Why Aren't the Jobless Flocking to Zuccotti Park? - Louis Uchitelle, The Nation Magazine

photo by Isma'il ibn Bilal

Just a week into the Occupy Wall Street protest at Zuccotti Park in Manhattan, Gordon Stevenson, an unemployed aircraft pilot, declared that if only there were such a demonstration near his home in Boston, he would join it. “It would give me a way to focus my anger,” he said.

Well, the opportunity came. The protest, which started September 17, soon spread to other cities, including Boston, where demonstrators occupied Dewey Square, an easy commute from Stevenson’s suburban home. But he stayed away. As a registered Democrat, he was sympathetic but also skeptical that the protesters could harness their discontent to a political agenda, particularly one that zeroed in on unemployment as its chief concern. “I would want to know if there is a significant element down there compatible with what upsets me,” Stevenson said.

What upsets him is that he’s been without a job for two and a half years, and that at age 62, if a commercial pilot’s job at the controls of privately owned jets doesn’t materialize soon, he might never fly professionally again—cutting off his career half a decade short of his intended retirement. And yet rather than protest, he remains at home, getting by on his wife’s salary as the director of a music school (she earns 75 percent of the $100,000 he once earned) and settling into a passivity that is widespread among the nation’s unemployed.

“If I am angry at anything,” Stevenson says, suppressing his anger, “I am angry at the people on the right who have been stating, one after another, that if we reduced taxes, employers would hire. Well, look at the economic data; you see that does not happen.”

More than 25 million people in America are unemployed or stuck in part-time work or parked on the sidelines hoping for jobs, according to the Bureau of Labor Statistics. Roughly 6.2 million are classified as long-term unemployed, which means they have been seeking work for at least six months. Not since the severe recession of the early 1980s has the share of the population wanting jobs or more hours of work been so high. But the numerous rallies and protests that gave vent to the hardships of unemployment in the early ’80s are absent now.

Then, the manufacturing sector went through its first big shakeout since the 1930s, sidelining and shocking hundreds of thousands of workers who had thought their jobs were secure. In a climactic moment, an estimated 260,000 people marched on Washington in September 1981, protesting President Reagan’s mass dismissal of the nation’s air traffic controllers the month before because they had refused to heed his order to end a strike and return to work.

Nearly a generation later, the unemployed think differently. They join self-help and job-search groups, but they don’t see a route to employment through protest or through outspoken demand. Activism has given way to acquiescence, although unemployment is once again stubbornly high in the aftermath of a recession that has left the economy persistently weak.

“It is remarkable how passive the American people are about unemployment,” says Edward Wolff, a labor economist at New York University. He and others blame the passivity in large part on the decline in union clout after the failure of the air traffic controllers’ strike, which undermined the sympathy toward organized labor that had been characteristic of Americans since the ’30s. “People today,” Wolff says, “are more susceptible, as far as getting their emotions aroused, to issues like gay marriage or abortion, that kind of thing.”

Occupy Wall Street—the imagery of thousands of people quixotically occupying a downtown patch of land—has touched the right nerve, putting financial greed on a par with gay marriage and abortion as a public issue, and arousing greater emotion than joblessness. In Zuccotti Park, unemployed demonstrators aren’t hard to find, but they play down that aspect of their discontent. Certainly Tammy Bick does. A regular at the park in the early weeks, she has been out of work since November 2010, when she lost her job as a secretary at an HIV clinic, a position she had held for five years. She disclosed the layoff almost offhandedly during an interview, and made no mention of unemployment—hers or anyone else’s—in the hand-lettered pasteboard sign that she kept strapped across her chest while in the park. It decried Wall Street’s “manipulators.”

“This country is like a broken wheel, and there are a multitude of things that have to be fixed,” says Bick, who is 49. She lives in Hamden, Connecticut, but shifted to a friend’s apartment in Brooklyn to shorten the commute to Zuccotti Park. In mid-October she turned her attention to a smaller sit-in closer to home—at New Haven’s Green. She adds, by way of explaining her priorities, that in addition to the Wall Street “manipulators,” foreclosure is higher on her list of protest targets than unemployment, although the latter often results in the former. She gets by on extended unemployment benefits and help from her fiancé, who is employed. “If I had a job,” Bick insists, “I would have taken vacation time and still gone to the park.”

The passivity toward unemployment that Wolff describes and Stevenson and Bick illustrate might give way, in time, to anger and protest. Occupy Wall Street and its numerous iterations across the country could take on a second life, one that spurs the unemployed to finally speak out forcefully on their own behalf. Already there have been isolated outbursts. But for such incidents to spread and take hold, more confidence is required that speaking out would produce results—and confidence is lacking, says Richard Curtin, director of the Thomson Reuters/University of Michigan Surveys of Consumers, a monthly national poll of 500 people.

“People are discouraged,” Curtin says. “They believe that the administration and Congress tried to do a lot to get the economy restarted and nothing happened. So they are gradually embracing the notion that government is incapable of creating jobs.”

The government has, arguably, invited this response by talking about creating jobs without yet doing so—echoing a similar reluctance in the past. Twice since World War II Congress has watered down bills that would have mandated full employment—once in 1946, although the Depression was still fresh in people’s minds, and again in the mid-’70s, in the midst of a severe recession. The bills became law—the second one, finally enacted in 1978, is famously known as the Humphrey-Hawkins Act—but without the provisions that would have required the government to either hire directly or subsidize hiring whenever the unemployment rate rose above a specified level. The laws, in sum, were toothless.

With the election of Ronald Reagan in 1980 and the rise of supply-side economics, the dynamics shifted drastically. Unemployment was no longer seen as a failure of the nation’s employers to generate enough demand for workers. That was and still is the reason, but it faded as an explanation and as a prod to action. Instead, the unemployed are persistently blamed for their own unemployment, which eases pressure on government to help them. If only they acquired enough education and skill, the argument goes—and it is endlessly repeated—they would be hired. Corporate executives, politicians and many prominent economists push this view, and the unemployed, encouraged to blame themselves, keep silent. Or as Richard Sennett, a New York University sociologist, puts it: “People don’t cooperate with each other. They’ve lost the desire to do so and the skill that cooperation requires, so when things fall apart, they react as if it were their individual failure and are passive about it.”

Income also plays a role, or rather the decline in median family income in this century—the first time that has happened since 1954, according to Census data. “That is just stunning, and a big piece of the puzzle,” says Heather Boushey, a senior economist at the Center for American Progress. “Why aren’t people angry about unemployment? Well, really, why aren’t people angry about declining living standards?”

Unions contribute to the passivity by focusing their energies on the already employed—mainly their members and those they seek to organize, although even here the rise of the two-tier wage in a significant number of new union agreements undercuts the incomes of thousands of new workers. Unions rarely focus on the unemployed or speak for them.

