The bank gambling trade association and its regulators are giving each other high-fives over an agreement that supposedly makes it easier to bail out a failed mega-bank. Progress? If viewed from the vantage of an average taxpayer who finances bank bailouts, the progress is miniscule. And the circumstances that put this agreement barely into the “progress” column beg for far more ambitious reform.

Specifically, 18 of the largest global banks just agreed to wait about a day when one of them fails before pocketing the winnings from bets made with each other. Exactly how long the waiting period will be isn’t clear. These bets are called swaps. The agreement about how bets are settled is governed by a master contract of the International Swaps and Derivatives Association (ISDA), which is the industry trade association.

Originally conceived as hedges (the way farmers lock in a price for commodities such as corn that hasn’t yet been grown, harvested and sold) swaps have now been perverted into a $700 trillion racket largely patronized by banks. This high-stakes game primarily plays out in what’s called the over-the-counter (OTC) market. Ninety percent of the OTC bets are between banks themselves. In fact, four banks account for most of the bets in the US banking industry. Real economy companies such as airlines or car manufacturers account for only about 10 percent of the OTC casino. Even mega-bank Wells Fargo, currently the most valuable bank on the US stock market, doesn’t gamble nearly at the scale of its peers JPMorgan Chase, Citigroup and Bank of America.

In other words, if swaps are so useful to the economy, why doesn’t Main Street account for most of them? And how can Wells Fargo be so successful a bank without a swaps portfolio that matches Citi’s?

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If punishment is meant to deter crime, then perhaps the reason Wall Street seems undeterred from committing crimes is the fact that it doesn’t face punishment.

Earlier this year, Credit Suisse pleaded guilty to a decades-long scheme to help Americans escape income taxes; but it has been a pain-free guilty plea. In fact, the government fine was borne by shareholders innocent of the conspiracy. When Attorney General Eric Holder announced the guilty plea, he stated that the business of the bank itself wouldn’t be interrupted and it could “move forward.” And the Department of Labor (DOL) recently proposed to exempt Credit Suisse from an otherwise mandatory penalty involving the firm’s pension fund management business.

The DOL oversees pension fund managers through a law approved in 1974 as a result of notorious swindles. Generally, the law requires fund managers to avoid complex, risky investments, and it provides that such investments only be offered if the manager is sophisticated and squeaky clean. A criminal record anywhere at the fund manager’s firm means those risky investment strategies must be examined with greater care. That requires more effort by Credit Suisse — a little pain. And that’s appropriate. Crimes are supposed to be punished. Yet the DOL proposes to let Credit Suisse retain its status as trustworthy for complex, high risk investments.

Before the DOL excuses Credit Suisse from this mandatory penalty, it asks for public comment. Public Citizen has written the DOL outlining our objections, and we call for a hearing. “Pension fund beneficiaries are especially vulnerable to Wall Street abuse because their savings may be managed by firms they do not even choose, let alone control.” Three members of Congress also call for a hearing: California’s Rep. Maxine Waters, the ranking Democrat on the House financial services committee, California’s George Miller, ranking Democrat on the House education and workforce committee, and Rep. Stephen Lynch (D-Mass). “The American public has grown increasingly frustrated about the lack of accountability in our financial system.” They pointed out that “regulators are not using the full arsenal of tools available to them to protect the public.” In fact, every commenter urged the DOL to enforce the law, and not grant Credit Suisse an exemption, with one exception: Credit Suisse. The Credit Suisse letter actually asks for even greater latitude in pension management. In the face of this comment record, bolstered by letters from senior members of Congress from committees responsible for banking and pension fund oversight, it will be a miscarriage of the regulatory process if the DOL grants Credit Suisse a pass from this penalty without a hearing. Unfortunately, the DOL habitually grants such exemptions – 23 straight times in previous cases. We hope the comment record changes this streak.

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Today the Union of Concerned Scientists (UCS) released a fantastic study finding that the EPA’s proposed Clean Power Plan underestimates how much progress we can make on renewable energy. The agency could nearly double the amount of renewables in its carbon-reduction targets for states, from 12 percent of 2030 electric generation to 23 percent. The UCS analysis isn’t just wishful thinking. It’s based on the actual pace of renewables growth in the recent past, as well as state laws in place that require particular increases in renewables. As the National Wildlife Federation points out in its comment on the UCS study, the EPA’s targets for renewables fall short of what the U.S. Energy Information Agency projects will happen under a business-as-usual scenario. Why do less, when we can do much more?

