The Corporate Observer Blog : Consumer Protection, Corporate Abuse : Class Action Lawyer & Attorney : Steven Berk Law Firm

As if things aren’t bad enough in Washington.  Over the past weeks, the trading profits of members of congress have been regular news fodder. In recent days, the focus has shifted slightly to the profits of Wall Street firms – particularly hedge funds – that profit off of “insider” information gleaned hours ahead of publication from private meetings with powerful members of congressmen. Click here for the Journal’s take on the story and here for another reaction from The Atlantic.

Leveraging off government action to make money has been around since the days of George Washington.  In more recent times, Wall Street banks know that a government announcement on particular policies can drastically and immediately affect stock movement.  And when you can trade rapidly through a high speed modem – that spells “ka-ching”, big money.  One of the latest games takes the form of lunches, meetings, and panel discussions organized by firms who will earn a commission on trades resulting from the information provided at these soirees.

The leading firm is JNK Securities, which most notably organized a meeting between high powered banks and congressmen known to be influential on the healthcare debates of 2009.  In that meeting, the investors were told that a government-run health plan was highly unlikely – an important signal that investments in private insurers like AETNA were good bets. AETNA shares rose 6% in the following days.

Some congressmen defend the meetings as important opportunities to discuss the ramifications of proposed legislation on the business community. They also say the investors point out loopholes or inefficiencies in the laws. (Yeah, right… and is that bridge over in Brooklyn still for sale?)

On the other hand, some law makers like Louise Slaughter, a democrat from New York, are seeking to curb the practice insofar as lawmakers’ information directly results in Wall Street trades.  Ms. Slaughter’s bill is supported by a majority of House members as well as Senator Lieberman. Importantly, the bill would treat banks like lobbyists – requiring them to disclose these types of activities.

Thanks to Senator Lieberman, Representative Slaughter, and all other likeminded congressmen for taking a stand. 

Assisted by Zachary A. Kady

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Richard Cordray has some big shoes to fill.

Is this former 5-time "Jeopardy!" champion ready to follow rock star Elizabeth Warren as the first director of the Consumer Financial Protection Bureau?  Consumers can only wait and hope for the best. 

I could spend my few hundred words lamenting what could have been; indeed, what should have been: the nomination and battle to confirm Elizabeth Warren as director.  But it was not meant to be.  She scared the living daylights out of the banks and financial services industry.  They cried a river to their Republican friends (OK, they paid for those friends) who vowed to defeat her nomination, and they were likely to prevail.  Given the circumstances, I think I would have favored a recess appointment of Professor Warren, but I have faith in the President and his team, and hope they are doing right by the American consumer, the true backbone of our economic system.

We wish Mr. Cordray great success.  First, he must kneel to the loyal opposition to assure his nomination, but assuming he does so with enough sincerity to be confirmed, he must be prepared to be bold and decisive from day one.  Sadly, the momentum for reform and the protection of consumers has long since passed in Washington.  Let’s hope Mr. Cordray can reverse that slide and begin his tenure with strong action and a thoughtful plan for being the consumer’s top cop.

Finally, let’s not say goodbye to Elizabeth Warren as she rides off to her ivory tower.  Instead, au revoire.  Until we see you again, as...  hmmmmm...  Treasury Secretary?  Or Associate Justice of the U.S. Supreme Court?

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President Obama and congressional Republicans made it clear this week that there will be no clarity on the federal budget and long-term national debt.  Such clarity would require an honest presentation of hard choices.  No politician lives for the day of straight talk with the public.

The general outlines of the budget problem are not hard to agree on.  The current high levels of deficit spending were brought on almost entirely by the Great Recession and will decline as (if?) the economy grows.  The real budget crunch lies down the road a few years with exploding entitlement spending—mostly in Medicare and Medicaid.  For a variety of reasons paying for Social Security is not as bleak a problem as the health care entitlements, and is easier to address in the long-term.  Paying for Medicare and Medicaid through the aging of the baby boomers will require painful changes in taxation and benefits.  These are hard truths, which elected Democrats and Republicans in Washington avoid in their own way.

