Republicans Plan a Coup Today in the House, Gutting Established Class Action Law

By Pam Martens and Russ Martens: March 9, 2017

House Republican Bob Goodlatte Is Hoping to Gut Class Action Law

House Republican Bob Goodlatte Is Hoping to Gut Class Action Law

Without holding as much as one public hearing, Republicans in the U.S. House of Representatives are hoping to show their fealty to their corporate masters and make it next to impossible for citizens to bring class action lawsuits against corporate wrongdoers. A vote will be held today on H.R. 985, a bill with the Orwellian reverse-speak title of “Fairness in Class Action Litigation Act of 2017.”

While the media is absorbed in the wild accusations-du-jour Tweeted out by the President of the United States, corporations are salaciously using the media distractions to repeal a century of hard-fought gains in labor and civil rights protections.

The bill was introduced by Bob Goodlatte, a Republican from Virginia. According to the Center for Responsive Politics, the largest donors to the Goodlatte political campaign in 2016 were multinational corporations and their trade associations.

The legislation is so bad that the American Bar Association, which represents both plaintiff and defense counsel, sent a strident letter to House members on Monday. Thomas M. Susman, the Director of Governmental Affairs for the ABA, said it would create a “nearly insurmountable burden for people who have suffered a personal injury or economic loss at the hands of large institutions with vast resources, effectively barring them from bringing class actions.”

One of the worst features of the bill, and there are many that strip citizen protections to access the nation’s courts as a class, is a requirement that all of the proposed class members must affirmatively demonstrate that they have “suffered the same type and scope of injury” as the named plaintiffs or class representatives.

Rarely do individuals suffer the same scope of injury. For example, thousands of individuals may have taken a poorly vetted drug. It may have impacted the liver of one group; the kidneys of others; and created blood clots in others. Some may have died from the drug while others were impacted to a lesser degree.

One industry cheering the loudest over the potential passage of this legislation is Wall Street – which has already locked the courthouse doors to its customers and employees under a private justice system known as mandatory arbitration. One legal tool to get Wall Street’s serial crimes against the investing public and its century old, brazen discrimination against women and minorities out into the sunshine has been the class action lawsuit.

To discourage lawyers from taking these Wall Street cases and others, H.R. 985 proposes to deny a paycheck indefinitely to the plaintiffs’ lawyers. It requires that until full monetary relief is received by the class, the attorneys for the class don’t get paid. Cases like these can drag on for years – how would the lawyers continue to pay their staff?

Civil rights groups are banding together to fight the egregious legislation. The Impact Fund sent a letter two days ago to House Speaker Paul Ryan and Minority Leader Nancy Pelosi. The letter was on behalf of 123 civil rights organizations, including the ACLU, NAACP Legal Defense and Education Fund, and the Southern Poverty Law Center.

Today, the civil rights organizations are urging Americans to immediately call the House by dialing (202) 225-3121 and ask the switchboard to connect you to your Representative, urging a no vote on this outrageously bad legislation.

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Is SEC Nominee Jay Clayton the New Harvey Pitt?

By Pam Martens and Russ Martens: March 8, 2017

Photo Image Sent Out Last Evening by Our Revolution, a Group That Includes Senator Bernie Sanders Supporters

Photo Image Sent Out Last Evening by Our Revolution, a Group That Includes Senator Bernie Sanders’ Supporters

Yesterday the Senate Banking Committee announced that the confirmation hearing for Trump’s nominee to Chair the Securities and Exchange Commission, Jay Clayton, will be held on March 23. Expect fireworks in the hearing from Democrats who are mad as hell at the myriad conflicts of this nominee.

When Clayton’s name was first announced by the Trump camp, Senator Sherrod Brown, the Democrat’s ranking member of the Senate Banking Committee, sent out a press release with this statement:

“It’s hard to see how an attorney who’s spent his career helping Wall Street beat the rap will keep President-elect Trump’s promise to stop big banks and hedge funds from ‘getting away with murder.’ I look forward to hearing how Mr. Clayton will protect retirees and savers from being exploited, demand real accountability from the financial institutions the SEC oversees, and work to prevent another financial crisis.”

