As summarized by the New York Times,

Bank of America and JPMorgan Chase, two of the nation’s biggest banks, announced plans on Tuesday to drastically overhaul their debit card programs by lowering or eliminating fees, changing the way they credit transactions and allowing customers to opt out of overdraft protection. The moves come as lawmakers and regulators in Washington push proposals to reform what critics say are excessive charges of which consumers are unaware. The penalties, known as overdraft fees, bring the banking industry tens of billions of dollars in revenue annually.

The reporter who wrote this piece, Ron Lieber, has as a rule been unusually aggressive in trying to tell readers in plain English about the industry’s regularly punitive and deceptive practices. This time, though, he seems not to have been given the ink to properly explain. Here’s an example of a confusing technical description:

Chase plans to eliminate by the first quarter of next year a common industry practice that enraged many consumers. Instead of lumping a day’s worth of debit card and A.T.M. transactions together and then processing the highest amounts first — a practice that has caused large numbers of consumers to overdraw more quickly and pay more fees — it will credit the transactions chronologically. . . .

Perhaps those with degrees in economics understand how this works, but not the rest of us. In that sense, Lieber’s bosses do a disservice by not authorizing additional space. (Lieber got just 763 words to lay out the whole thing.) Most importantly, as seen in the lead paragraph, above, Lieber was not able to do more than tacitly acknowledge the connection between the banks’ actions and their fear that Washington will impose mandatory rules on them. And he was not able to explore the actual consequences of the banks’ actions. Or to tell us whether these moves are likely to amount to something permanent and substantive—or are just one more reach into the financial industry’s bottomless bag of tricks.

As the Obama administration attempts to overhaul the nation’s health care, energy, and financial sectors, it faces the growing leverage of the Blue Dog Coalition—the conservative, fifty-two-member faction of the House’s Democratic caucus—to moderate, or obstruct, its goals.

The Center for Public Integrity (CPI) recently published an investigation into the Blue Dogs and the money behind their rising power (emphasis added):

So far this year, the Blue Dog Political Action Committee is on track to shatter all its fundraising records; in fact, the total for the first six months of 2009 — more than $1.1 million — is greater than what was raised in the entire 2003-04 fundraising cycle. Furthermore, according to analysis by the Center for Public Integrity of CQ MoneyLine data, the energy, financial services, and health care industries have accounted for nearly 54 percent of the Blue Dog PAC’s 2009 receipts (up from 45 percent in 2004). . . .

In the 2008 cycle, their PAC received $508,800 from the health care sector (up 90 percent from 2005-2006 cycle), $451,500 from the financial services sector (up 371 percent from the previous cycle), and $238,300 from the energy sector (up 48 percent). In just the first half of 2009, the PAC all told took in $1,058,750 in contributions from political action committees. Health care PACs have already kicked in $297,500 to the Blue Dog PAC; energy PACs, $162,500; and financial services PACs, $134,500.

Democratic fundraising is up across the board, but there’s a reason why the Blue Dogs have been especially successful at pulling checks from the health, financial, and energy sectors: to stymie the building wave of reforms that big business doesn’t like and to protect or increase its federal subsidies and legal advantages.

Consider, for example, how the Blue Dogs fought for ethanol, the global-warming boondoggle that enriches the corn interests and
. . . (wait for it) . . . Goldman Sachs:

Sometimes the Blue Dog influence creeps into public view. This was the case as the House considered the climate change bill earlier this summer. Blue Dog [Collin] Peterson of Minnesota and some of his agriculture-sector supporters were not happy with the initial draft. As chairman of the Agriculture Committee, Peterson was particularly concerned about how the Environmental Protection Agency was going about regulation of renewable fuels such as ethanol. Peterson announced that he and his bloc of allies — including every Democrat on his committee — would vote against the bill unless the draft was altered to include protections for the industry. The leadership complied.

While the Blue Dogs took no official position on this bill, two facts are worth noting: first, 18 of the 28 Democrats on Peterson’s Agriculture Committee are Blue Dogs and, second, the Blue Dog PAC had — for the first time ever — received $4,500 in PAC contributions from the nation’s second-largest ethanol producer, Archer Daniels Midland (ADM), in the 2008 cycle. The Renewable Fuels Association, a trade association in which ADM is a key member, cheered Peterson’s efforts and backed the underlying bill. Colin O’Neil of the Center for Food Safety, which opposed the changes, said Peterson “was integral in formulating language in the bill and pulling the Blue Dogs and the ag community in.” Peterson and six other Blue Dogs from the Agriculture Committee voted for the bill when it reached the floor. The bill passed the House, 219-212; their votes were the margin of victory.