The President delivered a dull State of the Union address chock full of empty platitudes.  We need to educate our children—that’s bold.  We will persevere through tough times because we are great—who doesn’t want to hear that?  It seems as if the President was most intent on countering the criticisms of those tuned-up voices on the right who claim that he doesn’t believe in “American Exceptionalism” or some such nonsense.  We are the best!  How fantastic is that?

Of actual proposals there were few.  A five year freeze on non-defense discretionary spending when Obama had previously proposed a three year freeze—this is not big news.  A few dollars for research and development.  Some talk about reforming corporate taxes and one sentence about eliminating the Bush tax cuts for the top two percent.  That’s about it, and none of this will pass through the Republican Congress.

The Republicans will focus on cuts to discretionary government programs; easy to sell to conservatives, bad for short-term economic growth and entirely beside the point in addressing the major long-term budget concerns.  They will not touch entitlements.

To maintain a pretense of acting boldly, 21 Senate Republicans are proposing a Balance Budget Amendment with a new twist.  Balanced Budget Amendment proposals have circulated around conservative-ville for decades.  This one has a new and entirely predictable feature, i.e. a super-majority requirement for any tax increase.  California has this super-majority requirement for tax increases and it works just great.  The new Republican proposal also caps the yearly budget at an arbitrary 20% of GDP.

Constraining the federal budget to such limitations would be disastrous—hogtying the ability of the federal government to act in the national interest when such action requires extra funds like during the recent financial collapse, or incurring deficits to boost spending and support the social safety net during recessions.  It would tie federal budgeting and spending activity to artificial fiscal years rather than organic economic and fiscal trends and periods.  A Balanced Budget Amendment would be a historic surrender of the fundamental budgeting power granted to Congress in the Constitution and an admission that hard choices are beyond the purview of our current crop of federal elected officials.

Plumping for a balanced budget amendment is also a way to avoid actually doing anything.  Amending the Constitution is a process that takes years, and in this case is unlikely to succeed.  In a larger sense this new proposal represents a continuing Conservative search for an automatic mechanism to compel adherence to what they offer up as fundamental principles—smaller government and fiscal discipline.  Republicans know full well that whenever empowered over the last thirty years to actually put these fundamentals into effect they fail to do so.  In effect these 21 Senators are saying tie our hands so we don’t sin.  The proposed Balance Budget Amendment, and thirty plus years of conservative “Starve the Beast” theory, should be seen in this light, cold turkey straight jackets instead of a responsible twelve-step approach to fiscal sobriety.

Guest post by Jeffrey Goldberg

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Will Republicans, heirs to, and in many cases participants in the Clinton impeachment effort, act to slow economic growth over the next two years?

The last Republican Congress serving under a Democratic President impeached that President for receiving oral favors from a White House intern, so trivial did those impeaching Congressmen hold their obligations to the country, so overwhelming was their desire to destroy a twice elected popular President from the other party. 

Obama is Immune

The new Republican House cannot successfully destroy Barack Obama with crude personal attacks.  The public backlash against the pettiness of the Clinton impeachment helped to bury the Gingrich revolution, and Obama himself appears immune to such attacks.  To the extent that the right has already tried smearing Obama—birther nuttiness, wide-ranging charges that Obama is a socialist Kenyan Muslim anti-colonialist racist—they have failed.  Public opinion polls consistently show that Obama is more popular than any member of the US Congress, Democrat or Republican.

The Economic Outlook

McConnell, Boehner and the Republican leadership know that Obama wins or loses in 2012 based on the strength of the economy.  And they know that the US economy is slowly, frustratingly, but nevertheless steadily improving.  This is their problem.  They will go after ObamaCare as promised, first to repeal, which will fail, and then to attack in portions, try to defund and discredit.  If we suffer a terrorist attack they will blame the President, but the American people understand that the government cannot protect us one hundred percent.  Congressional Republicans will investigate every conceivable act of the Obama administration, just as Democrats have investigated Republican administrations in the past.  But Congressional investigations are yawn-fests.  Hearings will “uncover” depredations that will appall those on the right already appalled by everything Obama while boring and irking everybody else.