Last evening, Our Revolution, the organization created by supporters of Senator Bernie Sanders after his failed bid for the Presidency, ramped up the heat against Clayton with an email blast asking Sanders’ supporters to sign a petition against Clayton. The email message read in part:

“Clayton’s ties to Wall Street are deep. His law firm specializes in protecting Wall Street banks, and during the financial crisis he worked as a bailout attorney for Goldman Sachs, where his wife works today…The SEC chair is supposed to referee Wall Street banks, but Clayton has spent his entire career protecting their interests – and more than half of his family income currently comes from one of them. How can he be trusted to suddenly switch sides and put working Americans first?”

The link to the petition called this a “hostile takeover” of America.

Clayton’s wife, Gretchen Clayton, is not a low level employee at Goldman. She’s worked there for 17 years and holds the rank of Vice President, admittedly a rank held by many others but, nonetheless, a high-paying job. Under 18 U.S.C. § 208, the basic criminal conflict of interest statute, an executive branch employee is prohibited from participating personally and substantially in a government matter that will affect his own financial interests, as well as the financial interests of his spouse. This means that the SEC Chair will have to recuse himself permanently from any matter directly involving Goldman Sachs.

In addition, as we reported on February 22, Clayton has represented 8 of the 10 largest Wall Street banks in the past three years as a law partner at Sullivan & Cromwell.

All of this is starting to sound a lot like Harvey Pitt’s tumultuous tenure as Chair of the SEC under former President George W. Bush. Pitt was a law partner for Fried, Frank, Harris, Shriver & Jacobson prior to coming to the SEC. He had represented the biggest accounting firms, the ones who attest to the SEC in filings that their audits of publicly traded companies are sound.

During Pitt’s tenure, which ran a mere 15 months from August 2001 to his resignation in early November 2002, two giant accounting frauds filled the news: Enron and Worldcom. Pitt was under constant fire for insulting the public’s sensibilities with his actions on behalf of the industry. His transgressions included: meeting privately with the CEO of a major accounting firm, KPMG, while it was under SEC investigation over its work for Xerox; he asked that the SEC be elevated to Cabinet status with a pay raise for the Chair; he met with the Chairman of Goldman Sachs while it was under an SEC investigation.

The final straw came when Pitt declined to name John H. Biggs to head the newly created accounting oversight board. Biggs said he had Pitt’s support until members of the big accounting firms opposed him for being too tough. Pitt then selected a candidate, William Webster, who had sat on the audit committee of the Board of Directors of U.S. Technologies, a company accused of accounting fraud. When news broke that Pitt knew of Webster’s audit committee position and withheld that information from the White House and the four other SEC commissioners prior to the vote on Webster, there was a loud public outcry for his ouster.

Pitt announced his resignation with this statement to the President: “Rather than be a burden to you or the agency, I feel it is in everyone’s best interest if I step aside now…”

Clayton should reach that same conclusion before his confirmation hearing. If Clayton is relying on the delicate Congressional handling of his equally conflicted predecessor at the SEC, Mary Jo White, he shouldn’t. There is still that macho thing going on in Congress where its male-dominated chambers find it unseemly to attack a female – especially a pint-sized one like Mary Jo White — whose law partners give so generously to political campaigns.

When Deutsche Bank Wobbles, Wall Street Gets Shaky Knees

Systemic Risk Among Deutsche Bank and Global Systemically Important Banks (Source: IMF --  "The blue, purple and green nodes denote European, US and Asian banks, respectively. The thickness of the arrows capture total linkages (both inward and outward), and the arrow captures the direction of net spillover. The size of the nodes reflects asset size.")

Systemic Risk Among Deutsche Bank and Global Systemically Important Banks (Source: IMF — “The blue, purple and green nodes denote European, US and Asian banks, respectively. The thickness of the arrows capture total linkages (both inward and outward), and the arrow captures the direction of net spillover. The size of the nodes reflects asset size.”)  

By Pam Martens and Russ Martens: March 7, 2017

Yesterday, the German global bank, Deutsche Bank, fell by 3.82 percent by the close of trading on the New York Stock Exchange on news of a capital raising and revamp in strategy. That price action took down every major Wall Street bank stock and, interestingly, MetLife, which closed down 1.64 percent, beating out even Citigroup which closed down 1.18 percent. The rest of the major derivatives players fared as follows: JPMorgan Chase closed with a loss of 0.95 percent; Bank of America was off by 0.75 percent; Morgan Stanley closed down 0.56 percent; with Goldman Sachs down a meager 0.35 percent after infusing itself throughout the Trump administration’s corridors of power in Washington.

