Economy & Budget

We need the Consumer Financial Protection Agency

Faced with mounting consumer anger and congressional scrutiny, several of the nation's largest banks took modest steps last week to curb abusive overdraft practices.

For years, as they raked in billions of dollars in overdraft fees, these same institutions protested that even such incremental changes weren't possible. Public attention works wonders. But the changes are too little, many years too late and-because they are voluntary-easily revocable once the spotlight shifts.

That's why we need the Consumer Financial Protection Agency that Congress is now considering. The CFPA would streamline regulatory authority that has been scattered among several federal agencies and largely ignored. The new agency would have the tools and the focus to rein in the banks and protect consumers-and taxpayers-from unfair financial practices and products. And it would allow states to stamp out abuses in their own back yard as they crop up instead of having to wait for Washington to act.

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Ballooning bureaucracy (Rep. John Campbell)

Over the last 9 months, we have seen a drastic increase in government spending, deficits, and debt. You will often see or hear pundits and TV personalities opining about these metrics in relation to the size of government. However, you don’t often hear about another important metric relative to the expansion of government, and that is the growth of the federal bureaucracy.

Since the President passed his massive non-stimulating stimulus bill, it has proven to have been largely ineffective and inefficient. But several government agencies have made hires just to oversee the stimulus spending, and the federal workforce has ballooned by 15.6% since 2006.

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Enforcing the Rule of Trade Law

My union, the United Steelworkers (USW), and three paper manufacturers will have free traders and editorial boards across the nation sputtering, spitting and name calling again this week.

They started labeling us “protectionist” last week when President Obama made what should have been considered a straightforward decision. He implemented a recommendation from the independent, bi-partisan International Trade Commission (ITC) to place tariffs on tires imported from China. The USW had started that process by seeking sanctions in April under special trade safeguard rules, called Section 421, which the Chinese had agreed to obey to gain entrance to the World Trade Organization.

Now we’ve filed a new trade case. We did it with no disrespect or lack of hospitality toward Chinese officials as they arrived in the city of our international headquarters  – Pittsburgh – for the G-20 summit. Proof of that is we included as a defendant in this case China’s fellow G-20 country of Indonesia, who can keep them company in court.

This is not a Section 421 but a more traditional unfair trade case about coated paper, the kind used for car brochures and annual reports. In 2007, the U.S. Department of Commerce found egregious dumping of this paper and improper subsidies by the Chinese and Indonesian governments. But later the ITC refused to impose sanctions because it decided the U.S. industry hadn’t been adequately injured.

We believe we’ve suffered sufficiently now.

But we know the free traders and editorial boarders will vilify us. They’ve taken up with the Chinese government. And let me be clear that I mean government. The USW is in solidarity with Chinese and Indonesian workers who suffer abuse at the hands of their employers. It is governmental policies that injure us both and that we oppose. Our intent is to hold governments to promises they made to abide by international trade regulations – pledges sworn to gain entrance to the World Trade Organization.

Those rules were meant to make free trade fair.

We want fair trade. Geez. They’ll call us “protectionist” for that – like they did with the tire tariff decision. The New York Times derided the tire tariff a “protectionist remedy.” The Chicago Tribune slammed it as “blatantly protectionist.” A Wall Street Journal columnist said Obama imposed the tariff, not because it was recommended by the ITC, but because the president “owed favors to his friends in Big Labor.” 

These people don’t know what they are talking about. The New York Times, for example, said, “China has not been competing unfairly on tires – just more effectively, mainly because of its far lower labor costs.”

It is unfair trade to abuse workers by not paying them your own country’s minimum wage, by failing to give them your own country’s required days off and other benefits, by exposing them  to grossly hazardous working conditions. Has the New York Times investigated the Chinese tire workers’ situation, the way it has other Chinese workers’, to determine if they are being mistreated in these ways like so many Chinese workers? If so, it provided no evidence.

In addition, just two paragraphs later, the Times lists numerous unfair trading practices it acknowledges China engages in, practices that give it unfair advantages when selling tires on the U.S. market, including manipulating its currency. Those advantages are far more significant to the price of tires than labor costs.

Similarly, the Chicago Tribune editorial was written by someone who apparently did precious little research. It claims the tire tariffs will cause “whopping price hikes,” even though Charles Uthus, vice president of the Automotive Trade Policy Council, which opposed sanctions, calculated that the additional cost per tire, at the tariffs recommended by the ITC but later lowered by Obama, would be no more than $3.50. The Tribune says the tariffs will not bring jobs back home – but the ITC determined they would. Best of all, the Tribune asserts that the tariffs will prompt manufacturers to move production from China to countries without tariffs. Really? Tariffs that will last only three years will prompt manufacturers to abandon plants that cost $180 million to build?