Neither does mainstream economics. “Some elites in the profession have basically popularized the view that high unemployment is one of those things that happens from time to time, and there is nothing we can do about it; it has to run its course,” says Robert D. Atkinson, president of the Information Technology and Innovation Foundation, an organization that decries the decline in manufacturing’s share of the economy and the workforce.

As for the unemployed, extended jobless pay (currently a maximum of fifty-three weeks, in most cases, well beyond the standard twenty-six) helps to relieve the hardship—and to silence the recipients, some of whom fear that the extra monthly checks might be cut off if they speak out. For its part, the Obama administration contributes to the forbearance, partly by holding out hope that the American Jobs Act, now before Congress, will bring relief.

“Obama has done an extraordinary job of dampening the potential unrest,” says Richard Freeman, an Independent and a labor economist at Harvard University, citing the president’s skilled oratory and his somewhat vague jobs proposal. “The unemployed,” Freeman adds, “have been unwilling so far to go against the president, and he is living on that, above the fray.”

Federal disability benefits also contribute to the passivity. They go now to more than 10 million people, a greater portion of the population than in the early ’80s, which means that many people who worked or clamored for work in those earlier hard times, despite their disabilities, now no longer do so, seeking safe harbor instead through disability insurance.

Still others without jobs find ways to make do. A higher percentage of the nation’s young people—25 to 34—are living with parents than in 2007, the last full year before the recession. And more families are sharing a house than in the recent past, shrinking their costs in the absence of jobs and sufficient income.

“What we are really doing is asking Americans to tough it out for the next two or three years,” says Lawrence Mishel, president of the Economic Policy Institute, a labor-oriented think tank. “And that is going to leave a scar on many people long after the jobs come back.”

Janet Veum in Milwaukee considers herself already scarred, along with many of the unemployed people she works with in her position as a recently hired coordinator for Wisconsin Jobs Now, a coalition of community groups. In this new job, Veum, 51, has begun to participate in demonstrations against unemployment—mainly marches and rallies that her organization sponsors. But that’s because protest is a bread-and-butter activity for Wisconsin Jobs Now. Veum went fifteen months without work after losing her last job, as a marketing manager for a paper company. “During all that time,” she says, “it didn’t occur to me to protest or speak out. I was focused on my own job search and didn’t think about the bigger situation.”

Public libraries are one venue that does bring the unemployed together, but in silence and in small numbers. Many companies require job applicants to file their applications electronically, using forms posted on a company website. That is particularly true for low-wage jobs at fast-food chains, shopping mall outlets and supermarkets. For applicants who don’t have computers in their homes—and many don’t—a public library’s computers become a substitute, and on any weekday morning small groups of men and women are seated intently at terminals in libraries across the country.

Franklyn Wylder, 24, was among the handful at the White Plains, New York, public library on a recent morning. He had hurt his knee in a pickup basketball game, an injury that cost him his job climbing ladders to stock shelves in a home furnishings store. With the knee almost healed, he wanted to work again, to help pay his expenses while he attended a local college. Filling out applications, he listed his computer skills and also his recent work as a busboy and grocery store custodian—jobs that paid $7.75 an hour or less. Needing that income, he scrambled to fill out and transmit applications to Walmart, Target and Sears plus a handful of small retailers.

“Protesting unemployment is all well and good,” Wylder says, “but it doesn’t pay the bills and it gets in the way of applying for jobs. You have to put yourself out to potential employers and not waste time.”

Absorbed in making enough to get by while he finishes his course work, Wylder does not yet connect his plight with the larger issue of joblessness in America, or the role government might have to play, even by hiring people, WPA-style, to absorb all those who want—indeed, need—jobs. Once that connection is broadly made, if it ever is, the cry for work at decent wages will certainly reverberate in Zuccotti Park.

Right Response to Unemployment Is Smart Stimulus Spending - John Nichols, The Nation Magazine

photo by Isma'il ibn Bilal

The new unemployment figures are damned disappointing -- from a social, economic and political standpoint.

The official jobless rate rose from 9.5 percent to 9.6 percent in august. That’s a modest increase, but the trajectory is in precisely the wrong direction for a country that fears a double-dip recession – not to mention an Obama White House that fears a big dip in Democratic majorities in the House and Senate after an election that is now just two months away.

The president says that there is "positive news" to be found in the fact that private sector employers created 67,000 new jobs. But that spin is not going to get very far at a point when the country must create twice that many jobs each month just to keep up with growth in the number of Americans who are entering the workforce.

And that does not begin to address the challenges posed by underemployment – Americ ans who have jobs but who can’t get enough hours or sufficient pay to support their families – and the growing number of long-term unemployed Americans who have given up looking for jobs.

An honest assessment of the real unemployment rate – taking in the underemployed and the long-term unemployed – takes the jobless figure closer to 17 percent, according to Department of Labor statistics.

So, while the president may want to concentrate on the “green shoots” of “positive news,” Obama is closer to the mark when he says the recovery that he promised would be robust by now is “not good enough."

Why?

The federal government has spent a lot of money for the purposes of avoiding a Depression and easing a recession. But it has not spent that money well or wisely.

Bailing out big banks, as the federal government continues to do, may help Wall Street. But it does not create jobs on Main Street. In fact, big banks and investors have for many years been more inclined to lend money to companies that promise to move jobs overseas than to create them at home – witness the pattern with regard to manufacturing-sector stocks, which rise in value when CEOs announce the shuttering of U.S. factories and the shifting of jobs overseas.

Bailing out multinational corporations is just as bad a project, as those corporations use the money to move jobs out of the country. Witness the moves made by GM and Chrysler, which took more than $50 billion in bailout money and used it to shut factories in the U.S. and lay off tens of thousands of auto workers and mechanics.

Bailing out the rich doesn’t work either. The so-called economic stimulus plan of 2009 was weighted heavily toward tax policy shifts that helped those Americans who were wealthy enough to worry about the alternative minimum tax. Like the Bush-era tax cuts for the super-rich, these trickle-down approaches are proven losers when it comes to job creation.

The stimulus money that went to job creation – less than half the total – may well have averted significantly higher unemployment. But it was not sufficient to move the numbers in the right direction.

Why? Laura Tyson, the chair of the Council of Economic Advisers and the National Economic Council in the Clinton administration and a member of President Obama’s Economic Recovery Advisory Board, is right when she says that “there is now a substantial gap between the supply of goods and services the economy is capable of producing and the demand for them. This gap is starkly reflected by the 23 million Americans who are looking for full-time jobs and the millions more who have left the labor force because they could not find one.”

What to do?

Tyson makes the case for a smarter and more focused investment in America, arguing that:

Two forms of spending with the biggest and quickest bang for the buck are unemployment benefits and aid to state governments. The federal government should pledge generous financing increases for both programs through 2011.

