As improbable as it may seem, the nation’s largest banks are even larger now than they were before the 2008 financial crisis, meaning they are still a “too big to fail” risk for our economy. Income inequality is growing with hedge fund managers and corporate CEOs abusing loopholes in our tax code to further enrich themselves. Funding for government services is being slashed when sources of revenue are going untapped like taxing Wall Street trades. Some communities lack even access to basic banking services, leaving them to rely on predatory, high-fee financial services like check cashers.
Against this backdrop, Sen. Elizabeth Warren (D-Mass.), Rep. Nydia Velázquez (D-NY), and Rep. Keith Ellison (DFL-MN) led the launch of the Take on Wall Street campaign on Tuesday.
Nearly 40 organizations including Public Citizen, Americans for Financial Reform, the AFL-CIO and Communications Workers of America have signed on to the new campaign, which seeks to bring much-needed reforms to Wall Street’s seemingly unchecked power and greed.
The five point plan at the center of the campaign would, in the words of AFL-CIO President Richard Trumka, “Make Wall Street work for Main Street, instead of the other way around.”
Here are the proposed reforms:
- Close the carried interest loophole that lets billionaire Wall Street money managers pay lower tax rates than nurses or construction workers.
- Create a Wall Street speculation tax that would discourage short-term bets and generate billions in new revenue to make college affordable, invest in our infrastructure, and create jobs in our cities.
- End “Too Big to Fail” by breaking up the big banks – making them smaller, simpler, and safer.
- Stop subsidizing million dollar CEO bonuses by ending the CEO pay tax loophole.
- End predatory lending and also expand access to fair consumer banking services through a public option for financial services like postal banking.
The financial sector spends around $1.5 million a day on lobbying and contributions to congressional candidates.
Rep. Ellison recognized this in his remarks, saying, “We are the many and they are the money. We are going to win this fight if we stick to it.”
Join the fight—you can help us take on Wall Street and WIN!
Bret Thompson is the online director of Public Citizen’s Congress Watch division.
On May 11, JP Morgan CEO James Dimon called the president of the nation’s community bank trade association a “jerk” in a live interview. Dimon characterized Camden Fine of the Independent Bankers Association of America in this way following Fine’s assertion that the ill-regarded mega-banks hid behind better-regarded community banks for political cover when lobbying for deregulation.
Public Citizen has voiced critiques similar to Fine’s about the mega-banks. Indeed, Public Citizen urges JP Morgan’s break-up, and filed a shareholder resolution calling on a study of this idea. So when I attended the May 17 annual meeting of JP Morgan, I expected to draw some colorful rejoinders from CEO Dimon. Instead, the meeting in New Orleans, LA, known to locals as NOLA, was a meeting of “no.”
There was no name calling. In fact, CEO Dimon declared in his prepared remarks that the bank should be less defensive with public criticism. And he declared his firm squarely on the path of moral rectitude, and that misconduct would not be tolerated. He also described the company’s record financial results.
His remarks, which he read at a pace similar to the TV advertisement legal disclaimer for Cialis’ side effects, were a synopsis of his 50-page defense that opens JPMorgan’s annual report.
The comforting words regarding conduct were dissonant with the lengthy rap sheet of recent settlements for claims of misconduct at JPMorgan. They were also dissonant with the meeting venue, which was New Orleans’ Bourbon St. Shareholders attending the meeting needed to slalom there through people sleeping on the sidewalk either because they couldn’t find their way home, or they didn’t have a home; passed strip clubs open for business at 9:30 a.m.; and under awnings advertising alcoholic beverages that you’re welcome to sip on the street.
There was also no victory for shareholders hoping for some basic reforms through six separate proposals that constituted the core of this annual meeting. Public Citizen advanced one of these—the break-up study—and I introduced four others as a courtesy to the proponents who wanted to spare themselves travel expenses. Voting shareholders turned down all these proposals. Partly this is explained by the fact that 13 percent of the shareholders didn’t vote. Most voters are institutions tied into JP Morgan and other banks. Of course it didn’t help that the company uses language that confuses– the ballot didn’t actually say “break-up study,” but “shareholder value committee,” which an institutional voter sifting through hundreds of annual meeting ballots might dismiss as another expensive, needless distraction. Andrew Ackerman of the Wall Street Journal has explored this clever dodge.
