Redefining Chutzpah: Wall Street Using Bailout Money to Kill Financial Consumer Protection Agency

"Banks and mortgage lenders are placing top priority on killing President Obama's proposal to create a new consumer protection agency that would regulate home loans, credit card fees, payday loans and other forms of consumer finance...

[I]ndustry executives vowed on Tuesday to fight Mr. Obama's plan with everything they have, even though banks are still heavily dependent on many taxpayer-supported loans and loan guarantees to get through the crisis."

-- Edmund L. Andrews, New York Times, July 30, 2009.

We are living through the most serious financial crash since the Great Depression. The problems of the financial sector pushed the rest of the economy off the cliff. Jobs are disappearing and millions of home buyers are having a great deal of difficulty making payments. Tens of thousands are walking away from their homes.

Too many of these home buyers got in over their heads because mortgage lenders engaged in questionable practices. Mortgages of all shapes and sizes hit the market, including dangerous adjustable loan packages; teaser rates; no income verification; no down payment; interest only; interest tacked on to principal; predatory loans; loans to dead people. It didn't matter as long as the loan got made.

Why? Because Wall Street set up a fabulously profitable securitization business that needed those mortgages in order to create vast pools to chop up and sell. These pools, combined with derivatives, created layer after layer of synthetic securities that earned Wall Street billions upon billions in fees. This was its most profitable enterprise and it drove the mortgage and housing markets to dazzling heights... until it crashed. (See The Looting of America for a walk on the wild side of this dangerous game.)

When unsustainable growth in housing prices began to stall and then reverse, the whole edifice of fantasy finance came crashing down with it. By September 2008, we were in a real panic as the financial market froze. The real economy, so dependent on credit, crashed as well. Trillions of dollars of tax payer dollars in the form of TARP funds and asset guarantees flooded into Wall Street in order to keep us from the next Great Depression. We put the entire financial sector on the dole.

All of this happened because we engaged in a grand experiment starting in the late 1970s. We decided that the best thing for our economy was to move money to the super rich and to deregulate the financial sector. This would lead to more investment and all boats would rise. Instead we sunk the Titanic.

Wages for the average worker, after inflation, have declined. Household debt increased. The super-wealthy took more and more of their money and bought up Wall Street's fantasy finance securities.

It's is the most expensive failed experiment in history.

Part of the cure is to re-regulate the financial sector. The proposed Consumer Financial Proteciton Agency is designed explicitly to protect us from the next round of mortgage mania. But the captains of Wall Street, who are being propped up by our tax dollars, have set up an enormous lobbying effort to kill it.

With a straight face they are telling us that they don't need to be heavily regulated -- that regulations will kill innovation and stifle consumer choice. And they're not kidding. What's worse is that our tax dollars are paying for their lobbying efforts. Most of them -- including many that did not receive direct infusions of taxpayer dollars -- would have gone under had we not bailed out AIG, Bank of America, Citicorp, and their ilk.

It's more than gall. It's more than chutzpah. It's precisely what happens when we turn over the wealth of our nation to a tiny handful of elites. It is truly incredible that they want to fight the proposed consumer agency with "everything they have," when right now what they have is what we are giving them.

It's the oldest story in the world: Elites think that taking what they want for themselves is good for everyone, always, without question. But in this case they are acting so selfishly that it could create an enormous backlash. Or as my editor put it, "If ever there were a compelling argument in favor of nationalization, even if just temporary, this is it. I mean, jeez Louise!"

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.

Follow Les Leopold on Twitter: www.twitter.com/les_leopold

Comments

[Boxjob]

Yeah and with a straight face Obama is backing them up. Wall street I understand. I expect nothing less from that rapacious bunch of criminals. but how Obama goes along is what has me upset. The guy is just another slimy politician. Selling us down the river to the special interests so he can get his campaign money to run more commercials to fool more people.

[JohnnyWalkerBlueLabel]

This entire article is a testament to the l i b e r a l philosphy that every thing bad that happens to people is someone elses fault. i.e., people are victims of banks in this case. Why did all these l i b e r a l s buy houses they could not hope to afford? Was it the social engineering policies of the liberals that demanded bank loan to people who could not afford houses? was it speculators in realestate? You should not be allowed to buy a house if you are not solvent enough to pay the mortgage for at least of complete unemployment. If someone has, it is their own fault. Not that of th banks. This liberalism is a sickness that infects Amercia.