Federal aid to the states is especially important because they finance education. Although the jobs crisis is primarily a crisis of demand, it also reflects a mismatch between the education of the work force and the education required for jobs in today’s economy. Consider how the unemployment rate varies by education level: it’s more than 14 percent for those without a high school degree, under 10 percent for those with one, only about 5 percent for those with a college degree and even lower for those with advanced degrees. The supply of college graduates is not keeping pace with demand. Therefore, more investment in education could reduce both the cyclical unemployment rate, as more Americans stay in school, and the structural unemployment rate, as they graduate into the job market.

An increase in government investment in roads, airports and other kinds of public infrastructure would be cost-effective, too, as measured by the number of jobs created per dollar of spending. And it would help reduce the road congestion, airport delays and freight bottlenecks that reduce productivity and make the United States a less attractive place to do business. The American Society of Civil Engineers has identified more than $2.2 trillion in public infrastructure needs nationwide, and a 2008 study by the Congressional Budget Office found that, on strict cost-benefit grounds, it would make sense to increase annual spending on transportation projects alone by 74 percent.

Over the next five years, the federal government should work with state and local governments and the private sector to finance $1 trillion worth of additional investment in infrastructure. It should extend the Build America Bonds stimulus program, which in the past year has helped states finance $120 billion in infrastructure improvement.  

There is no reasonable argument against investing in infrastructure projects that actually put Americans back to work and that move money into local economies. Indeed, as Tyson notes, “Under (the current) circumstances, the economic case for additional government spending and tax relief is compelling.”

“ Sadly,” she adds in a recent New York Times op-ed, “polls indicate that the political case is not.”

That’s where leadership comes in.

President Obama has indicated that he will propose new stimulus measures next week. That's good news.

But the president has pulled his punches in the past. He needs to do a lot more than advance cautious proposals. He must get in front of the debate and start talking about the benefits that come from investing in American job growth -- as opposed to mumbling while the right screams about "big government."

And congressional Democrats are going to need some prodding.

Local officials around the country are must speak up, especially those who are on the frontlines in cities, counties and states where smart federal investments can be put to immediate use.

Madison, Wisconsin, Mayor Dave Cieslewicz, the organizer and key player in the national New Cities Project, has  the right response for those who argue against additional stimulus spending on the “grounds” that it puts the nation deeper in debt.

“There is an estimated $2.2 trillion in deferred infrastructure maintenance left to do in America.,” says Cieslewicz. “So, let's keep putting America to work. After all, tackling all that infrastructure need isn't putting us in debt at all. It's simply catching up on work that would need to be done anyway in the future. We're not putting our children deeper in debt; we're making investments now so they won't have to later on.”

Lenore Palladino, MoveOn.org Civic Action

photo by Isma'il ibn Bilal

They just don't get it. Ordinary people are rising up and demanding that our country work for the 99%, but Congress is still acting like nothing has changed.

In less than two weeks, the Super Committee will unveil their deficit reduction plan. And instead of focusing on creating jobs and making the rich pay their fair share, all indications are that Congress will once again protect the 1% at the expense of the 99%—unleashing up to $1.2 trillion in vicious, job-killing cuts that could hit Medicare, Social Security, and other programs the middle class relies on.

We've got just 12 days left to stop them—and our only chance is massive, coordinated action to let them know we will not stand for more of the same disastrous policies.

So we're joining with Occupy Wall Street, and progressive allies like SEIU, AFL-CIO, and many more for a "We Are the 99%" day of action on November 17. Together, we'll demand that Congress and the Super Committee tax Wall Street to create millions of jobs and rebuild our economy for the 99%. But if we're going to stop this terrible deal, these events need to be big—really big. Can you join us?

I'll stand up for the 99% on November 17 in Trenton.

I can't make this event, but keep me up-to-date on the campaign.

Democrats on the Super Committee have already offered $500 billion in cuts to Medicare and Medicaid, even though Republicans still refuse to raise taxes on the wealthy.¹ And any deal that the Super Committee reaches will be incredibly dangerous. Part of the debt ceiling deal this summer was that the Super Committee's report would get a straight up-or-down vote in both houses of Congress immediately—making it very hard to stop once the train has left the station.

Our plan for November 17 is to hold events at the very places where Congress could be creating jobs to get Americans back to work: crumbling bridges, understaffed schools, and other examples of critical infrastructure in disrepair. We need to remind Congress—and our fellow community members—that there's plenty of work that needs doing in America, if only Washington would focus on the right things. And we need to show Congress how huge the backlash will be if they push through yet another disastrous deal.

Can you join us in Trenton to stand up for the 99%?

I'll stand up for the 99% on November 17 in Trenton.

I can't make this event, but keep me up-to-date on the campaign.

Thanks for all you do.

–Lenore, Joan, Ryan, Wes, and the rest of the team

Source:

1. "Dems, GOP Play Super Committee Hot Potato As Talks Stall Over Taxes," Talking Points Memo, November 10, 2011
http://www.moveon.org/r?r=267546&id=32795-18989774-De5DLBx&t=6

Housing Policy’s Third Rail By Gretchen Morgenson, Published: August 7, 2010, New York Times

WHILE Congress toiled on the financial overhaul last spring, precious little was said about Fannie Mae and Freddie Mac, the mortgage finance companies that collapsed spectacularly two years ago. Indeed, these wards of the state got just two mentions in the 1,500-page law known as Dodd-Frank: first, when it ordered the Treasury to produce a study on ending the taxpayer-owned status of the companies and, second, in a “sense of the Congress” passage stating that efforts to improve the nation’s mortgage credit system “would be incomplete without enactment of meaningful structural reforms” of Fannie and Freddie.

No kidding.

With midterm elections near, though, there will be talk aplenty about dealing with the companies precisely because Dodd-Frank didn’t address them. Unfortunately, if past is prologue, this talk is likely to be more political than practical.

Fannie and Freddie amplified the housing boom by buying mortgages from lenders, allowing them to originate even more loans. They grew into behemoths because they lobbied aggressively and played the Washington political game to a T. But after both companies bought boatloads of risky mortgages, they required a federal rescue.

The Treasury’s study on Fannie, Freddie and housing finance must be delivered to Congress by the end of January 2011. In a speech last week, Timothy F. Geithner, the Treasury secretary, told a New York audience that resolving the companies isn’t “rocket science.”

But attaining genuine remedies for our housing finance system could actually be harder than rocket science. That’s because it would require an honest dialogue about the role the federal government should play in housing. It also requires a candid conversation about whether promoting homeownership through tax policy and other federal efforts remains a good idea, given the economic disaster we’ve just lived through.

Alas, honest dialogues on third-rail topics like housing have proved to be a bridge too far for many in Washington. So, what we may hear instead about Fannie and Freddie before the elections is a lot of sound and fury signifying a stealthy return to the status quo.

This would be unfortunate, not only because the financial crisis presents a rare opportunity to reassess the supposed benefits of homeownership but also because there was a lot not to like about the way these companies operated and the ways their friends in Congress enabled that behavior.

Outwardly, Fannie and Freddie wrapped themselves in the American flag and the dream of homeownership. But internally, they were relentless in their pursuit of profits from partners in the mortgage boom. One of their biggest and most steadfast collaborators was Countrywide, the subprime lending machine run by Angelo R. Mozilo.

