Bought And Paid For….

As I have previously noted, I am a capitalist, an advocate of market economics.

Most members of today’s GOP are not.

In order to work properly, genuine capitalism requires regulation. Much as I hate sports analogies, this one fits: just as you cannot have a fair sporting contest without referees/umpires, you cannot have a working market economy without rules that ensure a level playing field. (You also have to distinguish between areas of the economy in which markets work and areas–like healthcare– where they don’t, but that is a subject for a different post.)

When people with little or no bargaining power have little or no choice but to do business with large, powerful institutions, government has an obligation to insure that the powerful are not taking advantage of the powerless. And that brings me to yesterday’s Senate vote to protect Wall Street from those annoying people from whom they profit .You will not be shocked to find that Mike Pence (a wholly-owned subsidiary of the Koch brothers) cast the deciding vote.

Vice President Pence cast a tie-breaking vote late Tuesday to block new regulations allowing U.S. consumers to sue their banks, handing Wall Street and other big financial institutions their biggest victory since President Trump’s election.

The rules would have cost the industry billions of dollars, according to some estimates. With the Senate’s vote, Wall Street is beginning to reap the benefits of the Trump administration focus on rolling back regulations it says are strangling the economy. The vote is also a major rebuke of the Consumer Financial Protection Bureau, which wrote the rules, and has often found itself at odds of Republicans in Congress and the business community.

The issue is that fine print in the agreements that we consumers have to sign when we apply for credit cards or bank accounts– fine print that requires us to settle any disputes that may subsequently arise through arbitration, in which a third party generally favorable to the Big Guys rules on the matter, rather than going to court or joining a class-action lawsuit.

The CFPB rule would block mandatory arbitration clauses in some cases, potentially allowing millions of Americans to file or join a lawsuit to press their complaints.

After more than four hours of debate, the Senate voted 51 to 50 to block its implementation. Pence was forced to cast the deciding vote shortly after 10 p.m. when two Republicans, Sens. Lindsey Graham of South Carolina and John Kennedy of Louisiana, opposed the resolution. House Republicans already passed legislation to block the rule, which now needs the approval of President Trump.

“Tonight’s vote is a giant setback for every consumer in this country. Wall Street won and ordinary people lost,” CFPB Director Richard Cordray said in a statement minutes after the vote. The legislation “preserves a two-tiered justice system where banks can have their day in court but deny their customers the same right.”

Proponents of the roll-back trotted out the “usual suspects”–those slimy lawyers and their class-action lawsuits–and pretended that the rule wouldn’t really protect consumers and that it would infringe on our freedom to contract. (Because you can always negotiate your credit card terms with MasterCard…) There may be some lawyers who abuse the system (although courts have ways of punishing such abuses), but class action lawsuits are a very important tool for justice. They’re one of the very few ways consumers can force changes to unethical and predatory business practices.

Class action lawsuits allow large groups of people to seek small amounts they individually wouldn’t have time or money to pursue. Large companies employing legally questionable practices rely on the ability to make a lot of money by cheating individual consumers just a little, not enough to justify hiring a lawyer and bringing an individual suit.

Reading about the Senate vote, my husband asked me why any Senator would vote to roll back the rule. I suggested he look at where those Senators’ campaign contributions came from.

If markets are for buying and selling, the Senate is evidently a thriving marketplace.


Predatory Municipal Finance

Every once in a while, I come across a study that “connects dots”–that makes previously disparate bits of information tell a new and different story.

I had one of these “aha” moments when I came across a Roosevelt Institute report titled “Dirty Deals: How Wall Street’s Predatory Deals Hurt Taxpayers and What We Can Do About It.”

According to the report, Wall Street and several major financial corporations have “engaged in a systemic effort to suppress taxes.” My first reaction to this was disbelief–not because I harbor any illusions about the business practices of Wall Street, but because I didn’t understand why they’d bother to lobby for generalized tax cuts. What would motivate such efforts? What’s in it for them?

Here’s the missing piece: when it is difficult for cities and states to fund even basic public services–let alone ambitious but necessary projects– out of tax revenues, banks can take advantage of that situation by offering state and local governments “creative” (albeit predatory) municipal financing “deals.”

Predatory financing deals prey upon the weaknesses of borrowers, are characterized by high costs and high risks, are typically overly complex, and are often designed to fail.

Ironically, the money that flows to Wall Street and its partners in these transactions often ends up costing taxpayers more than they’d pay by way of a responsible tax rate imposed by elected officials–and elected officials are accountable to voters in ways that Wall Street wheeler-dealers are not. (The report notes that taxpayers “do trillions of dollars of business with Wall Street every year.)

We have a perfect example of the way this works right here and now: Indianapolis’ proposed Justice Center. I’m in favor of the project, but as I’ve noted previously, I’m extremely leery of the “creative” and highly privatized way in which the city proposes to finance it. The terms “high costs,” “high risks”, and “overly complex” certainly seem apt.

The predatory practices highlighted in the Roosevelt report are made possible by voters’ stubborn belief in a free lunch. We want public services, but we don’t like paying for them.  So “creative” politicians work with Wall Street to give us “creative financing” that allows us to pretend we’re getting a bargain.

It’s easy to con people who lie to themselves.