The best news in the study is that by raising the targets for renewables, EPA can dramatically boost the efficacy of the Clean Power Plan overall. Rather than reduce carbon emissions just 30 percent from 2005  levels by 2030, the Plan could achieve a 40 percent reduction. That’s because the Plan works primarily by replacing coal with another fossil fuel — natural gas. If we go further and replace some of that natural gas with renewables (and reduce the need for electricity with energy efficiency measures), we can make much more significant, sustainable reductions in carbon emissions.

By Robert Weissman

The big banks want an effective license to steal. And they are counting on you to give it to them.

You would never knowingly agree to any such thing, right?

But did you ever wonder what’s in the fine-print terms of the contracts that we agree to when applying for a new credit card, opening a new checking account or applying for an automobile loan?

Pretty much no one reads the fine-print terms in those contracts. That’s entirely rational. The contract language is almost impossible to decipher; and, even if you do, you can’t very well negotiate.

But that doesn’t mean the language doesn’t have consequences. Buried in the service terms of all kinds of financial products – as well as everything from cell phones to cable provision, software downloads to rental cars — are clauses that bar individuals from suing companies that wrong them.

These provisions require individuals to seek redress for wrongdoing not in courts of law – with the right to have their case heard by a jury, guarantees of due process, and the ability to engage in robust discovery – but in company-selected arbitration schemes.

Perhaps the worst elements of these contracts are prohibitions on class actions – preventing consumers from banding together over shared wrongs. For low-dollar grievances, this effectively means there is no remedy available.

No remedy equals no deterrent (except for regulatory enforcement). For enterprises with no sense of shame, no deterrent equals an effective license to steal.

In other words, if you get cheated, there’s pretty much nothing you can do.

But we can fix the problem itself. The banks do care about their reputations, so join the campaign to tell the biggest banks using forced arbitration clauses — JPMorgan Chase, Citigroup, Wells Fargo, US Bancorp and PNC Financial – to stop.
Would the big banks really trick consumers into agreeing to such unfair contracts? C’mon – of course they would.

And they do.

Preliminary results from a Consumer Financial Protection Bureau (CFPB) study show how widespread are forced arbitration terms in consumer financial contracts:

• Around 80 million credit card holders were subject to arbitration clauses as of the end of 2012.
• Tens of millions of households are subject to arbitration on one or more checking accounts.
• 81 percent of the prepaid cards studied have arbitration clauses.

Moreover, the CFPB found, these provisions foreclose any effective remedy for consumers. Consumers file about 300 arbitration cases related to financial disputes a year, almost none for disputes of less than $1,000.

Do the banks really cheat and defraud their own customers? Heck, we know from the fallout of the Wall Street crash that they mislead and deceive even the biggest, most sophisticated and powerful customers (though you do get to be called a “client” or an “investor” when you’re more powerful).

The same big banks will surely take advantage of everyday customers if they get a chance – that’s why they have invented and hidden new fees and charges, used “robosigners” to stipulate falsely that they have carefully reviewed foreclosure documents, and even imposed charges for services not rendered.

If you’re a victim of this kind of chicanery, you may well be out of luck, thanks to forced arbitration clauses. Join together with others to sue and demand compensation, and you may well find your case kicked to kangaroo court arbitration systems, where you must arbitrate your own case individually and in secret. Not exactly practical if you and thousands of your fellow customers each have been hit with an unjust $35 fee.

This is happening all the time, as cases are routinely thrown out of court and into the arbitration system – or simply not filed in the first place, because it’s not economically feasible to do so. . Example: New York consumers alleged that banks, credit card companies, and debt collectors – including Citigroup, Bank of America and JP Morgan Chase — obtained thousands of judgments against debtors through false affidavits, misleading evidence, and other improper litigation tactics. Thanks to an arbitration clause, the courthouse doors were slammed shut. A U.S. district court told the aggrieved consumers that they would have to arbitrate their claims, on an individual basis.

Ultimately to solve this problem, these provisions must be prohibited. The CFPB has authority to issue such a rule for consumer financial products and services; and hopefully will do so as soon as possible.

In the meantime, however, no company should have a license to steal. Join the campaign to tell the big banks to end the use of forced arbitration clauses.

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Nobody openly supports unequal justice.

When Attorney General Eric Holder confided to Congress that some banks were too “large” to prosecute because it might cause systemic tremors, he was appropriately pilloried for declaring a “too big to jail” policy.