Last June, Deutsche Bank found itself the subject of unwanted attention in a report issued by the International Monetary Fund (IMF). The report looked at the “Financial System Stability” of German financial institutions and examined the systemic impact that a major bank blowing up would have on other domestic German banks and insurers as well as financial stability in other countries. The report concluded that spillover effects would not be limited to Germany but would impact France, the U.K. and the U.S.

The troubling report called out Deutsche Bank as “the most important net contributor to systemic risks.” (See chart above.) Its findings included the following:

“Notwithstanding moderate cross-border exposures on aggregate, the banking sector is a potential source of outward spillovers. Network analysis suggests a higher degree of outward spillovers from the German banking sector than inward spillovers. In particular, Germany, France, the U.K. and the U.S. have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country…

“Among the G-SIBs [Global Systemically Important Banks], Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse. In turn, Commerzbank, while an important player in Germany, does not appear to be a contributor to systemic risks globally. In general, Commerzbank tends to be the recipient of inward spillover from U.S. and European G-SIBs. The relative importance of Deutsche Bank underscores the importance of risk management, intense supervision of G-SIBs and the close monitoring of their cross-border exposures, as well as rapidly completing capacity to implement the new resolution regime.”

The problem, as you may have guessed, is all about derivatives, the counterparties to them and the interconnectivity of these global banks. Despite posturing by the Obama administration on all of the reforms that have reined in Wall Street risk, little meaningful headway has actually been made since the epic 2008 financial collapse when it comes to the concentration of derivatives among a handful of players.

In its 2015 annual report, Deutsche Bank noted the following:

“At December 31, 2015, the notional related to the positive and negative replacement values of derivatives and off balance sheet commitments were € 255 billion, € 606 billion and € 31 billion respectively.”

The continuing interconnectivity of these global banks has been a focus of the Office of Financial Research (OFR) since its creation under the Dodd-Frank financial reform legislation that was signed into law in 2010. A deeply concerning report from OFR was released on February 12, 2015, titled Systemic Importance Indicators for 33 U.S. Bank Holding Companies: An Overview of Recent Data.

The report suggested that major foreign banks were significant counterparties to Wall Street’s derivatives, writing:

“Surprisingly, OTC derivatives contributed only about half as much to intrafinancial system liabilities ($632 billion) as to intrafinancial system assets ($1.2 trillion). Across all OTC market participants, derivatives assets must equal derivatives liabilities, so this imbalance indicates that the U.S. banks held large positive OTC derivatives positions with financial institutions outside this group.”

The chart above, from the June 2016 IMF report, provides further clarity on those entanglements.

Was There a Wiretap of Trump?

By Pam Martens and Russ Martens: March 6, 2017

President Donald Trump Berates the Media in a Hastily Called Press Conference on February 16, 2017

President Donald Trump Berates the Media in a Hastily Called Press Conference on February 16, 2017

Commander-in-Tweet Donald Trump has potentially dug a deep hole for himself. By publishing a Tweet over the weekend stating that President Obama had tapped his phones during the Presidential election campaign, Trump has simultaneously suggested that a Foreign Intelligence Surveillance Act court (FISA court) found sufficient evidence to warrant a wiretap. (The wiretap would have been at the behest of an intelligence agency, not President Obama directly.)

Chuck Todd, host of Sunday’s Meet the Press, summed up the mess as follows on his program yesterday: “It’s such a serious allegation. I mean it is either, if it’s true, it’s an extraordinary political scandal. And if it’s not true, it’s an extraordinary political scandal.”

It should be noted that if it’s not true, it would be not so much a political scandal as it would be another in a long, long series of off-the-wall falsehoods promulgated by Trump with no negative ramification to his career – unless one considers being elevated to the highest public office in the land a negative impact. For years, Trump was a leading purveyor of the birther meme that former President Obama had no legitimacy as President because he was foreign born and not entitled to hold the office. Then, abruptly, Trump decided to renounce that position.

While there has been only glowing embers and a little smoke before on the ties between the Trump camp and Russian officials, there’s now darting flames scorching a lot of toes.

Trump’s Attorney General, Jeff Sessions, was forced to admit last week that he misspoke in his Senate confirmation hearing. Sessions now concedes that he did meet with Russian Ambassador Sergey Kislyak. Trump’s former National Security Advisor, Michael Flynn, was forced to resign after transcripts showed he had discussed Russian sanctions with Kislyak prior to Trump taking office. A new revelation concerns Jared Kushner, Trump’s son-in-law who is married to Ivanka Trump. Both serve as advisers to the President. According to multiple media reports, Kushner was part of a meeting with Kislyak at Trump Tower in December. JD Gordon, another Trump policy adviser, met with Kislyak at the Republican National Convention last July, as did Carter Page, a Trump policy adviser and oil industry consultant.

