodd-Frank violates the Constitution.  It also violates property rights and equal-protection guarantees.

For example, it contains racial preferences that were criticized by members of the U.S. Commission on Civil Rights. It “imposes race and gender employment quotas on the financial industry,” noted economist Diana Furchtgott-Roth in the Washington Examiner. Its ”Section 342 states that race and gender employment ratios must be observed by all government agencies that regulate the financial sector, as well as private financial institutions that do business with the government.”

This unconstitutional requirement is the brainchild of Los Angeles Congresswoman Maxine Waters, the Castro-loving, left-wing ideologue who earlier praised the Los Angeles race riots that destroyed scores of Korean-owned businesses as an “uprising” against injustice. Waters once told a CEO in a public Congressional hearing, “This liberal will be all about socializing . . . .uh, uh . . . would be about, basically, taking over and the government running all of your companies.”

Law Professor Richard Epstein notes that Dodd-Frank is also an unconstitutional “taking” of private property, since it deliberately forces certain banks to process debit card transactions at a loss. (That provision is being challenged in a lawsuit called TCF Bank v. Bernanke. Debit cards did not contribute to the financial crisis in any way, but Dodd-Frank regulates them at the behest of large businesses that objected to being charged any fee by banks for processing debit card payments. Thanks to Dodd-Frank, some customers will now be charged annual fees for their debit cards.)

Dodd-Frank itself contains little “reform,” reinforcing the very features of the status quo that spawned the financial crisis.  Congressional Democrats blocked a GOP amendment that would have reformed the government-sponsored mortgage giants, Fannie Mae and Freddie Mac, and the Obama administration lifted a $400 billion limit on bailing them out and showered their executives with $42 million in pay — even though Treasury Secretary Geithner has admitted that “Fannie and Freddie were a core part of what went wrong” in the financial crisis.

Fannie and Freddie helped spawn the mortgage crisis by buying up risky mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk: “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.”

At the direction of the Obama administration, Freddie Mac ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom had high incomes. Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.

Dodd-Frank is not unique in containing racial preferences. Many bills backed by Obama are riddled with racial set-asides, including the health care law passed last year. Obamacare has attracted criticism from the U.S. Commission on Civil Rights for containing both racial preferences and lower standards for treatment in predominantly-minority institutions, potentially harming both white applicants and minority patients. This racial discrimination appears to violate court rulings like the Supreme Court’s Adarand decision, and the Rothe and Western States Paving decisions issued by the federal appeals courts.

Dodd-Frank Violates Separation of Powers and Constitutional Checks and Balances

by Hans Bader on January 7, 2011 · 1 comment

in Economy, Legal, Property Rights, Regulation

In a recent edition of the Washington Post, former White House counsel C. Boyden Gray noted that the sweeping Dodd-Frank financial “reform” law passed last summer is unconstitutional, since it gives the government virtually unchecked power to seize financial firms that supposedly might fail, and to legislate through regulation.  For example, under Dodd-Frank:

“The Treasury can petition federal district courts to seize not only banks that enjoy government support but any non-bank financial institution that the government thinks is in danger of default and could, in turn, pose a risk to U.S. financial stability. If the entity resists seizure, the petition proceedings go secret, with a federal district judge given 24 hours to decide ‘on a strictly confidential basis’ whether to allow receivership. There is no stay pending judicial review. . .The court can eliminate all judicial review simply by doing nothing for 24 hours, after which the petition is granted automatically and liquidation proceeds. Anyone who ‘recklessly discloses’ information about the government’s seizure or the pending court proceedings faces criminal fines and five years’ imprisonment. As for judicial review of the liquidation itself, the statute says that ‘no court shall have jurisdiction over’ many rights with respect to the seized entity’s assets . . .There is little precedent for this kind of unreviewable ‘Star Chamber’ proceeding.”

As Gray noted, this “almost unlimited, unreviewable and sometimes secret bureaucratic discretion, with no constraints on” seizures, is “a breakdown of the separation of powers” mandated by the Constitution, “which were created to guard against the exercise of arbitrary authority.”  (Gray chronicled some of the Dodd-Frank law’s other constitutional violations in a 12-page article last fall available at this link. Others have argued that the lack of judicial review in Dodd-Frank will lead to seizures of property without due process or unconstitutional Takings).