A recent disquieting episode sheds light on some of the interactions between government regulators and the banks they oversee. This episode refines our understanding of regulatory capture (at least at one bank). The “Carmen Segarra” incident shows us more about how the regulators think, how they approach errant bankers, and how far the regulators may be from adopting the obvious solution of breaking up these too-big-to-jail banks.

Spoiler alert: they are far.

Carmen Segarra spent seven months beginning in October 2011 as a senior bank examiner at the New York Federal Reserve Bank. The New York Fed is one of the front-line supervisors of the big Wall Street banks. It counts among of the regulators that the Justice Department might consult before prosecutors decide whether to seek full penalties, or to pull a punch if advised that a criminal conviction of a bank could endanger the economy,

Segarra took this job after positions at Citigroup, Societe General and MBNA, and after schooling herself at Harvard, Columbia and Cornell. The NY Fed assigned her to help oversee Goldman Sachs. While there, she uncovered serious problems. In a chain of events, when she brought these problems to her supervisors, they fired her.

In 2013, Segarra sued the New York Fed and several of her supervisors. She outlined episodes where her bosses blocked her efforts to ask tough questions or promote better policies at Goldman Sachs. For example, Goldman worked for El Paso Corp as an advisor as it bid for Kinder Morgan, Inc. Advisors help buyers secure the lowest price and best conditions. But Goldman also owned some $3 billion worth of Kinder, and a Goldman banker held a sizeable personal stake in Kinder. Sellers want the highest price when they sell. Segarra questioned Goldman’s conflict-of-interest policy. But her bosses demanded that she tone down her memorandum on the issue.

Her allegations from 2013 received some public attention at the time. Regulatory capture — where crooks control the cops — is a festering problem in bank supervision.

This September, Segarra went a step further when she released audio tapesThe very Goldman and New York Fed staff described in her lawsuit can be heard saying what she alleges. The “tone it down” conversation with her boss allows the listener to verify her charge. You are there. As Michael Lewis observed, these tapes could become the “Ray Rice moment” for bank regulators. (Rice is a Baltimore Raven football player guilty of domestic violence. That episode had been known for months, but when the tape was released, the NFL increased its sanctions on the player.)

The Segarra audio tapes emphasize the servility of regulators. In one exchange, Segarra’s boss’ boss — Michael Silva — raises a glaring problem with a Goldman executive with the indirection and timidity of a mail room clerk searching for a delicate way to tell the CEO he’d spilled coffee on his shirt. (Silva now works for GE Capital, another example of the revolving door problem behind regulatory capture.) Pulitzer winner Jake Bernstein of ProPublica shepherded Segarra’s tapes, of which there are 46 hours, into the public domain. As he summarizes, the tapes demonstrate the extraordinary deference of the regulators to the banks. (Of note, it is legal under New York and federal law to make tapes.)

It may be unrealistic to expect Hollywood histrionics from our bank regulators, but the Segarra tapes reveal that some senior bank regulators can’t even utter a clear criticism to a banker.

If Segarra was told to tone down her criticisms, if her bosses won’t confront bankers, if these same regulators leave government to work for mega-banks, we might realistically expect them to tell prosecutors in a timid way that a serious criminal charge is unwise for the financial system.

How can regulatory capture be addressed? Legislating spine may difficult.

One step would be greater transparency. Presumably, officials at the New York Fed are thinking more seriously about their capture problem following Segarra’s lawsuit and the release of the audio tapes. If these regulators knew in advance that discussions would be made public, particularly in the case where they consult with the Justice Department about a pending prosecution, they might be less beholden to the mega-banks. Transparency might serve as a prophylactic against capture. Public Citizen believes that criminal cases with too-big-to-jail banks deserve this kind of transparency.

Congress should hold hearings on the Segarra case. Helpfully, several leading members have called for hearings, including Sens. Elizabeth Warren (D-Mass), Sherrod Brown (D-Ohio), and Reps. Maxine Waters (D-Calif.), Keith Ellison (D-Minn), Al Green (D-Texas). If and when they do, Public Citizen believes that solutions including transparency should be accorded a full discussion.

Bartlett Naylor is the financial policy advocate for Public Citizen’s Congress Watch division.

Join Sen. Elizabeth Warren (D-Mass.) and other lawmakers in calling for hearings to hold the New York Fed accountable for its disgraceful deference to Goldman Sachs and its firing of Carmen Segarra.

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