About a month ago, the Panama Papers scandal broke onto the international news scene, shining sunlight on the vast numbers of shell companies the Panamanian law firm, Mossack Fonseca, used to hide assets for wealthy individuals and companies.
The leaker (hacker?) behind the Panama Papers revelations , dubbed John Doe , dumped a tsunami of data on German journalists, who then enlisted the assistance of the International Consortium of Investigative Journalists (ICIJ) to wade through the 11.5 million documents. Because of the vast amount of data, the ICIJ is now turning to crowd-sourcing analysis by publishing a searchable database to allow the public to access the trove of information on secret treasures hidden within shell companies.
Careers are already ending as the exposé shines a light on the dirty little secrets public figures have camouflaged through the use of anonymous shell companies. The Prime Minister of Iceland was forced to step down when his name was associated with the Panama Papers files. The surge of stories has yet to ebb and will likely continue to flood us with information as citizen sleuths uncover additional instances of the rich and famous using Mossack Fonseca’s services to arrange the harboring of their assets from tax authorities, journalists, and other probing eyes.
Many of the world’s elite stash their riches offshore in lush tropical locales like the Bahamas or the British Virgin Islands, but a large number are also buried in companies formed in the deserts of Nevada. The state ranks on the list of top 10 places used by the Panamanian law firm to create shell companies for their clients.
Though flush with famous foreigners’ names like Emma Watson, the actress that played Harry Potter’s Hermione Granger, Americans are conspicuously underrepresented in the 14,000 plus names on Mossack Fonseca client list. That shouldn’t be surprising, though, since the U.S. is already well-established as a tax haven.
Note: Late Tuesday, The New York Times and other national outlets reported that hedge fund managers are living in “another Wall Street Universe” relative to the already-excessive annual pay and compensation packages of finance chief executives. Top executives at hedge funds took home almost $13 billion in compensation last year, even as some of the industry’s biggest names lost their investors billions of dollars.
Another year of outrageous hedge fund compensation. There’s a lot of noise in this year’s election, but if there’s one consistent theme, it’s that people are furious with a rigged system. And they are right to be angry. They are furious with a financial system that lets so few make so much, when so many are making so little. And they can’t begin to comprehend how people making more than $1 billion a year pay a lower tax rate than people struggling to get by. With voters rising up, the Gilded Age for the hedge fund gazillionaires should come to an end.
These million-dollar-an-hour elites aren’t creating value; they’re capturing the compensation that should be paid to working Americans who do create this value.
Robert Weissman is the President of Public Citizen
A stock option is to risk what air is to fire. That’s not exactly what James Madison wrote in the Federalist Papers #10. (“Liberty is to faction what air is to fire”). But the nation’s fourth president would certainly agree were he to comment on Washington’s proposal to reform Wall Street pay.
Six federal agencies charged with overseeing Wall Street are proposing rules to implement Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This section charged them to write rules that prevent “excessive” pay packages that lead to “inappropriate risk-taking.”
Americans for Financial Reform, a coalition where Public Citizen leads the task force on executive compensation issues, calls for the reduction of stock options in pay packages. Stock options are agreements providing the opportunity (but not obligation) to buy or sell stocks at fixed prices within certain time frames.
Yes, stock options can align managers’ interests with those of other shareholders. Yes, risk-taking is what companies including banks do when they make loans. This can make sense at a firm such as Apple. Managers could simply sit on the iPhone revenues and pay themselves huge sums in cash. But a shareholder prefer they develop the Next New Thing that generates increasing revenue and lifts the stock price. But just as air and fire are separately important, risk-taking can become volatile at a bank when mixed with stock options.
The problem with stock options is that they’re only valuable if the stock price rises above what’s called the strike price. Stock options are different than actual stock. If you own 1000 shares of Citigroup, which is trading at $50, you’ve got $50,000 worth of stock. If the price goes to $60/share, you’ve got $60,000, which is better. If the price sags to $40, you’ve got $40,000, which is worse.