As things stand now, and taking a reasonable view of current trends, this time next year we may have an improving economy with unemployment in the high eights and trending downward, no troops in Iraq, and significant numbers of American soldiers leaving Afghanistan.  Americans will start to see real benefits from ObamaCare with the elimination of the Medicare prescription drug doughnut hole, lifetime maximums and preexisting conditions.  None of this is good for Republicans and their prospects for ousting Obama in 2012.

What Action Will the Right Take?

And so it is back to the economy.  Will Republicans, heirs to, and in many cases participants in the Clinton impeachment effort, act to slow economic growth over the next two years?  Their small government mantra comes ready-made with policies that can hurt the economy in the short term: large scale federal spending cuts, denying federal assistance to struggling states, curtailing unemployment benefits, attacking the independence of the Fed, and threatening and/or carrying out a government shut down being among the most obvious.  Republicans can claim that these policies are good for the country in the long term—who really knows?—but it is clear that their short-term impact will be a slower economy and improved Republican prospects in 2012.

Guest Post by Jeffrey Goldberg

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Republicans readily gave up this pretense of fiscal discipline in exchange for the tax cuts for the rich and the lower rate/higher exclusion estate taxes.   Sacrificing their phony call for fiscal responsibility on the altar of tax cuts for the wealthy troubles Republicans not at all.

On Monday President Obama announced a compromise deal with Congressional Republicans over Bush era tax cuts.  Republicans get a two-year extension of all of the Bush tax cuts and a generous recasting of the estate tax.  The President gets thirteen months of extended unemployment benefits, a one-year reduction in payroll tax rates and the extension of other tax breaks and credits originally included in the 2009 stimulus package.

Liberals are not happy.  Many Democrats will not support the deal when it comes to a vote in the House and the Senate.  They expected the President, who promised during the 2008 campaign to let the Bush tax cuts for the top 2% of American earners to expire, to fight Republicans on this issue, not negotiate it away.  There are at least two problems with this position as regards the Bush tax cuts specifically.  First, Democrats refused to fight this fight themselves.  During the past year they talked plenty about letting the tax cuts expire for the wealthiest Americans, but were too craven to put the issue to a vote prior to the mid-term elections.  Secondly, their plan to maintain the Bush rates for everybody but the top tier of taxpayers had no chance of passing in the lame duck Senate.  The only option to compromise was to let the current tax rates expire January 1.  The public would blame the President for their 2011 tax increases and the political price would be his to pay.  This would not be a good thing for Democrats.

Beyond the tax cuts compromise itself, liberals worry that the President will abandon them and move to the right, following the path taken by Bill Clinton after the 1994 midterms, in which Republicans gained their first House majority since the Eisenhower administration.  They want him to wage unremitting political war against Republicans.  That’s not going to happen.  Presidential success requires the genius to pick the right time to fight and the right time to reach out.  To date, Obama has struggled to achieve a convincing balance between political warrior and national leader.  Liberals may be right that the President enjoys the role of Most Reasonable Person in the Room way too much.  He seemed very comfortable in that role during Monday’s brief televised speech announcing the grand compromise.  We will learn a lot about Mr. Obama as a leader over the next twelve months, with both Republicans and Democrats at his throat.

Republicans praised the Presidential compromise.  Prior to the deal, they took the position that every item on the President’s side of the compromise - extension of unemployment benefits, renewing tax credits from the stimulus, and the payroll tax cut - would have to be paid for by equal spending cuts from the federal budget.  Republicans readily gave up this pretense of fiscal discipline in exchange for the tax cuts for the rich and the lower rate/higher exclusion estate taxes.   Sacrificing their phony call for fiscal responsibility on the altar of tax cuts for the wealthy troubles Republicans not at all.  Pleasing their rich and powerful overlords brings Republicans even more joy than saying one thing and doing another.