Gray noted that courts are deemed by legal fiction to have approved a company’s seizure if they don’t act in 24 hours to stop it.  And that is exactly what will happen – the courts will not act in time to stop such seizures even if a judge senses that the seizure is probably unwarranted and unnecessary.  As a former federal district court clerk (who drafted opinions and orders for a judge), I can attest from personal experience that courts seldom, if ever, decide on something as momentous as the fate of a company in a mere 24 hours (especially since a company that objects may not even be able to file a detailed legal response to the seizure within 24 hours, much less obtain a court hearing from a busy judge within that short time).  Ruling on court motions that decide the fate of even the smallest and most insignificant lawsuit usually takes weeks of briefing, not a mere 24 hours.  And some judges and their clerks are all too happy to minimize their workload by getting rid of cases on technicalities and using jurisdictional dodges to dismiss challenges that are factually well-founded.

The net result is that some judges will delay ruling on an unjustifiable seizure until it is too late, when it is deemed approved by the mere passage of time, thus making it unnecessary to hold a hearing or read complicated legal briefs about whether or not a seizure is a good idea.  (Court personnel have every incentive to avoid work by getting rid of lawsuits without ruling on their merits.  When I was a young judicial clerk, fresh out of law school, I once rubberstamped a settlement in a complicated patent/antitrust lawsuit, thus ridding myself of the need to draft rulings on motions in that time-consuming case.  I did so even though I did not really understand the details of the settlement, and I have since learned that settlements in such cases occasionally contain buried provisions that are anticompetitive or at odds with public policy.  But approving the settlement made my life easier, and enabled me to go on vacation rather than spending more of my weekends reading painfully-dull patent-law treatises.)

There is yet another way that Dodd-Frank violates the Constitutional separation of powers, that Gray doesn’t mention: Its delegation of power to officials not selected by the President and confirmed by the Senate.  The Financial Stability Oversight Council, which makes threshold determinations about which financial companies are subject to seizure by the government, includes four members who are not appointed by the president, but rather by groups of state officials. That violates the Constitution’s Appointments Clause, and the D.C. Circuit Court of Appeals’ ruling in Federal Election Commission v. NRA Political Victory Fund (1993), which forbids even nonvoting members of federal commissions from being appointed by people outside the executive branch.

The Council also contains an federal employee who is not appointed by the president, even though the Council is powerful enough that its members must, under the Appointments Clause, be nominated by the president and confirmed by the Senate.  (Under the Appointments Clause, only “inferior” officials without a lot of power can be picked by someone other than the President; all others must be picked by the president alone.)

As Gray noted, the Council is not only powerful, but also largely immune from oversight.  In addition to determining which companies are subject to seizure, it also has the power to “control virtually all of the activities of any financial institution for almost any purpose on a two-thirds vote of its members. The courts are not authorized to review whether the council has correctly interpreted the statute, though there isn’t much statutory direction for the courts to interpret in any event.”

Giving it such a blank check violates the separation of powers, which embodies a variety of doctrines (such as the non-delegation doctrine enforced by the Supreme Court in the Schechter Poultry case) designed to prevent agencies from effectively legislating through regulation.

Say Goodbye to Free Checking

by Hans Bader on October 20, 2010

in Bailout Watch, Deregulate to Stimulate, Economy, Regulation

“Say goodbye to traditional free checking, as banks feel squeeze from new regulations,” reads the AP headline. “Free checking, a mainstay of American banking in recent years, will be nearly unheard of” at the banks that do business with most of the households in America.

“Almost all of the largest U.S. banks are either already making free checking much more difficult to get or expected to do so soon, with fees on even basic banking services. It’s happening because of a raft of new laws enacted in the past year, including the financial overhaul package, have led to an acute shrinking of revenue for the banks.”

Bank of America just wrote off $10 billion in losses due to the recently-passed Dodd-Frank financial overhaul law, and its stock value has shrunken over the last six months from over $19 to less than $12 per share, shrinking the value of millions of 401(k)s that Americans rely upon for their retirement.