These people are in love with an ideal: Free trade. It doesn’t exist between the U.S. and China. The rules of free trade prohibit subsidizing exports, forcing foreign investors to transfer technology and mandating foreign manufacturers export all products made in the host country. China so routinely does such prohibited stuff that Cooper Tire provided sworn testimony about it in our Section 421 case. Cooper testified that China required Cooper to export all of the tires from its new Chinese plant for five years. 

China cheats. We’re just asking that they follow the rules they agreed to when they joined the World Trade Organization – the same sort of rules they will be discussing this week at the G-20. That’s not protectionism.

The free traders and the editorial boarders also belittled the tire case because none of the tire companies joined the USW. It should be obvious why companies like Cooper could not. And let’s make it clear, Goodyear, which has agreed to invest $600 million in its U.S. plants, made a point of remaining neutral. 


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Trade is critical to the U.S. economy (Rep. Kevin Brady)

When President Obama touches down in Pittsburgh for the G-20 Summit he has a chance to lead on trade policies that will level the playing field for American workers and small businesses.

Trade is critical to U.S. economic growth and vital to global economic development. Trade – especially exports – has been the one bright spot in our economy over recent years, accounting at one point for nearly 60 percent of our economic growth. Forty-two percent of American jobs depend on trade, and exports account for one in every eight dollars earned by Americans last year. Yet in the midst of this severe economic downturn, U.S. exports have declined by 20 percent – marking the worst decline in U.S. exports since World War II.

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Four ways we need Obama's help (Sen. Byron Dorgan)

There's an old country saying that the water won't clear up until you get the hogs out of the creek.

Like a dirty creek, this financial crisis might seem like a force of nature, but it's a man-made problem. The trouble we're in now is the result of years of willfully blind regulators and reckless business practices by some of the largest financial firms in the country.

The TARP program, which I opposed, pushed enormous amounts of taxpayers' money at the very firms that helped steer our economy into the ditch, and for now, our financial system has begun to stabilize. But too many of those firms are reverting right back to the same behavior that led to the collapse.

We're not going to clear up the problems on Wall Street until we hold those who led us here accountable and put new regulations in place to make sure it never happens again. And that's going to be hard to do.

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Preventing a Social Security benefit cut (Sen. Bernie Sanders)

Unless Congress acts soon, for the first time since 1975 senior citizens will not be receiving a cost-of-living adjustment in their Social Security benefits in the coming year.  This would mean that monthly Social Security payments would drop for millions of retirees because Medicare prescription drug premiums, which are deducted from Social Security payments, are scheduled to increase.  We cannot allow that to happen.

A failure to provide a Social Security COLA in 2010 for seniors could not come at a worse time.  As a result of the most severe economic crisis since the Great Depression, our nation's seniors are experiencing a decline in their living standards.  Many have seen their savings disappear, their pension funds in severe decline, the value of their homes dramatically diminished – all while poverty among seniors has gone up, as has the number of seniors declaring bankruptcy.  At the same time, the costs of prescription drugs and health care continue to increase.  Seniors deserve a fair increase in benefits to keep up with these added costs and economic hardships.

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We must improve TARP transparency (Rep. Joe Sestak)

With the release of a key oversight report on government assistance to the auto industry, it is clear that we need immediate action on the document's recommendations to improve transparency and accountability. I have written to U.S. Treasury Secretary Timothy Geithner to continue my persistent efforts, dating back to the previous administration, to see that the Department not only use taxpayer money responsibly, but also earn the faith of the taxpayers themselves.

As I reviewed the report, it became clear that we still are not seeing full transparency and accountability in the use of Troubled Asset Relief Program (TARP) funds in the support and reorganization of the domestic automotive industry. In my letter to Secretary Geithner, I expressed my concerns for the ongoing oversight and control of TARP funds provided to General Motors and Chrysler.

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The Big Question, Sept. 15: A year after the financial crisis started, have the bailouts proved to be worth it?

Mark Calabria, director of Financial Regulation Studies at the Cato Institute, said:

Much has been spent, both in terms of dollars and trust, on the financial bailouts, with little gained.

The defenders of the bailouts claimed that “we would not have an economy on Monday,” had not the TARP passed and Bear, AIG, Fannie and Freddie not received billions in taxpayer support.