Countrywide was the biggest supplier of loans to Fannie during the mania; in 2004, it sold 26 percent of the loans Fannie bought. Three years later, it was selling 28 percent. What Countrywide got out of the relationship was clear — a buyer for its dubious loans. Now the taxpayer is on the hook for those losses.

But what was in it for Fannie?

An internal Fannie document from 2004 obtained by The New York Times sheds light on this question. A “Customer Engagement Plan” for Countrywide, it shows how assiduously Fannie pursued Mr. Mozilo and 14 of his lieutenants to make sure the company continued to shovel loans its way.

Nine bullet points fall under the heading “Fannie Mae’s Top Strategic Business Objectives With Lender.” The first: “Deepen relationship at all levels throughout CHL and Fannie Mae to foster alignment and collaboration between our companies at every opportunity.” (CHL refers to Countrywide Home Loans.) No. 2: “Create barriers to exit partnership.” Next: “Disciplined Risk/Servicing Management” and “Achieve Fannie Mae Profitability Goals.”

(Later in 2004, by the way, the Securities and Exchange Commission found that Fannie had used improper accounting and ordered it to restate its earnings for the previous four years. Some $6.3 billion in profit was wiped out.)

The engagement plan also recommends ways that Fannie executives should mingle with Countrywide’s top management, because “fostering more direct senior level engagements with key influencers throughout their organization will be beneficial in ensuring strategic alignment and building organizational loyalty.”

RECOMMENDATIONS included conferring with Mr. Mozilo at Habitat for Humanity golf tournaments and Mortgage Bankers Association conventions. Franklin D. Raines, then Fannie’s C.E.O., and Daniel H. Mudd, then its chief operating officer, were advised to see Mr. Mozilo twice a year. “We will be successful when Angelo influences the industry or his organization on our behalf,” the document says. Mr. Raines didn’t respond to e-mails requesting comment last Friday; he left Fannie in December 2004.

The memo advised pursuing other Countrywide executives: “Deep Rapport” should be the goal with David E. Sambol, the lender’s president, but because he did not “heavily attend outside events” Fannie executives should “look for opportunities for meetings” at Countrywide headquarters.

“We will be successful if we can foster ongoing communication channels that allow us to understand and leverage Sambol’s priorities and demonstrate our commitment to making him successful,” the memo stated. Mr. Sambol and Mr. Mozilo could not be reached for comment.

For his part, Mr. Mudd, now the chief executive of the Fortress Investment Group, said Fannie’s courting of Countrywide was not unusual. “We tried to build a program that was based on having multiple strong relationships with our main customers,” he said. “You want to be sure that the first call is not the last call, that a customer is not doing business with you anymore.”

But Representative Darrell Issa, a California Republican and ranking member on the House Committee on Oversight and Government Reform, says he has concerns about such mating dances.

“Lost in the debate over how best to legislate the aftermath of the financial crisis has been the necessity to conduct an inward examination of the too-cozy relationship between government enterprises and private industry,” Mr. Issa said. “The true nature of this strategic partnership between Countrywide and Fannie-Freddie should be exposed so we can measure the extent to which it fostered the conditions leading to the financial meltdown.”

Understanding how these companies operated is crucial if we want to avoid repeating the mistakes of our recent past. So, when you hear about Fannie and Freddie reform this fall, remember that we still don’t know the half of it.

Photo by Isma'il ibn Bilal

The Role of Government and the Private Sector in Mortgage Finance: Market Shares - Noel Fahey

Market Shares of the Last Eighty Years

There is much discussion today about the size of the government’s role in the mortgage market. At first glance, the data plotted in Exhibit 1 support the impression that the government is playing a far larger role in the market than it had done historically. The parts of the chart shaded in green represent government agencies and the Government Sponsored Enterprises (GSEs), which we can collectively call the agency sector. The blue represents the private sector (with “PLS” standing for private-label securities, representing what many would think as Wall Street’s involvement).

Exhibit 1: Market Shares of Residential Mortgages 1925-2010: By Nominal Holder¹

At the end of 2010, the total stock of single-family mortgages outstanding was $10.5 trillion. The agency sector either held or guaranteed a total of $5.8 trillion, 55 percent of the total. Put in the historical context shown in Exhibit 1, it looks like the footprint of the agency sector reached a level in the last 20 years that is historically unprecedented.

Exhibit 1 is the “official scorecard” (as reflected in the Federal Reserve’s Flow of Funds Accounts, for instance). It is not wrong – data can be interpreted in different ways. However, I believe it paints an incomplete picture of the mortgage market – because of the way FHA and VA loans are counted, this chart downplays the government’s centrality in the mortgage market since the 1930s.

FHA and VA loans are explicitly backstopped by the government. Consequently, I think they should be counted as government-backed loans when determining government versus private-sector market shares. Instead, they are counted as holdings of the nominal owner, be it a bank, thrift, GSE, or other entity. To the extent that they are held by banks and thrifts, for instance, they are counted as private-sector rather than government-backed loans.

Exhibit 2 presents the data taking this credit exposure into account. FHA/VA loans held by the GSEs are taken out of the GSE book and reassigned to FHA/VA. Similarly, FHA/VA loans owned by banks, thrifts, and insurance companies are moved from their portfolios to FHA/VA. This reassignment based on credit exposure presents a different landscape. It shows that government has had a major involvement in mortgage finance dating back to the 1930s.

Exhibit 2: Market Shares of Residential Mortgages 1925-2010: By Holders of Credit Risk

Exhibit 2 is rich in detail – to the extent that it makes it difficult to see the deeper trends. The next two exhibits summarize the data in order to draw out what are some of the underlying patterns.

The Agency-Sector Share

Exhibit 3 isolates the boundary between the green and the blue areas of Exhibit 2. It shows the total government and GSE share of single-family mortgages. At the end of 2010, the share was 55 percent. This was exactly the same share as in 2001, before the turmoil of the housing bubble and the subsequent housing market decline.

Exhibit 3: Market Share of Government and GSEs as Holders of The Credit Risk of Single-Family Mortgages 1930-2010

What I believe is even more surprising is that the 2010 agency market share was not that much higher than it had been over half a century earlier, in 1956 – 55 percent now versus 45 percent then. This was in the middle of the Eisenhower administration, remembered by many as an era of minimalist government (though it coincided with the Federal Aid Highway Act of 1956 that funded the interstate highway system). The situation in 1956 represented the culmination of the government’s massive response to the two big upheavals of the 20th century – dealing with the Great Depression and housing returning GIs and their families after World War II.