And while it may seem that this was a victory for the ethanol industry, it was also a victory for many in the financial services community. Goldman Sachs, for instance, has significant investments in advanced ethanol development. The firm was another new donor to the Blue Dog PAC in 2008 with $10,000, and also has been lobbying the climate bill.

There is one problematic aspect to CPI’s otherwise insightful article. The authors quote Billy Tauzin, former U.S. Representative, Blue Dog co-founder, and current president and CEO of the Pharmaceutical Research and Manufactures of America (PhRMA):

[The Blue Dogs have] helped foster much-needed bipartisanship and middle ground. … Above all else, they have consistently provided a moderating voice on Capitol Hill.

They don’t, however, mention the circumstances under which PhRMA hired Tauzin on January 3, 2005—the very day he left Congress—at a reported $2.5 million a year:

Two months earlier, Tauzin had played a key role in shepherding the Medicare Prescription Drug Bill through Congress, which had been criticized by opponents for being too generous to the pharmaceutical industry.

This link was explored at great length in an April 1, 2007 interview by Steve Kroft of 60 Minutes. The report, Under the Influence, pitted Rep. Walter B. Jones (R-N.C.) and Rep. Dan Burton against Tauzin and accused him of using unethical tactics to push a bill that “the pharmaceutical lobbyists wrote”. Their claim is supported by CSPAN video, the fact that it was the longest roll call in the history of the House of Representatives, and the 3 a.m. voting time. Along with Tauzin, many of the other individuals who worked on the bill are now lobbyists for the pharmaceutical industry.

UPDATE: Rep. Maxine Waters (D – Calif.) points out that it was Rahm Emanuel, Obama’s chief of staff, who recruited many of the Blue Dog Democrats during his tenure as head of the Democratic Congressional Campaign Committee.

UPDATE 2: The Washington Post followed up on CPI’s report today with a detailed look at the Blue Dogs and their role in the health-care debate.

The article notes that the Blue Dogs receive 25 percent more in contributions from the health-care and insurance sectors, and $63,000 more from the health-care sector than other Democrats, “putting them closer to Republicans in attracting industry support.”

The piece frames the issue around Rep. Mike Ross (D – Ark.), a favored guest at events funded by the health-care industry:

Rep. Mike Ross of Arkansas made clear that he and a group of other conservative Democrats known as the Blue Dogs were increasingly unhappy with the direction that health-care legislation was taking in the House.

“The committees’ draft falls short,” the former pharmacy owner said in a statement that day, citing, among other things, provisions that major health-care companies also strongly oppose.

Five days later, Ross was the guest of honor at a special “health-care industry reception,” one of at least seven fundraisers for the Arkansas lawmaker held by health-care companies or their lobbyists this year, according to publicly available invitations.

As the health-care reform debate continues into the fall, don’t forget that many of the Blue Dogs represent small states whose health-care markets are dominated by local monopolies. For example, Blue Cross Blue Shield controls 75 percent of Mike Ross’s Arkansas, where health-care premiums rose 66 percent between 2000 and 2007.

. . . significant criticism from the financial services industry and its allies in Congress. Earlier this week, senior Democrats in the House conceded that they would not be able to complete work on the proposal to create a new consumer protection agency for financial products like credit cards and mortgages before the lawmakers left for their August recess at the end of next week.

The Democrats had hoped to complete action on the legislation this month. But because of opposition to the proposal, Representative Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, said on Friday that the committee would work on the proposal in September.

A second major component of the Obama plan, to give the Federal Reserve more authority to supervise large companies for risks they may pose to the financial system, came under attack by senior Senate Republicans earlier this week. That proposal has also been questioned by Senator Christopher J. Dodd, the Connecticut Democrat who heads the Senate Banking Committee.

Dodd’s obstructionism toward a proposal of obvious public benefit warrants far more aggressive scrutiny. The tendency to mention the senator only in passing practically defines what is wrong with daily journalism: it is very good at reporting the war of words and the incremental blow by blow. But it does a poor job of repeatedly asking WHY? Why is Dodd reluctant to back this reform? The answer should be in every article from now until the final congressional votes are cast.