But what exactly have we saved? Easy money, among other factors, drove a bubble in housing and consumption, especially in autos. This bubble was going to burst and employment related to it was going to decline, whether we bailed out AIG and Bear or not. Geithner and Bernanke have yet to examine exactly how many jobs were saved by bailing out AIG for instance. We know from Fed Vice Chair Don Kohn that none of AIG’s counterparties would have failed were they to suffer losses – so there was no contagion to be stopped.

What drove the bailouts was fear and panic on the part of our regulators and politicians. Instead of bringing comfort to the markets, their actions showed additional panic. When a President, as did Bush, goes on TV to tell the American public a bill must pass or our economy is doomed, anyone who wasn’t in panic before is sure to be now.

The real long term costs of the bailouts will be to reduce market discipline on the part of creditors. Both Paulson and Geithner’s policies of making all debtholders whole greatly undermines the ability of capital markets to monitor the behavior of banks. We now are left relying solely on the same regulators who missed the last crisis to catch the next one.

Perhaps the biggest casualty of the bailouts is public’s trust in both government and markets. The lack of transparency and explanation surrounding the bailouts has left the public all the more distrustful of leaders in Washington and Wall Street.

Anna Burger, Secretary-Treasurer of Service Employees International Union (SEIU), said:

When Lehman Brothers fell, they took not just the rest of Wall Street, but all of Main Street, down with them. Yet, one year later, the greedy CEOs who caused the collapse are unremorseful, unrepentant, and virtually unchanged.

You’d think that the collapse of over 90 banks in one year alone would be a powerful ‘lesson learned’ for the titans at big financial houses, but on Wall Street, it’s back to ‘business as usual.’

Taxpayers who bailed out banks to the tune of $4.7 trillion were then hit with the hidden costs of our bank-induced recession: foreclosures, unemployment and bankruptcies. Now the big banks are hitting us a third time, by lobbying against meaningful reforms that could prevent a repeat of the crisis in the future.

To strengthen the economy over the long-term, we need fiscal reforms that provide real protections for consumers, whistleblower protections so front-line financial workers can speak up and stop predatory practices before they lead to large-scale economic crisis, and legislation like the Employee Free Choice Act to provide a much-needed check on corporate greed. The stakes are too high to keep the status quo.

Robert Weissman, president of Public Citizen, said:

The Special Inspector General for the Troubled Assets Relief Program (SIGTARP) estimates that more than $23 trillion dollars in public money is potentially on the line in the various Wall Street bailout programs -- an amount in real terms more than four times larger than the cost of World War II. This massive government intervention, along with the stimulus, helped avert a Depression.

But that's not to say that what is more commonly called the "bailout" -- the expenditures under the TARP -- were worth it, or, more importantly, appropriately carried out.

Here are five avoidable problems with TARP implementation:

1. The government did not and has not required reciprocity from the bailed-out firms. Apart from insignificant standards in the important area of executive compensation, the government has not demanded changed behavior from the firms it has saved from ruin. Not an end to risky speculation, not mortgage modifications, not even an end to credit card ripoffs.

2. Of the $700 billion in TARP bailout monies, only $50 billion went to mortgage modifications. So the banks that caused the problems get all the money. Borrowers, who are the victims, have received scant help. And the idea of altering principal on outstanding loans -- an absolute necessity when one in three mortgage borrowers is under water -- remains off the table. So does the idea of giving borrowers a right to rent if they cannot pay their mortgage. As a result, the foreclosure crisis continues unabated; Goldman Sachs estimates there will be a staggering 13 million foreclosures by 2014.

3. The AIG bailout served as a backdoor bailout of the giant firms on Wall Street, led by Goldman Sachs, and overseas (where AIG sent half of its credit default payments, after being bailed out). These firms, unjustifiably, escaped even a hair cut.

4. Citigroup should have been taken over by the government rather than gifted with an array of special protections, including a guarantee of up to $290 billion on its bad assets.

5. The bailout has facilitated still further concentration of the banking sector, and greater combination of commercial banking and investment bank operations in single corporate entities. Thus have two of the root causes of the financial crisis -- the too-big-to-fail problem, and the problems stemming from repeal of Glass-Steagall -- been made worse.

The bailout should not be separated from the debate over financial regulatory reform. A reckless financial industry self-immolated and devastated the national economy. The industry, along with the rest of us, was saved from a much worse catastrophe than we experienced only through unprecedented government intervention in the economy. Now that same reckless industry leverages its political power to contest even the modest reform measures being considered in Congress. One of the great political failures surrounding the bailout is that, rather than being forced to express shame and apologize, these institutions continue to dominate the policymaking debate.