The Private-Sector Share

Exhibit 4 is the mirror image of Exhibit 3. It isolates the market share of the private sector. To me, what stands out in this chart is the close correlation between the private-sector market share and financial crises:

Exhibit 4: Market Share of Private Sector as Holders of The Credit Risk of Single-Family Mortgages 1930-2010

1. Leading up to the Great Depression, the private sector was 100 percent of the market. During the 1930s, the government unsuccessfully tried to get private lenders to alleviate homeowner distress. Getting little response, the Roosevelt administration created public bodies such as the Homeowners Loan Corporation (HOLC), FHA, and Fannie Mae to deal with the crisis.²
2.  In 1979, the role of savings and loan associations in housing finance reached its apex. When the Federal Reserve raised short-term interest rates to unprecedented levels in October 1979,³ the danger of using short-term deposits to fund long-term fixed-rate mortgages became apparent.⁴ A decade of turmoil in the industry followed, costing almost half a trillion dollars (with more than $400 billion on the taxpayers’ tab).⁵
3. The third episode occurred in the second half of the 2000s. Both FHA/VA and the GSEs lost market share to burgeoning Wall Street conduits.⁶

In summary, the government has played a large role in the housing market dating back to the Great Depression. During those 80 years, its role has expanded and contracted with ramp-ups coming in response to downturns in the housing market followed by a declining share of the market in more expansionary times.

Noel Fahey
Director, Economics and Strategic Research

¹Sources: Federal Reserve Board, Flow of Funds Accounts; Leo Grebler, David Blank and Louis Winnick, Capital Formation in Residential Real Estate, 1956; Saul Klaman, Volume of Mortgage Debt in the Postwar Decade, 1958; Saul Klaman, The Postwar Rise of Mortgage Companies, 1959; Historical Statistics of the United States, Millennium Edition; Federal Housing Finance Agency 2010 Annual Report to Congress; Fannie Mae; Freddie Mac; U.S. League of Savings Institutions, Savings and Loan Fact Book, Various.   ²See: Jesse Jones, Fifty Billion Dollars, My Thirteen Years with the RTC, 1951, page 151; Gertrude S. Fish, The Story of Housing, 1979, page 207.³See, for instance: http://www.crestmontresearch.com/docs/i-rate-relationship.pdf; http://www.wsjprimerate.us/wall_street_journal_prime_rate_history.htm⁴See: L. William Seidman, Full Faith and Credit, 2000, page 177; FDIC, History of the 1980s, 1997, Volume 1, pages 168-9.⁵See: General Accountability Office, Financial Audit: Resolution Trust Corporation’s 1995 and 1994 Financial Statements, Tables 1 and 4, GAO/AIMD-96-123, July 1996 athttp://www.gao.gov/archive/1996/ai96123.pdf.  ⁶See, for instance: Financial Crisis Inquiry Commission Report, Figure 5.1, page 69 at http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf; Paul Krugman, New York Times, June 3, 2010, Tables 4 and 5, at http://krugman.blogs.nytimes.com/2010/06/03/things-everyone-in-chicago-knows/; Paul Moulo and Matthew Padilla, Chain of Blame, page 281.

November 2, 2011

BRIEF SUMMARY OF THE DODD-FRANK WALL STREET, which I heard EVERY CANDIDATE at the GOP Presidential Debate say they wanted to REPEAL!! WHY???

Create a Sound Economic Foundation to Grow Jobs, Protect Consumers, Rein in Wall Street and Big Bonuses, End Bailouts and Too Big to Fail, Prevent Another Financial Crisis 

Years without accountability for Wall Street and big banks brought us the worst financial crisis since the Great Depression, the loss of 8 million jobs, failed businesses, a drop in housing prices, and wiped out personal savings. 

The failures that led to this crisis require bold action. We must restore responsibility and accountability in our financial system to give Americans confidence that there is a system in place that works for and protects them. We must create a sound foundation to grow the economy and create jobs.

HIGHLIGHTS OF THE LEGISLATION

Consumer Protections with Authority and Independence: Creates a new independent watchdog, housed at the Federal Reserve, with the authority to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, and protect them from hidden fees, abusive terms, and deceptive practices.

Ends Too Big to Fail Bailouts: Ends the possibility that taxpayers will be asked to write a check to bail out financial firms that threaten the economy by: creating a safe way to liquidate failed financial firms; imposing tough new capital and leverage requirements that make it undesirable to get too big; updating the Fed’s authority to allow system-wide support but no longer prop up individual firms; and establishing rigorous standards and supervision to protect the economy and American consumers, investors and businesses.

Advance Warning System: Creates a council to identify and address systemic risks posed by large, complex companies, products, and activities before they threaten the stability of the economy.

Transparency & Accountability for Exotic Instruments: Eliminates loopholes that allow risky and abusive practices to go on unnoticed and unregulated -- including loopholes for over-the-counter derivatives, asset- backed securities, hedge funds, mortgage brokers and payday lenders.

Executive Compensation and Corporate Governance: Provides shareholders with a say on pay and corporate affairs with a non-binding vote on executive compensation and golden parachutes.

Protects Investors: Provides tough new rules for transparency and accountability for credit rating agencies to protect investors and businesses.

Enforces Regulations on the Books: Strengthens oversight and empowers regulators to aggressively pursue financial fraud, conflicts of interest and manipulation of the system that benefits special interests at the expense of American families and businesses.

STRONG CONSUMER FINANCIAL PROTECTION WATCHDOG

The Consumer Financial Protection Bureau 

 Independent Head: Led by an independent director appointed by the 

President and confirmed by the Senate.

  Independent Budget: Dedicated budget paid by the Federal Reserve

system. 

 Independent Rule Writing: Able to autonomously write rules for

consumer protections governing all financial institutions – banks and non-

banks – offering consumer financial services or products.

  Examination and Enforcement: Authority to examine and enforce 

regulations for banks and credit unions with assets of over $10 billion and all mortgage-related businesses (lenders, servicers, mortgage brokers, and foreclosure scam operators), payday lenders, and student lenders as well as other non-bank financial companies that are large, such as debt collectors and consumer reporting agencies. Banks and Credit Unions with assets of $10 billion or less will be examined for consumer complaints by the appropriate regulator.

 Consumer Protections: Consolidates and strengthens consumer protection responsibilities currently handled by the Office of the Comptroller of the 

Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation, Federal Reserve, National Credit Union Administration, the Department of Housing and Urban Development, and Federal Trade Commission. Will also oversee the enforcement of federal laws intended to ensure the fair, equitable and nondiscriminatory access to credit for individuals and communities.

 Able to Act Fast: With this Bureau on the lookout for bad deals and schemes, consumers won’t have to wait for Congress to pass a law to be protected from bad business practices.

 Educates: Creates a new Office of Financial Literacy. 

 Consumer Hotline: Creates a national consumer complaint hotline so

consumers will have, for the first time, a single toll-free number to report

problems with financial products and services.

  Accountability: Makes one office accountable for consumer protections. 

With many agencies sharing responsibility, it’s hard to know who is responsible for what, and easy for emerging problems that haven’t historically fallen under anyone’s purview, to fall through the cracks.