[Les Leopold - Huffpost Blogger]

JohnnyWalker -- (definitely not Red Label)

I promise you that if you read "The Looting of America" your view of the crisis will change. This crisis may be many things, but it is not the result of failed liberal social engineering. Rather its a result of a grand experiment in deregulation. This is not a question of ideology or point of view. The record is really clear if you look at all the pieces. Give it a shot. The worst that can happen is your blood pressure goes up a bit.

thanks for the comment,

Les

[Boxjob]

Are you really that stupid? Apparently so. So tell me i contract with a bank to take a loan out at X percent. Years later the bank says instead of X percent we need X plus 10 percent. Is that my fault?

[swisskabab]

Disclaimer: I regret supporting Obama, and have never voted Republican.

Obama has no real regulation against the back. Obama is all talk and no action. He is pulling a fast
one that he is going to turn up regulation of the banks. The "banks are going to fight this tooth and nail" is all part of the conjob that Obama and the banks are trying to pull off over the American people.

[lightningbolt]

Wall St. steals our money and then uses it to help them steal more. And of course no one in our government is doing anything to stop this very obvious robbery. Clearly our government is corrupt to the core. Both the republican and democratic parties are filled with traitors and criminals who will sell themselves to corporations for campaign money. This is so sickening.

[skymuffin]

I think we are are going the way of the French, Spanish, British, and other world conquerers. We overreached, and now we are in a worldwide decline because of greed and mismanagement. Our government is corrupt and our politicians are in the pocket of big corporations.

[marinara]

quoting Les Leopold's blog above " We are living through the most serious financial crash since the Great Depression. The problems of the financial sector pushed the rest of the economy off the cliff."

Why don't you mention the loss of productive industrial jobs?
As american corporations increased profits by moving jobs overseas, the consumer power of the american economy softened.

Now we have a situation where government expenditures have doubled, but actual total employment has decreased.

I don't agree with you on the regulation. I think by mucking with super low interest rates the federal reserve has enabled the bubbles you mention in your blog. If that's the regulation that washington policy produces. I have to oppose it, and anyone who calls for more regulation.

[therealredstateblues]

I agree while Les is right on his financial analysis, I too would like to see him talk more about the other piece of the puzzle - failed trade policy and the deindustrialization of our economy - the very wealth producing, prosperity sharing and real innovation creating engine - manufacturing, and the negative effect on consumers buying power and declines in real wages and living stds

without a vibrant mfg sector there seems little point to a finacial sector other than to continue to shift wealth upward or as currently evaporating it into thin air

a sustainable economic model can not be built on financial "innovations" (which really means gimmicks and ponzis - lets call a spade a spade)

[DiogenesOfAlaska]

About the need for consumer protection and new regulation and the failure and chutzpah of the elites I absolutely agree.

And about the failure of trickle down.

All true.

And certainly it's hypocritical, too.

But while indignation is justified, it is not the answer. There's a sea change going on. That lobbyists are still able to exert this influence is itself only due to the calculation of congress members that's based on the old paradigm.

It is true that much of this lobbying is profoundly unethical and downright sick. But the point is not that lawmaking is up for grabs, it is that the elites are themselves clueless and unable to see the limitations of their power wielding.

In short: the point is not that what they are doing sucks, the point is that it cannot work - and they will find out.

[Les Leopold - Huffpost Blogger]

I sure hope you're right. What I don't see at the moment is the kind of mass organized opposition that would make it less likely for the elites to succeed. Thanks for the comment.

[jekyll]

Les....how can giving the Federal Reserve more regulatory power make it less likely for the elites to succeed? The FED is a private banking cartel which is owned by the elites. I will argue that they were the major driving force behind this financial meltdown. The fact that they control our monetary policy is shameful enough...but to now give them more regulatory power is outright dangerous. If there is any entity that needs oversight...it would be the Federal Reserve.