James Clapper, the Director of National Intelligence for more than six years during the Obama administration, appeared on Meet the Press yesterday. He flatly denied there had been any wiretapping of Trump. The exchange between Chuck Todd and Clapper went like this:

CHUCK TODD: “Let me start with the President’s tweets yesterday, this idea that maybe President Obama ordered an illegal wiretap of his offices. If something like that happened, would this be something you would be aware of ?”

JAMES CLAPPER: “I would certainly hope so. I can’t say– obviously, I’m not, I can’t speak officially anymore. But I will say that, for the part of the national security apparatus that I oversaw as DNI, there was no such wiretap activity mounted against the president elect at the time, or as a candidate, or against his campaign. I can’t speak for other Title Three authorized entities in the government or a state or local entity.”

CHUCK TODD: “Yeah, I was just going to say, if the F.B.I., for instance, had a FISA court order of some sort for a surveillance, would that be information you would know or not know?”

JAMES CLAPPER: “Yes.”

CHUCK TODD: “You would be told this?”

JAMES CLAPPER: “I would know that.”

CHUCK TODD: “If there was a FISA court order…”

JAMES CLAPPER: “Yes.”

CHUCK TODD: “–on something like this.”

JAMES CLAPPER: “Something like this, absolutely.”

CHUCK TODD: “And at this point, you can’t confirm or deny whether that exists?”

JAMES CLAPPER: “I can deny it.”

CHUCK TODD: “There is no FISA court order?”

JAMES CLAPPER: “Not– not to my knowledge.”

CHUCK TODD: “Of anything at Trump Tower?”

JAMES CLAPPER: “No.”

CHUCK TODD: “Well, that’s an important revelation at this point.”

The American people are rapidly losing trust and confidence in our public institutions and government leaders in Washington. President Trump made this unprecedented accusation against a former President of the United States and his administration. Congress must now take a swift leadership role in providing reliable evidence to either confirm or refute this damning accusation.

Mr. President, This Is What You Should Know About Public-Private Partnerships

By Pam Martens and Russ Martens: March 1, 2017

President Donald Trump Addresses a Joint Session of Congress, February 28, 2017

President Donald Trump Addresses a Joint Session of Congress, February 28, 2017

In President Trump’s speech last evening to a joint session of Congress, he described his plan to rebuild America’s crumbling infrastructure as follows:

“To launch our national rebuilding, I will be asking the Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States — financed through both public and private capital — creating millions of new jobs.”

Financed through “both public and private capital” sounds a lot like a public-private partnership.  Here’s how those hybrid creatures have worked out so far for the American people.

Fannie Mae and Freddie Mac were, effectively, public-private partnerships. (The government preferred to call them “Government Sponsored Enterprises” or GSEs.) Each company traded on the New York Stock Exchange and each company had private shareholders. Because Fannie and Freddie had a line of credit from the U.S. Treasury and the market’s perception that the U.S. government would never allow them to default, their bonds carried a triple-A rating. Wall Street played that public-private partnership for all it was worth. The big Wall Street banks sold Fannie and Freddie hundreds of billions of dollars of junk residential mortgages, which they knew from internal reviews were likely to default, while representing to Fannie and Freddie that these were good mortgages. Then Wall Street, with inside knowledge of the house of cards it had built, sold the debt issued by Fannie and Freddie to public pensions and university endowments as triple-A investments.

On September 9, 2008, one week before the collapse of Lehman Brothers, the U.S. government took over Fannie and Freddie as it became clear to the markets that the assets backing their bonds were a pile of toxic sludge.

This is how the Financial Crisis Inquiry Commission report (the official report on the 2008 financial collapse) summed up the situation at Fannie and Freddie:

 “The GSEs were highly leveraged—owning and guaranteeing $5.3 trillion of mortgages with capital of less than 2%…

“The value of risky loans and securities was swamping their reported capital. By the end of 2007, guaranteed and portfolio mortgages with FICO scores less than 660 exceeded reported capital at Fannie Mae by more than seven to one; Alt-A loans and securities, by more than six to one. Loans for which borrowers did not provide full documentation amounted to more than ten times reported capital…

“At the end of December 2007, Fannie reported that it had $44 billion of capital to absorb potential losses on $879 billion of assets and $2.2 trillion of guarantees on mortgage-backed securities; if losses exceeded 1.45%, it would be insolvent. Freddie would be insolvent if losses exceeded 1.7%. Moreover, there were serious questions about the validity of their ‘reported’ capital.”