 Works with Bank Regulators: Coordinates with other regulators when examining banks to prevent undue regulatory burden. Consults with regulators before a proposal is issued and regulators could appeal regulations they believe would put the safety and soundness of the banking system or the stability of the financial system at risk.

 Clearly Defined Oversight: Protects small business from unintentionally being regulated by the CFPB, excluding businesses that meet certain standards.

LOOKING OUT FOR THE NEXT BIG PROBLEM: ADDRESSING SYSTEMIC RISKS

The Financial Stability Oversight Council  Expert Members: Made up of 10 federal financial regulators and an

independent member and 5 nonvoting members, the Financial Stability Oversight Council will be charged with identifying and responding to emerging risks throughout the financial system. The Council will be chaired by the Treasury Secretary and include the Federal Reserve Board, SEC, CFTC, OCC, FDIC, FHFA, NCUA, the new Consumer Financial Protection Bureau, and an independent appointee with insurance

expertise. The 5 nonvoting members include OFR, FIO, and state banking,

insurance, and securities regulators.

  Tough to Get Too Big: Makes recommendations to the Federal Reserve for

increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity, with significant requirements on companies that pose risks to the financial system.

 Regulates Nonbank Financial Companies: Authorized to require, with a 2/3 vote and vote of the chair, that a nonbank financial company be regulated by the Federal Reserve if the council believe there would be negative effects on the financial system if the company failed or its activities would pose a risk to the financial stability of the US.

 Break Up Large, Complex Companies: Able to approve, with a 2/3 vote and vote of the chair, a Federal Reserve decision to require a large, complex company, to divest some of its holdings if it poses a grave threat to the financial stability of the United States – but only as a last resort.

 Technical Expertise: Creates a new Office of Financial Research within Treasury to be staffed with a highly sophisticated staff of economists, accountants, lawyers, former supervisors, and other specialists to support the council’s work by collecting financial data and conducting economic analysis.

 Make Risks Transparent: Through the Office of Financial Research and member agencies the council will collect and analyze data to identify and monitor emerging risks to the economy and make this information public in periodic reports and testimony to Congress every year.

 No Evasion: Large bank holding companies that have received TARP funds will not be able to avoid Federal Reserve supervision by simply dropping their banks. (the “Hotel California” provision)

 Capital Standards: Establishes a floor for capital that cannot be lower than the standards in effect today and authorizes the Council to impose a 15-1 leverage requirement at a company if necessary to mitigate a grave threat to the financial system.

ENDING TOO BIG TO FAIL BAILOUTS

Limiting Large, Complex Financial Companies and Preventing Future Bailouts

 No Taxpayer Funded Bailouts: Clearly states taxpayers will not be on the hook to save a failing financial company or to cover the cost of its liquidation.

 Discourage Excessive Growth & Complexity: The Financial Stability Oversight Council will monitor systemic risk and make recommendations to the Federal Reserve for increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity, with significant requirements on companies that pose risks to the financial system.

 Volcker Rule: Requires regulators implement regulations for banks, their affiliates and holding companies, to prohibit proprietary trading, investment in and sponsorship of hedge funds and private equity funds, and to limit relationships with hedge funds and private equity funds. Nonbank financial institutions supervised by the Fed also have restrictions on proprietary trading and hedge fund and private equity investments. The Council will study and make recommendations on implementation to aid regulators.

 Extends Regulation: The Council will have the ability to require nonbank financial companies that pose a risk to the financial stability of the United States to submit to supervision by the Federal Reserve.

 Payment, clearing, and settlement regulation. Provides a specific framework for promoting uniform risk-management standards for systemically important financial market utilities and systemically important payment, clearing, and settlement activities conducted by financial institutions.

 Funeral Plans: Requires large, complex financial companies to periodically submit plans for their rapid and orderly shutdown should the company go under. Companies will be hit with higher capital requirements and restrictions on growth and activity, as well as divestment, if they fail to submit acceptable plans. Plans will help regulators understand the structure of the companies they oversee and serve as a roadmap for shutting them down if the company fails. Significant costs for failing to produce a credible plan create incentives for firms to rationalize structures or operations that cannot be unwound easily.

 Liquidation: Creates an orderly liquidation mechanism for FDIC to unwind failing systemically significant financial companies. Shareholders 

and unsecured creditors bear losses and management and culpable

directors will be removed.

  Liquidation Procedure: Requires that Treasury, FDIC and the Federal

Reserve all agree to put a company into the orderly liquidation process to mitigate serious adverse effects on financial stability, with an up front judicial review.

 Costs to Financial Firms, Not Taxpayers: Taxpayers will bear no cost for liquidating large, interconnected financial companies. FDIC can borrow only the amount of funds to liquidate a company that it expects to be repaid from the assets of the company being liquidated. The government will be first in line for repayment. Funds not repaid from the sale of the company’s assets will be repaid first through the claw back of any payments to creditors that exceeded liquidation value and then assessments on large financial companies, with the riskiest paying more based on considerations included in a risk matrix

 Federal Reserve Emergency Lending: Significantly alters the Federal Reserve’s 13(3) emergency lending authority to prohibit bailing out an individual company. Secretary of the Treasury must approve any lending program, and such programs must be broad based and not aid a failing financial company. Collateral must be sufficient to protect taxpayers from losses.

 Bankruptcy: Most large financial companies that fail are expected to be resolved through the bankruptcy process.

 Limits on Debt Guarantees: To prevent bank runs, the FDIC can guarantee debt of solvent insured banks, but only after meeting serious requirements: 2/3 majority of the Board and the FDIC board must determine there is a threat to financial stability; the Treasury Secretary approves terms and conditions and sets a cap on overall guarantee amounts; the President activates an expedited process for Congressional approval.

REFORMING THE FEDERAL RESERVE

 Federal Reserve Emergency Lending: Limits the Federal Reserve’s 13(3) emergency lending authority by prohibiting emergency lending to an individual entity. Secretary of the Treasury must approve any lending program, programs must be broad based, and loans cannot be made to

insolvent firms. Collateral must be sufficient to protect taxpayers from

losses.

  Audit of the Federal Reserve: GAO will conduct a one-time audit of all

Federal Reserve 13(3) emergency lending that took place during the financial crisis. Details on all lending will be published on the Federal Reserve website by December 1, 2010. In the future GAO will have on- going authority to audit 13(3), emergency lending , and discount window lending, and open market transactions.

 Transparency - Disclosure: Requires the Federal Reserve to disclose counterparties and information about amounts, terms and conditions of 13(3) emergency lending and discount window lending, and open market transactions on an on-going basis, with specified time delays.

 Supervisory Accountability: Creates a Vice Chairman for Supervision, a member of the Board of Governors of the Federal Reserve designated by the President, who will develop policy recommendations regarding supervision and regulation for the Board, and will report to Congress semi-annually on Board supervision and regulation efforts.