To learn more about the extent of funding Dodd receives from banking and financial services firms, look at an article that ran last September in his homestate paper, the Hartford Courant:

Financial-sector firms — mortgage firms, insurance companies, accountants, brokerage houses, hedge funds — are among the most generous political donors in America, lavishing more than $1 billion on candidates this decade. And in Congress, few politicians have fared better than Dodd. During the past 20 years, PACs and employees of finance-related firms have contributed more than $13 million to Dodd’s election efforts, including nearly $6 million in the past two years. Among members of Congress, only leading presidential candidates — Hillary Clinton, Barack Obama, John McCain and John Kerry — have collected more money from the sector.

There’s much more in that piece worth reading. Also check out a new article from the Courant on Dodd’s political problems.

Democratic U.S. Sen. Christopher Dodd still trails GOP frontrunner Rob Simmons, according to a new Quinnipiac University poll. In a direct match-up, Simmons beats Dodd, 48 to 39 percent, according to the poll released this morning, though Dodd fared better against other would-be GOP contenders. Despite a steady stream of television ads over the past six weeks highlighting Dodd’s recent accomplishments in the Senate, the beleaguered incumbent continues to have a credibility problem, with 55 percent of those polled saying he is not “honest and trustworthy.”

Ironically, Dodd is chiefly in political trouble not over the vast sums he has received from the industry, but over very modest preferential treatment he may have received from the controversial mortgage giant Countrywide when he refinanced a couple of his own mortgages. It is always the petty personal scandals that get a reaction.

Meanwhile, banking industry influence is never scrutinized enough. Usually, we are expected to figure out what is wrong with statements like one, in the Courant piece, where the president of the American Bankers Association, who personally donated a sizable sum to Dodd, described the senator: “[H]e doesn’t agree with us all the time . . . He’s very pro-consumer . . . ”

Stanford got his regulatory-free branch—one of his most lucrative franchises—despite the vehement objections of the state’s top banking lawyer:

”There was no lawful way that office should have been opened,” said Richard Donelan, the state’s chief banking counsel who opposed the deal.

Donelan said he argued that the Stanford plan violated state law, and that there were concerns about money laundering in the Caribbean and “whether Stanford’s bank was in conformance with the law.”

In this case, and so many other recent instances of financial corruption, the question is not how government regulators fell asleep on the watch, but rather how they aided and abetted fraud. Along these lines, I recommend the work of William K. Black, including his excellent book, The Best Way to Rob a Bank Is to Own One.

Two aspects of the Herald article are worth further consideration:

[1] Guess which law firm brokered the deal for Stanford? Miami-based Greenberg Traurig, of Jack Abramoff fame.

For more on Greenberg Traurig’s history of corruption, click here. And for the firm’s role in South Florida’s real estate crash, click here.

[2] Shortly after Florida Banking Director Art Simon signed off on the Stanford deal, the Conference of State Bank Supervisors (CSBS) renewed the accreditation of the Florida Division of Banking, according to a March 11, 1999 story by Business Wire.

What is CSBS? Quoting the Business Wire article (emphasis added) . . .

CSBS is the national association of state officials responsible for chartering, regulating and supervising the nation’s 6,951 state-chartered commercial and savings banks and 419 state-licensed branches and agencies of foreign banks.

Obviously CSBS bears some responsibility for this failure, and its 1999 accreditation deserves some scrutiny. Was the Stanford deal even mentioned? Even though it rendered the Stanford branch a “foreign trust representative office” (the only one in Florida, according to the Miami Herald) rather than a bank, the Florida Division of Banking was still responsible for monitoring the branch to make sure it followed the guidelines of the deal.

The apparent change of plans is offered to the Times by “a United States official briefed on the matter . . . The move, which would halt an unusually aggressive effort to force Switzerland to lift its veil of banking secrecy, could happen by mid-July.”

And the reason for this? An aggressive lobbying campaign. The Swiss bank’s central claim is that if it discloses client names it would “violate Swiss financial secrecy laws and open its executives and bankers to prosecution in Switzerland.”

That seems highly improbable—more an excuse than a true justification for halting the effort to track wealthy Americans who shirk their responsibility to their fellow citizens. If the US successfully compels these Swiss bank officials to provide information about illegal behavior by US citizens, it is certainly a stretch to imagine those bankers being jailed in their own country for being so compelled.

Crucial context is missing here. One way to understand the stakes is to study the deeper nature of UBS’s relationship with the United States, including a long history of involvement in murky international ventures with all the hallmarks of covert offshore intelligence operations. For more on that, I refer you to material contained in my book, Family of Secrets: the Bush Dynasty, the Powerful Forces that Put It in the White House, and What Their Influence Means for America.

[Editor's Note: This post was also published by The Huffington Post.]

