Matt Stoller is a fellow at the Roosevelt Institute. You can follow him at http://www.twitter.com/matthewstoller
Today, to approximately no one’s surprise, the Republicans in the House Financial Services Committee are going after the Consumer Financial Protection Bureau. Congressman Barney Frank and Brad Miller, though, have introduced something pretty interesting into the mix. They have struck back by using the same attacks the Republicans are making against the CFPB on the bank-friendly regulators at the Office of the Comptroller of the Currency and the Federal Reserve. Specifically, Frank and Miller have proposed to make the OCC and the Federal Reserve, the most important bank regulators, subject to Congressional appropriations. Right now, those two agencies fund themselves through money printing (the Fed) or assessments on the banks (OCC). What Frank and Miller are doing would be a major step forward for democratic accountability over our bank regulators.
The full story is as follows. The Republicans in the Financial Services Committee have recommended that the budget for the CFPB be cut to $200M total for 2012 and 2013 (see Section 331). This is a substantial and unwarranted reduction in resources for an agency that is tasked with enforcing Federal consumer protection laws against financial misbehavior. Much more significantly, the Republicans are going to stipulate that the budget for the Consumer Financial Protection Bureau be appropriated every year by Congress. Right now, the CFPB gets an automatic amount from the Federal Reserve. The Republican bill would basically say “Congress gets to give you an allowance every year, and you live on it.” Once that happens, Congress can attach all sorts of strings to the money, like “you can enforce this rule but not that one”, or “no money for you if you go too hard on our campaign contributors.” This is, over decades, one of the ways the SEC was culturally neutered. It’s how the FCC is intimidated. These agencies have been asking for years to be able to get its own source of revenue, via fines or other mechanisms.
Interestingly, the CFPB isn’t the only Federal banking regulator that has its own dedicated revenue stream free from Congressional pressure. In fact, they all do. The Office of the Comptroller of the Currency, for instance, is funded via assessments on banks, or “clients”, as OCC Chief Counsel Julie Williams calls them (or so I’m told). Williams is the key villain behind most bank-friendly regulatory decisions over the past two decades, but her general anti-consumer and predatory behavior is baked into the DNA of the regulator. In the 19th century when it was first set up by Abraham Lincoln, the OCC used to allow its examiners to get an “honorarium” from the banks they supervised. Now the OCC is responsible for, among other things, preventing state legislators from capping ATM fees, quashing state and local laws against predatory lending, allowing its supervised banks to expose themselves to a massive housing bubble, and pretty much letting banks to do anything they want to consumers with credit cards. Obviously there’s also the foreclosure crisis nightmare, which you can really hang at the doorstep of the OCC (and I’m also told, Julie Williams). Key to all of this is that the OCC is simply not subjected to budgetary pressures from Congress. No elected member of Congress can say “if you don’t assess second liens accurately we’re going to cut your budget”.
And then there’s the big enchilada, the Federal Reserve, which is of course not subject to Congressional appropriations because of its vaunted “independence”. Interestingly, the Fed, when it was officially controlled by Treasury in the 1930s and 1940s (up until the mostly unknown and critical fight with Truman that produced the Fed-Treasury Accord), financed the New Deal, World War II, and saw unemployment drop to 1% as inequality collapsed and America became a middle class nation. The Fed finances itself through interest on the bonds in its portfolio, essentially printing money to do so. The Fed’s reserve banks are still private entities, and they still pay dividends to member banks. No member of Congress can do anything to the Fed, it’s an unaccountable set of quasi-private banks that often respond to Wall Street.
This can all change if Congress wants it to, and that process starts with the budgeting recommendations put out by the Financial Services Committee. Frank and Miller are responding to the Republicans in a partisan fashion – you want the CFPB funded by Congress? Fine, we’ll put that on the OCC and the Fed, as well. These proposals, while they are in some ways kabuki, are fundamentally getting at the undemocratic nature of our banking regulators. The Republicans have a point – the CFPB shouldn’t be funded without guidance from Congress. But there’s a much more significant problem here – the far more powerful and important OCC and Federal Reserve should also be subject to some sort of democratic check on their power. I’d take the trade on all of these regulators – subject them all to Congressional appropriations.