Today, Fannie and Freddie remain under the government’s conservatorship but unknown to most Americans, the government’s bailout of Freddie and Fannie was a well-disguised bailout of Wall Street’s biggest banks – just as the bailout of AIG was a backdoor bailout of Wall Street’s banks. Last May, Wall Street On Parade reported that Fannie Mae and Freddie Mac had continued to pay out billions of dollars to the Wall Street banks as counterparties to their derivative contracts. Freddie Mac’s SEC filing showed that it had paid out the following in just the past four years on its derivatives contracts: $2.1 billion in 2015; $2.6 billion in 2014; $3.46 billion in 2013; and $3.8 billion in 2012.  (See in-depth reporting in related articles below.)

Who would have paid those billions if not for the U.S. taxpayers who consistently function as the dumb tourists in Wall Street’s casino?

Then there is the sugar daddy of all public-private partnerships – the U.S. Federal Reserve. The President of the United States appoints the members of the Board of Governors of the Federal Reserve but the banks are the shareholders of the 12 regional Federal Reserve banks. One of those regional banks, the New York Fed, has all the real power. Wall Street On Parade reported on the unique status of the New York Fed in 2013 as follows:

The President of the New York Fed sits permanently on the Federal Open Market Committee (FOMC). The Presidents of the other 11 regional banks rotate on the FOMC;

Although there is no law requiring that the New York Fed should be the sole regional Fed Bank to conduct the open market operations of the FOMC, it has uniquely served in this function since 1935;

It is the only regional Fed Bank to have its own trading floor and speed dials to the largest firms on Wall Street;

It is the only regional Fed Bank to be allowed to intervene in foreign exchange markets;

The New York Fed, uniquely among the regional Fed Banks, stores gold for foreign central banks, governments and international agencies;

The New York Fed played a uniquely controlling role in the disbursement of trillions of dollars in loans to foreign and domestic banks during the 2007 to 2010 meltdown of Wall Street;

And, problematically, while needing the good will of Wall Street firms to carry out its open market operations mandate, it simultaneously functions as a primary regulator to some of the largest firms.

The Federal Reserve, in fact, mostly through the New York Fed, secretly disbursed $16 trillion in almost zero interest loans to Wall Street banks and foreign banks from 2007 to 2010, according to the Government Accountability Office (GAO). The public only learned about this unprecedented and unimaginable bailout in 2011 as a result of an amendment by Senator Bernie Sanders to the Dodd-Frank reform legislation which called for a GAO audit.

You need to let that sink in for a moment: outside of any action by the legislative branch of the U.S. government, the United States Congress – members of whom are elected by the citizens of the United States – a hybrid public-private partnership called the Federal Reserve created $16 trillion out of thin air and secretly doled it out to the scoundrels of the Wall Street collapse under what it calls its emergency powers.

Mr. President, the last thing the public wants from you is another public-private partnership. The last thing the American people think will make the country great again is another public-private partnership.

Mr. President, the public already has good reason to suspect that you’re not draining the swamp in Washington but restocking it. Hank Paulson, the U.S. Treasury Secretary who pushed for the massive Wall Street bailouts in 2008, was the former Chairman and CEO of Goldman Sachs. Your U.S. Treasury Secretary, Steve Mnuchin, is a former 17-year veteran of Goldman Sachs. Stephen Bannon, your Chief Strategist in the White House, previously worked at Goldman Sachs. The sitting President of Goldman Sachs, Gary Cohn, was named by you as Director of the National Economic Council. And your nominee to Chair the Securities and Exchange Commission, Jay Clayton, is an outside lawyer to Goldman Sachs whose wife is currently a Vice President there. Clayton has represented 8 of the 10 largest Wall Street banks in the past three years.

Mr. President, another public-private boondoggle that privatizes profits and socializes losses in a thinly veiled, institutionalized wealth transfer system to the 1 percent could prove fatal to the U.S. economy.

Related Articles:

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The U.S. Government Is Quietly Paying Billions to Wall Street Banks