 Federal Reserve Bank Governance: GAO will conduct a study of the current system for appointing Federal Reserve Bank directors, to examine whether the current system effectively represents the public, and whether there are actual or potential conflicts of interest. It will also examine the establishment and operation of emergency lending facilities during the crisis and the Federal Reserve banks involved therein. The GAO will identify measures that would improve reserve bank governance.

 Election of Federal Reserve Bank Presidents: Presidents of the Federal Reserve Banks will be elected by class B directors - elected by district member banks to represent the public - and class C directors - appointed by the Board of Governors to represent the public. Class A directors - elected by member banks to represent member banks – will no longer vote for presidents of the Federal Reserve Banks.

 Limits on Debt Guarantees: To prevent bank runs, the FDIC can guarantee debt of solvent insured banks, but only after meeting serious requirements: 2/3 majority of the Federal Reserve Board and the FDIC board determine there is a threat to financial stability; the Treasury Secretary approves terms and conditions and sets a cap on overall guarantee amounts; the President initiates an expedited process for Congressional approval.

CREATING TRANSPARENCY AND ACCOUNTABILITY FOR DERIVATIVES

Bringing Transparency and Accountability to the Derivatives Market 

 Closes Regulatory Gaps: Provides the SEC and CFTC with authority to regulate over-the-counter derivatives so that irresponsible practices and

excessive risk-taking can no longer escape regulatory oversight.

  Central Clearing and Exchange Trading: Requires central clearing and exchange trading for derivatives that can be cleared and provides a role

for both regulators and clearing houses to determine which contracts

should be cleared. 

 Market Transparency: Requires data collection and publication

through clearing houses or swap repositories to improve market transparency and provide regulators important tools for monitoring and responding to risks.

 Financial safeguards: Adds safeguards to system by ensuring dealers and major swap participants have adequate financial resources to meet responsibilities. Provides regulators the authority to impose capital and margin requirements on swap dealers and major swap participants, not end users.

 Higher standard of conduct: Establishes a code of conduct for all registered swap dealers and major swap participants when advising a swap entity. When acting as counterparties to a pension fund, endowment fund, or state or local government, dealers are to have a reasonable basis to believe that the fund or governmental entity has an independent representative advising them.

NEW OFFICES OF MINORITY AND WOMEN INCLUSION

 At federal banking and securities regulatory agencies, the bill establishes an Office of Minority and Women Inclusion that will, among other things, address employment and contracting diversity matters. The offices will coordinate technical assistance to minority-owned and women-owned businesses and seek diversity in the workforce of the regulators.

MORTGAGE REFORM

 Require Lenders Ensure a Borrower's Ability to Repay: Establishes a simple federal standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold.

 Prohibit Unfair Lending Practices: Prohibits the financial incentives for subprime loans that encourage lenders to steer borrowers into more costly loans, including the bonuses known as "yield spread premiums" that lenders pay to brokers to inflate the cost of loans. Prohibits pre-payment penalties that trapped so many borrowers into unaffordable loans.

 Establishes Penalties for Irresponsible Lending: Lenders and mortgage brokers who don’t comply with new standards will be held accountable by consumers for as high as three-years of interest payments and damages plus attorney’s fees (if any). Protects borrowers against foreclosure for violations of these standards.

 Expands Consumer Protections for High-Cost Mortgages: Expands the protections available under federal rules on high-cost loans -- lowering the interest rate and the points and fee triggers that define high cost loans.

 Requires Additional Disclosures for Consumers on Mortgages: Lenders must disclose the maximum a consumer could pay on a variable rate mortgage, with a warning that payments will vary based on interest rate changes.

 Housing Counseling: Establishes an Office of Housing Counseling within HUD to boost homeownership and rental housing counseling.

HEDGE FUNDS

Raising Standards and Regulating Hedge Funds

  Fills Regulatory Gaps: Ends the “shadow” financial system by requiring

hedge funds and private equity advisors to register with the SEC as investment advisers and provide information about their trades and portfolios necessary to assess systemic risk. This data will be shared with the systemic risk regulator and the SEC will report to Congress annually on how it uses this data to protect investors and market integrity.

 Greater State Supervision: Raises the assets threshold for federal regulation of investment advisers from $30 million to $100 million, a move expected to significantly increase the number of advisors under state supervision. States have proven to be strong regulators in this area and

subjecting more entities to state supervision will allow the SEC to focus its resources on newly registered hedge funds.

CREDIT RATING AGENCIES

New Requirements and Oversight of Credit Rating Agencies

  New Office, New Focus at SEC: Creates an Office of Credit Ratings at the

SEC with expertise and its own compliance staff and the authority to fine agencies. The SEC is required to examine Nationally Recognized Statistical Ratings Organizations at least once a year and make key findings public.

 Disclosure: Requires Nationally Recognized Statistical Ratings Organizations to disclose their methodologies, their use of third parties for due diligence efforts, and their ratings track record.

 Independent Information: Requires agencies to consider information in their ratings that comes to their attention from a source other than the organizations being rated if they find it credible.

 Conflicts of Interest: Prohibits compliance officers from working on ratings, methodologies, or sales; installs a new requirement for NRSROs to conduct a one-year look-back review when an NRSRO employee goes to work for an obligor or underwriter of a security or money market instrument subject to a rating by that NRSRO; and mandates that a report to the SEC when certain employees of the NRSRO go to work for an entity that the NRSRO has rated in the previous twelve months.

 Liability: Investors can bring private rights of action against ratings agencies for a knowing or reckless failure to conduct a reasonable investigation of the facts or to obtain analysis from an independent source. NRSROs will now be subject to “expert liability” with the nullification of Rule 436(g) which provides an exemption for credit ratings provided by NRSROs from being considered a part of the registration statement.

 Right to Deregister: Gives the SEC the authority to deregister an agency for providing bad ratings over time.

 Education: Requires ratings analysts to pass qualifying exams and have continuing education.

 Eliminates Many Statutory and Regulatory Requirements to Use NRSRO Ratings: Reduces over-reliance on ratings and encourages investors to conduct their own analysis.

 Independent Boards: Requires at least half the members of NRSRO boards to be independent, with no financial stake in credit ratings.

 Ends Shopping for Ratings: The SEC shall create a new mechanism to prevent issuers of asset backed-securities from picking the agency they think will give the highest rating, after conducting a study and after submission of the report to Congress.

EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE

Gives Shareholders a Say on Pay and Creating Greater Accountability

 Vote on Executive Pay and Golden Parachutes: Gives shareholders a say

on pay with the right to a non-binding vote on executive pay and golden parachutes. This gives shareholders a powerful opportunity to hold accountable executives of the companies they own, and a chance to disapprove where they see the kind of misguided incentive schemes that threatened individual companies and in turn the broader economy.

 Nominating Directors: Gives the SEC authority to grant shareholders proxy access to nominate directors. These requirements can help shift management’s focus from short-term profits to long-term growth and stability .

 Independent Compensation Committees: Standards for listing on an exchange will require that compensation committees include only independent directors and have authority to hire compensation consultants in order to strengthen their independence from the executives they are rewarding or punishing.