It’s time for the public to start governing, and that means that institutions like Congress need to step up. Most people at this point think so lowly of Congress that they want politicians to stay away from all power. What they don’t recognize is that politicians have already done this, and have delegated all power to the banks and powerful interests. Like any institution, though, when Congress is called upon to actually govern, when members are given responsibility, they take their job more seriously. Right now, members have a limited set of job expectations, which range from whining to offering earmarks to doing legislative favors for campaign contributors to looking busy to protecting the shrinking set of existing programs for the poor and middle class. That’s what the public expects. Actually seizing the reigns of power over banking regulators, like starting to challenge the imperial Presidency on matters of war and peace, would change these expectations, and begin a shift in our culture.
We’ll see, later today, how the votes come down on Miller’s amendment on the OCC and Frank’s amendment on the Fed. This is going to make it tough for the Republicans, because in order to defeat these amendments, they will have to vote to allow the Federal Reserve to fund itself with printed money, and the OCC with money it gets from banks.
Miller’s amendment on the OCC is below. I called the Financial services Committee minority side, but I couldn’t get Barney’s amendment. It should eventually be posted here.
UPDATE: I’m pretty sure both amendments were defeated. It was hard to tell because my stream was of a very poor quality. The committee will have roll call votes posted on their website soon.
Great post Matt!
While they are at it, they should propose to make banks self funding.
But what if Congress decides to cut funding to the evil regulators?
I mean really, this could be the legislation that breaks deadlock in Congress! And gets a Prez veto waived in advance.
Yup. Congress underfunds regulators, doesn’t it?
Ya. No shortage of incomprehensible legislation, but after they speeeew it out there they figure all the work is done.
Course this is the conundrum to how to get government to work effectively. I just know it’s a problem, but don’t know what the answer is. Maybe find a sword stuck in a stone somewhere and whomever pulls the sword out gets to choose all our regulators?
I don’t know. But I hear we have lots of people with PhDs in the subject. Don’t know what they are doing, but maybe they could chime in with some suggestions.
Going to be fun for sure.
Lots of political capital for the raiding in that the Fed and the OCC will now have to serve up favors to elected officials to ensure their budget goes through, as well as offer the favors to the plutocratic elites in exchange for the post employment golden consulting contracts.
Also guarantees that banking or financial industry lobbying and campaign financing is going to explode, and the industry will fund 50% R and 50% D to ensure that inconvenient constraints on their favor dispensing regulatory gumball machines are swept aside.
The big winners here are the politicians of either team. Competitive advantage through government, oh my!
will the OCC retain the discretion you requested of them, and how could that manifest ?
“We need to give you some discretion in how you react to these things. I am asking everyone — the Office of the Comptroller of the Currency and others — if anything in the existing legislation deprives you of discretion in how you react … ”
Brilliant, brilliant work here. I am so cynical that when I first skimmed the headline I thought Frank had caved to so Republican maneuvering. I’m so glad to see that instead, he sees to plan to exit Dylan Thomas style.
“Like any institution, though, when Congress is called upon to actually govern, when members are given responsibility, they take their job more seriously.”
You don’t say!
If they wanted to do something meaningful and revolutionary for changing the wealth-creation paradigm existent in our private monetary system, they would take back FROM the Fed and the private bankers the PRIVILEGE to issue the money for the national economy, and restore it to the Congress.
Like Kucinich has already proposed.
THEN, and only then, would we have a game-changing debate – For or against our Money System Common.
Banks already “paid for” and own the OCC. They aren’t regulators. Was John Dugan a regulator? He is a bank lobbyist who revolved back through public service to Covington. Dissolve the agency, as was done to the OTS.
There’s really some huge abuses in the shadow banking system that emanate from how the loans are originated. For example. I just looked at an auto trust where the APR, ran around 20% for loans averarging 60 monhts or more for cars that were already five years old or older to borrowers with 520 FICO scores with average balances of five thousand dollars and higher. This is not good for borrowers or investors, and as far as the car buyers are concerned, to quote Dave Ramsey, they should’ve bought a beater. The only people who make out here are the bankers who earn a bonus. This is not democratization of credit.
I did contract work for a subprime auto loan place for a little while. 30% down, 25% loans, with a 30% car repo rate first year.
Ford bought them and gave them 50 million dollars to loan out. Helps clear trade-in inventory of the dealers lot.
I heard they sold these loans off into ABS market. I would not touch with a 10 ft. buggy whip.