Citibank is now charging Ted Frank $15 a month for his previously-free checking account, along with $0.50 per check written.

While imposing heavy new burdens on self-supporting, productive private banks, the Dodd-Frank Act harms the economy, reduces liquidity and the ability to hedge against risk, and does nothing to reform the corrupt government-sponsored mortgage giants, Fannie Mae and Freddie Mac, which helped spawn the mortgage crisis by engaging in fraud,  misrepresenting subprime mortgages as prime, and creating artificial demand for those junky mortgages (and now are collecting a bailout that may reach $400 billion).

Many Free Checking Accounts Disappearing Due to Dodd-Frank Financial “Reform” Law

by Hans Bader on September 22, 2010

in Economy, Legal, Politics as Usual, Regulation, Sanctimony, Zeitgeist

The so-called financial “reform” bill that passed Congress — the Dodd-Frank Act — is wiping out many free checking accounts, since many banks can’t afford its red tape unless they either charge a monthly fee, or require a minimum balance of well over $1,000.

Ted Frank’s bank is now charging him a $15 monthly fee and $0.50 per check on his formerly free checking account, thanks to the consumer “protection” red tape in the Dodd-Frank Act, which was recently signed into law by the president.

Earlier, the same thing happened with credit cards, where a law passed by Congress in 2009 had the effect of reviving annual fees and wiping out many cash-back and rewards programs.  Congress passed a law called the CARD Act of 2009 (Credit Card Accountability Responsibility and Disclosure Act) that resulted in some of my wife’s previously-free credit cards charging her an annual fee, or chopping her rebates on purchases (she canceled those cards, and used other cards instead; but some cardholders don’t have other cards without annual fees).  Many, but not all, credit cards have reinstated annual fees or canceled rebates and rewards programs thanks to the CARD Act.  The law effectively forces responsible people to subsidize irresponsible people.  Passed in the name of consumer protection, it actually ripped off many consumers.

Financial “Reform” Harms Farmers, While Leaving Corrupt Government-Sponsored Mortgage Giants Unreformed

by Hans Bader on August 11, 2010 · 2 comments

in Agriculture, Deregulate to Stimulate, Economy, Environment, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

Farmer Betsy Jensen explains how the so-called financial “reform” bill signed by President Obama will harm agricultural markets, and thus farmers, in today’s New York Times. Particularly damaging will be its restrictions on derivatives, which “traders who buy and sell wheat or corn” use to insure themselves against risk. Worried farmers like Jensen are “well aware that the system would not function without” those traders. Farmers like Jensen also use derivatives to protect against swings in prices for the crops they sell, and “swings in the cost of fertilizer, fuel and other staples.”

While it imposes harmful red tape on agriculture, the financial reform bill deliberately does nothing to reform the corrupt government-sponsored mortgage giants Fannie Mae and Freddie Mac, even though Treasury Secretary Geithner admits that they were a “core part of what went wrong“ in our financial system.  The bill’s 2,315 pages are full of payoffs for special interests.  (Obama received $125,000 in contributions from Fannie Mae and Freddie Mac executives.)

At Obama’s direction, Freddie Mac and Fannie Mae ran up tens of billions of dollars in losses bailing out out delinquent mortgage borrowers, some of whom had high incomes. The Obama administration rewarded them for going along with this by showering their executives with $42 million in pay.

The financial “reform” law’s restrictions on derivatives could cost U.S. companies as much as $1 trillion in lost capital and liquidity.  While regulators may ultimately decide to exempt farmers themselves from many of those harmful restrictions, it is doubtful that they will exempt the agricultural traders who are needed to provide “enough liquidity, or money” for the agricultural markets to “function” properly.

House Panel Releases Ethics Charges Against Rep. Maxine Waters

by Hans Bader on August 9, 2010 · 1 comment

in Bailout Watch, Legal, Personal Liberty, Politics as Usual, Regulation, Sanctimony, Zeitgeist

A House ethics panel has released the charges against left-wing firebrand Rep. Maxine Waters (D-Calif.) arising out her shady dealings with OneUnited Bank. (Her family owns an interest in the bank, which got $12 million from taxpayers.) We previously described the controversy here.