 No Compensation for Lies: Requires that public companies set policies to take back executive compensation if it was based on inaccurate financial statements that don’t comply with accounting standards.

 SEC Review: Directs the SEC to clarify disclosures relating to compensation, including requiring companies to provide charts that compare their executive compensation with stock performance over a five- year period.

 Enhanced Compensation Oversight for Financial Industry: Requires Federal financial regulators to issue and enforce joint compensation rules specifically applicable to financial institutions with a Federal regulator.

IMPROVEMENTS TO BANK AND THRIFT REGULATIONS

 Volcker Rule Implements a strengthened version of the Volcker rule by not allowing a study of the issue to undermine the prohibition on proprietary trading and investing a banking entity’s own money in hedge funds, with a de minimis exception for funds where the investors require some “skin in the game” by the investment advisor--up to 3% of tier 1 capital in the aggregate.

 Abolishes the Office of Thrift Supervision: Shuts down this dysfunctional regulator and transfers authorities mainly to the Office of the Comptroller of the Currency, but preserves the thrift charter.

 Stronger lending limits: Adds credit exposure from derivative transactions to banks’ lending limits.

 Improves supervision of holding company subsidiaries: Requires the Federal Reserve to examine non-bank subsidiaries that are engaged in activities that the subsidiary bank can do (e.g. mortgage lending) on the same schedule and in the same manner as bank exams, Provides the primary federal bank regulator backup authority if that does not occur.

 Intermediate Holding Companies: Allows use of intermediate holding companies by commercial firms that control grandfathered unitary thrift holding companies to better regulate the financial activities, but not the commercial activities.

 Interest on business checking: Repeals the prohibition on banks paying interest on demand deposits.

 Charter Conversions: Removes a regulatory arbitrage opportunity by prohibiting a bank from converting its charter (unless both the old regulator and new regulator do not object) in order to get out from under an enforcement action.

 Establishes New Offices of Minority and Women Inclusion at the federal financial agencies

INSURANCE

  Federal Insurance Office: Creates the first ever office in the Federal

government focused on insurance. The Office, as established in the Treasury, will gather information about the insurance industry, including access to affordable insurance products by minorities, low- and moderate- income persons and underserved communities. The Office will also monitor the insurance industry for systemic risk purposes.

 International Presence: The Office will serve as a uniform, national voice on insurance matters for the United States on the international stage.

 Streamlines regulation of surplus lines insurance and reinsurance through state-based reforms.

INTERCHANGE FEES

 Protects Small Businesses from Unreasonable Fees: Requires Federal Reserve to issue rules to ensure that fees charged to merchants by credit card companies debit card transactions are reasonable and proportional to the cost of processing those transactions.

CREDIT SCORE PROTECTION

 Monitor Personal Financial Rating: Allows consumers free access to their credit score if their score negatively affects them in a financial transaction or a hiring decision. Gives consumers access to credit score disclosures as part of an adverse action and risk-based pricing notice.

SEC AND IMPROVING INVESTOR PROTECTIONS

SEC and Improving Investor Protections

  Fiduciary Duty: Gives SEC the authority to impose a fiduciary duty on

brokers who give investment advice --the advice must be in the best

interest of their customers.

  Encouraging Whistleblowers: Creates a program within the SEC to

encourage people to report securities violations, creating rewards of up to 30% of funds recovered for information provided.

 SEC Management Reform: Mandates a comprehensive outside consultant study of the SEC, an annual assessment of the SEC’s internal supervisory controls and GAO review of SEC management.

 New Advocates for Investors: Creates the Investment Advisory Committee, a committee of investors to advise the SEC on its regulatory priorities and practices; the Office of Investor Advocate in the SEC, to identify areas where investors have significant problems dealing with the SEC and provide them assistance; and an ombudsman to handle investor complaints.

 SEC Funding: Provides more resources to the chronically underfunded agency to carry out its new duties.

SECURITIZATION

Reducing Risks Posed by Securities  Skin in the Game: Requires companies that sell products like mortgage-

backed securities to retain at least 5% of the credit risk, unless the underlying loans meet standards that reduce riskiness. That way if the investment doesn’t pan out, the company that packaged and sold the investment would lose out right along with the people they sold it to.

 Better Disclosure: Requires issuers to disclose more information about the underlying assets and to analyze the quality of the underlying assets.

MUNICIPAL SECURITIES

Better Oversight of Municipal Securities Industry

  Registers Municipal Advisors: Requires registration of municipal

advisors and subjects them rules written by the MSRB and enforced by the

SEC.

  Puts Investors First on the MSRB Board: Ensures that at all times, the

MSRB must have a majority of independent members, to ensure that the

public interest is better protected in the regulation of municipal securities.

  Fiduciary Duty: Imposes a fiduciary duty on advisors to ensure that they

adhere to the highest standard of care when advising municipal issuers.

TACKLING THE EFFECTS OF THE MORTGAGE CRISIS

 Neighborhood Stabilization Program: Provides $1 billion to States and localities to combat the ugly impact on neighborhood of the foreclosure crisis -- such as falling property values and increased crime - by rehabilitating, redeveloping, and reusing abandoned and foreclosed properties.

 Emergency Mortgage Relief: Building on a successful Pennsylvania program, provides $1 billion for bridge loans to qualified unemployed homeowners with reasonable prospects for reemployment to help cover mortgage payments until they are reemployed.

 Foreclosure Legal Assistance. Authorizes a HUD administered program for making grants to provide foreclosure legal assistance to low- and moderate-income homeowners and tenants related to home ownership preservation, home foreclosure prevention, and tenancy associated with home foreclosure.

TRANSPARENCY FOR EXTRACTION INDUSTRY

 Public Disclosure: Requires public disclosure to the SEC of payments made to the U.S. and foreign governments relating to the commercial development of oil, natural gas, and minerals.

 SEC Filing Disclosure: The SEC must require those engaged in the commercial development of oil, natural gas, or minerals to include information about payments they or their subsidiaries, partners or affiliates have made to the U.S. or a foreign government for such development in an annual report and post this information online.

Congo Conflict Minerals: Manufacturers Disclosure: Requires those who file with the SEC and use

minerals originating in the Democratic Republic of Congo in manufacturing to disclose measures taken to exercise due diligence on the source and chain of custody of the materials and the products manufactured.

 Illicit Minerals Trade Strategy: Requires the State Department to submit a strategy to address the illicit minerals trade in the region and a map to address links between conflict minerals and armed groups and establish a baseline against which to judge effectiveness.

 Deposit Insurance Reforms: Permanent increase in deposit insurance for banks, thrifts and credit unions to $250,000, retroactive to January 1, 2008.

 Restricts US Funds for Foreign Governments: Requires the Administration to evaluate proposed loans by the IMF to a middle-income country if that country's public debt exceeds its annual Gross Domestic Product, and oppose loans unlikely to be repaid.