Perhaps the president should have appointed a well-known and popular person to head the CFPB, such as Liz Warren. That might have helped insulate it from attack.
Of course these amendments were defeated. More political theatre for the small percentage of the masses that are paying attention. Barney Frank carried water for the financial industry for decades and now he’s getting tough. Hah. Just like the Buffet Rule bill, its going nowhere fast. Barney’s not going to rattle his future employers, he’s just having fun poking a stick at the repugs before he hops on the money train.
You nailed it — Kabuki theater, as virtually conceded in the post. It’s as if the scripts were drafted in the morning for an extemporaneous SNL skit, letting everyone look busy and important. It’s a farce of a charade of a travesty of a mockery of a sham, to paraphrase Woody Allen in Bananas.
But kudos to Matt for airing the play with key behind-the-scenes narrative. It will take hammering away at the fact that the “Fed“ is truly a private, unaccountable crime syndicate for the public to finally see through the curtain, and that is slowly happening. This Criminal Reserve reserves the right to counterfeit, controls its own purse strings, barely pays lip service to its public charter mandates and serves as a secret toxic landfill for its bankster owners without public oversight. This is intolerable for a purported democracy.
“Give me control of a nation’s money and I care not who makes it’s laws” -Mayer Amschel Bauer Rothschild
A few weeks ago there was a listing of over a thousand of the richest in the world but I didn’t see any of the real old rich like the Rothschild, Mellon, etc. I was traveling at the time but was wondering if there was discussion of that list on NC and anything about who was or wasn’t on the list?
It needs to be hammered home over and over again that the Fed is private banking/money and all associated profits go to global inherited rich. Along with that the alternative needs to be stated of public banking/money with associated profits going to the public commons instead of the global inherited rich.
Can the public be lifted from the fog of TV and media domination to see this reality?
Psychohistorian, read that list again and realize what it means: the old inherited-rich families AREN’T the elite superrich.
The elite superrich right now are people who stole their money within the last few decades. And their kids.
(I mean, yeah, the inherited-rich familes also stole their money, but much much longer ago. They’ve been ‘outcompeted’ by more recent thieves. The inherited-rich are the sort who trusted their money to Madoff, if that gives you a better sense of what’s been happening…)
Pay attention, you might be able to revise your model of how the world works if you really notice this fact.
yup – this just the buffet rule and whatever phony crap they’ll serve up.
I wonder what the turnout is going to be this year – gore had about 51 million, kerry about 59, 0bummer about 68.5 … probably the best “investment” you could make in this era of AAA junk is betting the over / under on turnout. how many millions won’t bother being motivated by all the blather – cry walker!, and let slip the dogs of fear!
How can any of these agencies or bureaus be independent if they need Congress to earmark money for them every year. Starving the beast begins with appropriations. I thought everyone was whining that the CFPB wouldn’t be worth anything if it was NOT independent. Now, Congress, the bought and sold creature of our overlords is to be seen in theory good for using its power of the purse as a hammer over the head of independent Federal organizations? Of course, the OCC and the Fed put under the control of begging for money makes them accountable, but no longer independent. I disagree that an independent, self funded agency is beyond Congressional control, when Congress drafted the wording of the law that created the CFPB. It set up its mandate with policy parameters and sent it after targets to regulate. Once given its mission by congress and a percent of the Federal Reserve’s budget, it became immune from Congressional tampering. What the Republicans show is how potent this can be, because they have obstructed it at every turn and now want to kill its source of life by taking away its funding. Too late.
Interesting, the OCC and the Fed are independent of political accountability in another way. Their officials are appointed by the President but as “independent agencies” (though OCC is nominally part of Tsy) they have fixed terms and can’t be fired without cause– short of getting caught with Colombian hookers, they’re bulletproof. Which means neither the elected President nor his Tsy Sec can tell them what to do. The two banes of Tim Geithner’s existence, Ed DeMarco at FHFA and (before her retirement) Sheila Bair at FDIC likewise headed independent agencies.
Wasn’t always so. As you mentioned, the 1951 Tsy-Fed Accord ended a decade of Tsy calling the shots for the Fed that began shortly after Pearl Harbor. However prior to 1935, the President was deemed to have the power to hire and fire any executive branch agency official and he may yet again. As Brett Kavanaugh (ironically, a Team Scalia circuit judge) recently pointed out, the 1935 decision tying the President’s hands, Humphrey’s Executor, is the last anti-New Deal Supreme Court ruling from that period that hasn’t been overturned… yet. When it is (and it will be), it will hit Dodd-Frank and the Federal Reserve Act like a tornado.