Dean Baker, co-director of the Center for Economic Policy Research, said:

The question of bailout/no bailout was always misleading. That was not the choice facing the country. We had to take steps to keep the financial system from collapsing. But, we could have imposed strict conditions on the firms who we gave the money. First and foremost, this would have meant requiring some haircuts for the bondholders and imposing real (as in not Keystone Cop) restrictions on executive pay.

Note, it is not interference in the market to impose restrictions on executive pay as a condition of a bailout. We could have let Goldman, Citigroup and the rest go under if their executives found that being limited to paychecks (including bonuses, stock options etc.) of $1-$2 million was too onerous. These executives could then deal with the lawsuits from shareholders and creditors. As it was, we essentially just handed the banks bucket loads of taxpayer money, no questions asked. That is interference in the market in a really big way.

The fact is that we could have rescued the financial system without further enriching the people who wrecked the economy. But, the folks who designed the bailouts were at least as concerned about Wall Street as they were about the financial system.

Herb London, president of the Hudson Institute, said:

It is apparent that bailouts have a marginal effect if any at all.Take the so called Stimulus Package as an example. It was argued that this money would create or retain 3 million jobs. However unemployment has gone from 7.2 to 9.7 without the slightest apology or recognition from the administration. In a significant sense this legislation tells the story of bailouts.

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D.C. spending is hammering the dollar (Rep. Ed Royce)

A new report from an organization called the U.N. Conference on Trade and Development (UNCTAD) calls for the dollar to be ditched and replaced with a new global reserve currency.  Why is it that the U.N. always concludes that central is better?  This discussion, of course, has been prodded by our country's financial crisis and drunken sailor-like spending.
 
It's not just the U.N.  The dollar's standing as the world's reserve currency has been under broad attack.  Partly out of nationalist resentment, the dollar has been slapped by the likes of China, Russia, India and Brazil, with calls for its replacement.  Now the U.N. has joined those looking to seat the greenback in the cheap seats, for good.  An author of the report - released earlier this week - noted that, "Replacing the dollar with an artificial currency would solve some of the problems related to the potential of countries running large deficits and would help stability."  Readers should give thought to the un-workability of coordinating so many different political and economic systems.  Never mind further empowering an international financial institution.  No thanks.

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What Yesterday’s Poverty and Income Numbers Don’t Tell Us About Economic Hardship

Yesterday’s Census Bureau report on trends in income and poverty is bleak reading. In addition to historic income declines for middle income families (the largest in the 60 years on record), the number of Americans whose incomes dropped below the official poverty line increased by 2.5 million, from 37.3 million to 39.8 million.

The poverty numbers tells us that things got worse last year—something, of course, we already knew—but they don’t give us an accurate picture of how many people are really struggling to make ends meet, or experiencing concrete forms of material deprivation, like having too little to eat, or not being able to pay their mortgage or utility bill.

There’s little disagreement here in Washington on this point. Liberals and some conservatives like Ron Haskins of the Brookings Institution argue that the official poverty measure fails to include both important benefits like food stamps and major expenses like child care, and doesn’t adjust for differences in geographic housing costs. Legislation introduced by Rep. Jim McDermott and Sen. Chris Dodd—H.R. 2909—would revise the poverty measure to address these issues.

Conservatives like Robert Rector of the Heritage Foundation argue that the current poverty measure and measures that would set slightly higher standard? like McDermott/Dodd fail to measure “real poverty,” which they equate with extreme material deprivation. They point to data showing that many people living below poverty line have air conditioning and VCRs to make their case that even the current poverty measure is set too high.

The best way to produce an accurate assessment of economic hardship is to move beyond the outdated idea that we can accurately measure by using a simple income line, even one that, like McDermott/Dodd, takes expenses and in-kind benefits into account. Instead we should measure “real poverty” instead of income poverty using a metric that counts someone as poor if they had both low income during the year and experienced a certain level of material hardship.

There is a ready model for this approach. A few years ago the U.K. government adopted a new approach to poverty measurement that takes both low-income and specific material hardships into account. They now use it to measure progress toward their goal of eliminating child poverty by 2020.

This kind of measure would still include an income line, but it should be set at roughly twice the current federal poverty line, or about $44,000 in 2008. Why the higher amount? Public opinion surveys have consistently found that most Americans think this is the amount needed to “get along” or “make ends meet” at a basic level. And, most Americans who suffer from specific forms of material hardship have incomes that fall above the official poverty line, but below 200 percent of it. Finally, the higher income line would ensure that groups who have to spend more to meet basic needs are counted. In particular, people with disabilities, who, even when their incomes are between 100-200 percent of the poverty line, are as likely to experience material deprivation as people without disabilities living below the poverty line.

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