Many hedge funds were relieved last week when the Obama administration’s financial-overhaul plan included no big surprises or threats to the lucrative, secretive industry.

It isn’t clear exactly why hedge funds escaped their worst fears. But one factor might have helped: The hedge-fund industry has been spending a lot more time and money in Washington during the past few years.

In fact, there’s a lot more to it than that. As I note in my book, Family of Secrets, Wall Street has long been the dominant force in shaping the American trajectory, from the selection of presidents to the creation of the Central Intelligence Agency. The Journal’s phrase, “lucrative, secretive industry,” is pregnant with significance. The hedge fund folks are the inner sanctum of the inner sanctum.

The Journal describes a lobbying push by the funds:

In the past, hedge funds usually stayed off the radar screen, often reacting after congressional or regulatory proposals were made. Now they are playing offense, meeting with lawmakers and regulators in hopes of convincing them that hedge funds are important cogs in the financial markets and weren’t responsible for the continuing financial crisis.

Right now, the battle is being met. Iran isn’t the only place where a titanic struggle is occurring—but we can’t see our own because, excepting outfits like the Journal, it isn’t being covered adequately.

Goldman staff in London were briefed on the outlook and told they could look forward to the bonus hikes if the company registers, as predicted, its most profitable year ever, the report said.

The surge in projected profit can be attributed to a lack of competition and increased revenue from trading foreign currency, bonds and fixed-income products, the newspaper said, citing insiders at the firm.

Bonuses have been a point of contention between the Obama administration and Wall Street, which last fall endured a credit crisis that paralyzed the financial markets. The U.S. Treasury responded with the Troubled Asset Relief Program, which made $700 billion in loans available to banks. Goldman Sachs received $10 billion from TARP, which it repaid last week.

In letters to lawmakers last week, Goldman CEO Lloyd Blankfein said the firm is obligated to “ensure that compensation reflects the true performance of the firm and motivates proper behavior.”

What is left unsaid is that the lack of competition that has led to these record profits was engineered by Hank Paulson, former chairman of Goldman Sachs, when he was secretary of the Treasury under George W. Bush. After bailing out AIG, which then channeled billions to Goldman, Paulson then allowed its competitor, Lehman Brothers, to sink, causing a panic on Wall Street.

Speculation about why Paulson left Lehman go under mostly involved the analysis that it was not sound to bail out all the firms in trouble. But now that the bonuses have been announced and the reason for them given, it is clear that Paulson was aiding his old company. That this is going on with Tim Geithner saying nothing about it is a scandal of monumental proportions that is going largely unnoticed in most of the mainstream press.

Were there an effective Congress with a committee to investigate the causes of the financial collapse, such as the commission headed by Ferdinand Pecora in the Thirties, this inaction by Paulson regarding Lehman would raise a red flag. As it is, Lloyd Blankfein, who succeeded Paulson at Goldman, is getting away with this while people are still losing their jobs and their homes in considerable numbers.

[Editor's Postscript: Any piece that manages to peeve former Goldman broker Jim Cramer must be doing something right.]

[T]he Obama plan is little more than an attempt to stick some new regulatory fingers into a very leaky financial dam rather than rebuild the dam itself. Without question, the latter would be more difficult, more contentious and probably more expensive. But it would also have more lasting value. . . .

Many experts, even at the Federal Reserve, think that the country should not allow banks to become too big to fail. Some of them suggest specific economic disincentives to prevent growing too big and requirements that would break them up before reaching that point.

Yet the Obama plan accepts the notion of “too big to fail” — in the plan those institutions are labeled “Tier 1 Financial Holding Companies” — and proposes to regulate them more “robustly.” The idea of creating either market incentives or regulation that would effectively make banking safe and boring — and push risk-taking to institutions that are not too big to fail — isn’t even broached.

Or take . . . the so-called bespoke derivatives — customized, one-of-a-kind products that generated enormous profits for institutions like A.I.G. that created them, and, in the end, generated enormous damage to the financial system. For these derivatives, the Treasury Department merely wants to set up a clearinghouse so that their price and trading activity can be more readily seen. But it doesn’t attempt to diminish the use of these bespoke derivatives.

. . . Everywhere you look in the plan, you see the same thing: additional regulation on the margin, but nothing that amounts to a true overhaul. The new bank supervisor, for instance, is really nothing more than two smaller agencies combined into one. The plans calls for new regulations aimed at the ratings agencies, but offers nothing that would suggest radical revamping.