“Humphrey’s Executor is perhaps best explained by the fact that it was decided in 1935 on what became known as Roosevelt’s “Black Monday.” It was one in a line of decisions issued in 1935 and 1936—including two others on the same day as Humphrey’s Executor—by a Supreme Court seemingly bent on resisting President Roosevelt and his New Deal policies…. The other cases in that line have long since been discarded as relics of an overly activist anti-New Deal Supreme Court. See Yakus v. United States,(backing away from prior opinions that had expanded non-delegation doctrine); NLRB v. Jones & Laughlin Steel Corp. (backing away from prior cases that had narrowly interpreted Commerce Clause); see also West Coast Hotel Co. v. Parrish, (backing away from prior decisions that had aggressively used substantive due process doctrine to overturn state legislation). But Humphrey’s Executor survived. And it lives on.”
This is a really important post, especially the parts about what Congress actually does. Congress has slowly been becoming more of a “dignified” (eg ceremonial) and less of an “efficient” part of the government for some time, or, as Matt puts it, “members have a limited set of job expectations, which range from whining to offering earmarks to doing legislative favors for campaign contributors to looking busy to protecting the shrinking set of existing programs for the poor and middle class. That’s what the public expects. ” You can see this with the amount of Congressional floor time devoted to National Tree Day and its ilk.
Probably the worst regulatory financing model is any sort of cash flows, even fees, on the businesses that the regulators regulate, they inevitably start to think of those businesses as their “clients”. So I think the Republicans have a point with the Consumer Finance Board; of course if Congress is dead set on emasculating the agency there is really nothing that can prevent it, they have the authority to kill it altogether after all. But its better that any such decision be made openly, though the national regulator, than through regulatory capture. A better funding model for these things would be multi-year appropriations.
Bernanke told Congress members a couple of months ago that Congress are who created the Fed and if Congress does not like Fed monetary policy than, Congress can draw up a mandate to abolish the Fed. There needs to be a referendum on the 2012 ballot to restore the U.S. CONSTITUTION and ABOLISH THE FED. We need our own currency, U.S. BANK NOTES, Backed by our own natural resource revenues issued via State Banks. America has been hijacked and the American people need to throw all of the traitors out of Government in 2012. THE CITIZENS OF THE UNITED STATES OF AMERICA need to restore the Original Legal Contract, THE U.S. CONSTITUTION. The founding fathers put that legal document in place to protect WE THE PEOPLE from a Government that has become completely corrupt and is oppressing the people. That is the only way for Freedom, Independence, Prosperity and National Sovereignty to prevail. We also need one term limits on all of these politicians and no more dual citizenships. No more ex or current Wall Street bankers or Corporate heads should be allowed to occupy any Government post. We need to abolish the electoral college and replace that with the popular vote cast on write in paper ballots hand counted publicly by American citizens.
“I’m pretty sure both amendments were defeated.”
In first approximation, I am pretty sure they would not have been proposed in the first place if there was any chance of them becoming law. In zero-order approximation, even the motives of the sponsors do not matter – if Frank and Miller actually had any chance of getting even such token gestures do real damage, they would not be in the position to initiate them.
The voters must hate to have to hate actual politicians, so they prefer to hate corrupt and ineffective placeboticians instead. The blame, ultimately, rests with the citizens.
Regretably, about the last thing in the world I want is for our corrupt Congressional politicians to have any more say on things financial, including the budgets of the Fed & OCC. They have no clue as to what is the RIGHT THING TO DO and there votes are rentable to the highest bidder.
As bad as the banks are at self-regulation, Congress is hugely worse.
Acting with Extreme Prejudice against 50,000 customer accounts
“Does the US Financial system allow stealing of segregated funds at one institution by another? ”
I would like to ask Barney if he could exercise some of his vaunted “discretion” on MF Global ?
Jesus, Barney, your discretion-vaunt, it’s needed NOW !!
“Corzine, the former New Jersey senator and governor, .. is among 127 individuals credited with raising more than $500,000 through the first quarter of 2012. ”
Karl said it well, lol,