The tax deal may harm The Mitch McConnell Project to Destroy the Obama Presidency.  In particular, the inclusion of thirteen months of extended unemployment benefits and a one-year cut in payroll taxes will help the working and middle classes and boost the economy, the key to the President’s reelection prospects.  The overall package will add hundreds of billions to the national debt, but why worry?  For Conservatives it is tax cuts now, tax cuts always and tax cuts forever.  Nothing else seems to matter.

Guest post by Jeff Goldberg

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In many ways, the days of Tammany Hall and Boss Tweed are deep in the rear view mirror.  Politics is surely more transparent these days.  There are many more stakeholders to be reckoned with:  unions, non-profits, civil rights organizations and foundations just to name a few.  But thanks in part to the Supreme Court, large corporations  will dominate the game.   And oh are they good at playing the game.  They know where to focus and can contribute directly to the campaigns of congressional members whose job it is to regulate them and their industry.  A conflict of interest to be sure; but it’s legal and just part of the game.

In last Sunday’s editorial, the New York Times detailed the dubious fundraising ethics of certain members of congress. Chief among these ethical offenders are those esteemed members of the Financial Services Committee. These powerful congressmen, just days before votes on a seismic  regulation overhaul, continue to plan and throw together fundraising events for officials of the very corporations they will regulate. Representatives of the financial industries come from all over the country to meet with elected officials, to dine, and to share their two cents – more like millions of cents.  Why now? Because money is flowing and campaigns are ever more expensive. 

The banks and their lobbyists sure know how to play the game.  Public outcry may be loud for now, but memories are short.  Behind the scenes – the lobbyists are getting face time and putting in all those provisions and loop holes that water down high profile legislation.  In the end, we are right back where we started before a financial collapse (of our own making) was days away from igniting a worldwide economic catastrophe. 

Private interests regularly flood congress with money, biased information, and campaign contributions – this is nothing new. But we should have learned something from being on the brink.  Congressional leaders must decline dinner dates with financial heavy-hitters.  It’s time instead to soberly contemplate real reform,  Indeed, what we really need is a sea change in the way we value risk and reward our executives.  Those hard issues cannot be contemplated over gourmet dinners with lobbyists and their clients sipping $250 bottles of wine.  Left unfettered, the banks are winning and Main Street  is destined to lose again.

Assisted by Zachary Kady

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 “Instead of writing Secretary Geithner, what Congressman Sestak really needs to do is use his good offices to propose legislation creating a private right of action to curb TARP abuses.” 

Recently, Representative Joe Sestak (D-Pa) opined on The Hill’s Congress Blog that we need more oversight and transparency for TARP funds.  You think???  Of course we do.  It is the largest federal spending program in a generation.

Back in July, I called attention to this issue, seeking to protect Main Street from being victimized once again.  I want to congratulate Congressman Sestak for seeing the light on this issue.  In a time when it’s easy to doubt Capitol Hill, it is refreshing to see Mr. Sestak focused on protecting Main Street.

Surely one method of protecting Main Street, as Mr. Sestak points out, is enhanced transparency regarding the use of TARP funds.  But transparency – perhaps the most popular word in politics – is hardly going to be enough.

We have a brewing crisis, complaint numbers (each of which requires investigation) are off the charts and incentives are still strong for companies to misuse TARP funds.  As commendable as it is that Mr. Sestak calls attention to this critical issue, his effort will fall short of helping Main Street.  Put bluntly, a single letter to Treasury Secretary Geithner may help with your constituents but it won’t hinder the fraud and abuse lurking in the TARP program. 

Back in July, already thousands of tips were received concerning possible fraud.  The government can’t investigate everyone, but private attorneys can and need the right and incentive to do so. 

Instead of writing Secretary Geithner, what Congressman Sestak really needs to do is use his good offices to propose legislation creating a private right of action to curb TARP abuses.  Give the thousands of hungry, young, talented and committed attorneys in this country a chance to help both themselves and Main Street by zealously pursuing abuses of TARP funds. 

Congressman, we stand ready to help you draft that legislation.  It is time.  You would be doing a great service to the millions of Americans who were forced to shoulder the financial consequences of Wall Street abuse.

Assisted by David Martin and Jessica Begen

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