The plan places enormous trust in the judgment of the Federal Reserve — trust that critics say has not really been borne out by its actions during the Internet and housing bubbles. Firms will have to put up a little more capital, and deal with a little more oversight, but once the financial crisis is over, it will, in all likelihood, be back to business as usual. . . .

The bottom line here, it seems to me, is that Obama is under tremendous pressure from Wall Street interests not to come down too hard on them. Why? The fact that key Wall Street figures were prominent in his political campaign and among his top fundraisers, and that financial interests generated a huge share of his total campaign war chest, is not receiving adequate attention. Nor is the precise process that resulted in his choosing the establishment figures Timothy Geithner and Larry Summers, rather than selecting from the abundant pool of economists with bolder visions and greater independence from the financial powers-that-be. To what extent do the sources of the problem have the president’s ear? I can’t think of a more important journalistic mission than finding out.

As it turns out, Sen. Chris Dodd slipped the necessary language into an FDIC reform bill that was passed the Senate on the day before Thanksgiving, 1991. The 1987 stock market crash and the ongoing savings and loan crisis were fresh on the senators’ minds.

Who gave Dodd and his colleagues the idea? Goldman Sachs and other Wall Street firms requested the insertion, according to the Post. Dodd, of course, has received large donations from Goldman Sachs, Citigroup, the now defunct Bear Stearns, AIG, and the other usual suspects during his long career.

The Wall Street firms, in turn, received their inspiration from their top lawyer—one who counts “virtually all of Wall Street as his client”— H. Rodgin Cohen.

The Post reports:

Rodgin Cohen, a partner at Sullivan & Cromwell, suggested to several of his clients the idea of modifying the 1932 law to allow lending to investment banks, according to people involved in the discussions. Cohen is a legendary figure on Wall Street, building a career as perhaps the preeminent legal adviser on banking mergers, in part through his command of the minutiae of federal regulations. . . .

On March 11, the Fed’s Board of Governors invoked the emergency-powers law for the first time since the Great Depression, allowing firms to swap their securities for Treasurys, preserving their ability to raise money without requiring them to sell the securities at large losses.

The Fed’s biggest concern: Invoking a law that could be used only in a financial crisis might deepen the fear in the markets. The answer: The Fed, in its press release announcing the facility on March 11, didn’t mention where the legal authority came from.

Cohen’s firm, Sullivan & Cromwell, is one of the DNC’s top fundraisers, pouring almost $250,000 into its coffers during the 2008 election cycle.

The Obama administration at one point seriously considered Cohen for deputy treasury secretary under Tim Geithner. Cohen, however, withdrew his nomination when a problem surfaced late in the vetting process. To this day, we don’t know what that issue was.

If Cohen had succeeded in winning the nomination, however, he likely wouldn’t have become an “agent of change.” Cohen boldly stated this month that Wall Street should return to business as usual:

Wall Street, after getting billions of taxpayer dollars, will emerge from the financial crisis looking much the same as before markets collapsed, said H. Rodgin Cohen, chairman of law firm Sullivan & Cromwell LLP.

“The system will look more like what preceded the current environment than many people seem to believe,” Cohen said yesterday at a panel discussion on the future of Wall Street sponsored by Bloomberg News in New York. “I am far from convinced there was something inherently wrong with the system.”

Plus ça change . . .

Paying back TARP money would clearly be seen as a sign of strength,” Douglas Elliott, fellow at Brookings Institute and former investment banker at JPMorgan, told The A.P. ”It would be much easier for a Goldman Sachs to hire someone from another bank if it’s not bound by TARP restrictions.”

Forgotten in all this chatter, as Dean Baker points out in his Guardian op-ed “Waterboard the Fed?”, is the $2 trillion that the Federal Reserve has lent the banks and non-financial institutions under secrecy so strict, not even the Fed’s inspector general knows where the money went and under what terms:

[T]here is no public paper trail for the Fed’s loans, even though it has more than three times as much money outstanding as does the Treasury through the Tarp. The Fed has only provided aggregate information on the amount of loans in each of its various lending programs, and general information on the terms of the loans and the types of collateral received.

However, it is not possible to find out in detail how much money Goldman Sachs borrowed, for example, at what interest rate, and which assets it posted as collateral. The Fed has explicitly refused to make information about specific borrowers public. In fact, the inspector general who has the responsibility for overseeing the Fed told congress that she does not have this information. Apparently the Fed doesn’t even trust its inspector general with information on its lending practices.

When the top banks ballyhoo their repayments of TARP money, will our financial reporters ask them whether they also received money from the Fed and when they expect to pay that back?