This is the same congresswoman who once told a CEO in a public congressional hearing, “This liberal will be all about socializing . . . would be about, basically, taking over and the government running all of your companies.”

Having socialist leanings apparently doesn’t stop a politician from cozying up to banks like the terribly mismanaged OneUnited Bank–or supporting corporate welfare. In practice, socialism has nothing to do with equality, as its supporters claim; it’s just a way to justify taking and spending other people’s money.

Despite her ethical problems, Waters is a powerful lawmaker. She inserted racial preferences into the financial reform bill, which became law despite criticism from the Wall Street Journal and economists.

Government-Sponsored Mortgage Giant Seeks $1.8 Billion More in Bailouts

by Hans Bader on August 9, 2010 · 1 comment

in Bailout Watch, Economy, Legal, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

Mortgage giant Freddie Mac is seeking $1.8 billion more in bailouts from the federal government.  This mortgage giant, and its sister company, Fannie Mae, are expected to ultimately receive over $400 billion in bailouts.

Fannie and Freddie helped spawn the mortgage crisis by buying up risky sub-prime mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk.

Meanwhile, they paid their CEOs millions, and engaged in massive accounting fraud–$6.3 billion at Fannie Mae alone–to increase the size of their managers’ bonuses. As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.

Even administration officials admit they were a “core part of what went wrong” in our financial system.

But the recent financial “reform” law signed by Obama does nothing to reform these mortgage giants.  Instead, it’s 2,315 pages of payoffs for special interests.  (Obama received $125,000 in contributions from Fannie Mae and Freddie Mac executives.)

Civil rights commissioners and economists say it contains provisions that are racially discriminatory.  The so-called financial “reform” law “imposes race and gender employment quotas on the financial industry — at a time the job market is stalling and economic growth is slowing,” writes economist Diana Furchtgott-Roth in The Washington Examiner. Its ”Section 342 states that race and gender employment ratios must be observed by all government agencies that regulate the financial sector, as well as private financial institutions that do business with the government.”   This unconstitutional requirement is the brainchild of Los Angeles Congresswoman Maxine Waters, the Castro-loving, left-wing ideologue who earlier praised the Los Angeles race riots that destroyed scores of Korean-owned businesses as an “uprising” against injustice.  Waters once told a CEO in a public Congressional hearing, “This liberal will be all about socializing . . . .uh, uh . . . would be about, basically, taking over and the government running all of your companies.”   Waters is currently facing ethics charges for her role in obtaining corporate welfare and a bailout for a bank that later defaulted on dividend payments to the Treasury Department.

Left-Wing Politician Faces Ethics Charges for Improperly Using Influence to Aid Bank

by Hans Bader on August 3, 2010

in Bailout Watch, Economy, Legal, Nanny State, Personal Liberty, Politics as Usual, Regulation, Zeitgeist

Rep. Maxine Waters (D-Calif.) is facing ethics charges after she improperly used her influence to get special favors from regulators, and costly taxpayer bailouts, for a mismanaged bank whose executives gave her money and enriched her husband (and then lied about it).

Waters, notorious for her race-baiting and hard-left ideology, earlier praised the Los Angeles race riots that destroyed scores of Korean-owned businesses as an “uprising” against injustice. Waters once told a CEO in a public congressional hearing, “This liberal will be all about socializing . . . would be about, basically, taking over and the government running all of your companies.”

Waters made sure that the financial “reform” law recently signed by President Obama contained costly racial preferences and discrimination.  The bill ”imposes race and gender employment quotas on the financial industry — at a time the job market is stalling and economic growth is slowing,” writes economist Diana Furchtgott-Roth.  Its ”Section 342 states that race and gender employment ratios must be observed by all government agencies that regulate the financial sector, as well as private financial institutions that do business with the government.”  That provision was Waters’ brainchild.

The so-called financial “reform” bill is actually 2,315 pages of special-interest payoffs.  The bill does nothing to reform the biggest bailout recipients, the government-sponsored mortgage giants Fannie Mae and Freddie Mac, even though administration officials admit they were at the “core“ of “what went wrong.”  Fannie and Freddie helped spawn the mortgage crisis by buying up risky sub-prime mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk.  Now they are getting a $400 billion bailout.

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