Rein in Wall Street, Say Small Business Owners

The Huffington Post

February 1, 2013

 

By John Arensmeyer

 

The latest jobs data shows small businesses are off to a running start in the job creation department this year, proving entrepreneurs are doing more than ever to lift post-recession employment. But it's also true that small firms aren't immune to the lingering effects of our disrupted financial market. Despite the mantra that slackening Wall Street's reins will promote economic growth, recent national opinion polling reveals the majority of entrepreneurs believe the opposite: Wall Street should be held accountable for the financial crisis with rules that are stronger, not weaker.

A whopping 80 percent of small business owners agree with this, according to scientific polling conducted in January for Small Business Majority. Considering the oft-politicized nature of this topic, it's noteworthy that not only was this a majority Republican sample, but more than seven in 10 Republican owners believe we need tougher rules for holding Wall Street accountable. Entrepreneurs aren't politically minded, they're business minded. That's why this isn't a party line issue for them. It's a bottom-line issue, plain and simple, meaning it impacts their capacity to grow and hire.

With that in mind, it shouldn't be surprising that nearly six in 10 entrepreneurs agree that for far too long, Wall Street banks and financial companies wrote their own rules while nobody was looking out for small businesses and consumers. They believe we need the Consumer Financial Protection Bureau (CFPB) -- a federal organization that helps prevent financial companies from using abusive lending practices that can affect small businesses. Eighty-four percent of owners generally support the CFPB, underscoring the consensus that our nation is long overdue for a fairer financial system.

Small business owner Shaundell Newsome couldn't agree more. Shaundell, the president and CEO of Sumnu Marketing in Las Vegas feels more work needs to be done to give small businesses the ability to push back against unfair financial practices. "A lot of small businesses don't have the power or the resources to fight against the big banks and financial companies," he said. "These companies' practices haven't really changed since the recession, which is why it's incredibly important the Consumer Financial Protection Bureau was created to keep them accountable. However, another factor is that many of the protections individuals are seeing should be afforded to small businesses, as well."

Herein lies another issue the poll shed light on: the strong link between small business finance and personal credit. Fifty-eight percent of respondents have used a personal credit card to finance their business, and 53 percent have personally guaranteed a loan for their business. This helps explain why small businesses strongly support provisions of the 2009 Credit CARD Act -- although 'strongly' might be an understatement.

Every single provision we polled on from this law, which established a series of consumer protections from banks and other financial institutions, was supported by nearly 100 percent of respondents. For example, 98 percent support requiring credit card companies to provide clear descriptions of what factors trigger a higher interest amount. But this requirement and others only apply to personal credit cards. Echoing Shaundell Newsome, a sweeping majority of 19 in 20 small employers want consumer protections expanded to protect businesses, too.

If businesses had stronger protection from predatory financial practices, imagine how much more they could do to grow the economy. New employment data indicates firms with fewer than 50 employees created six in 10 new jobs in January. That's a big step in the right direction. However, positive steps forward don't mean it's time to ease back on Wall Street financial institutions, as small business owners have made clear. If we want them to continue playing a significant role in rebuilding our economy, entrepreneurs need protection from the practices that caused our fiscal crisis.

http://www.huffingtonpost.com/john-arensmeyer/rein-in-wall-street_b_2594355.html?view=print&comm_ref=false

The Federsal Reserve bows to big banks today, China tomorrow

Yesterday’s JPMorgan shareholders meeting was “pretty tense”, according to Lisa Lindsley who attended the meeting in Tampa.  Lindsley is the director of capital strategies at the American Federation of State, County and Municipal Employees pension plan. 

In a radio interview with me yesterday Lindsley said that it was obvious that the JPMorgan people clearly wanted to get the meeting over quickly.  Jamie Dimon, the CEO and chairman of the Board of JPMorgan, rushed almost unintelligibly through his prepared remarks regarding the recently acknowledged $2 billion plus loss at his company. 

The pressure on Dimon showed when he was directly asked at the meeting about his and JPMorgan’s lobbying against the Volcker Rule that might have prevented the risky trading that led to the $2 billion loss.  According to Lindsley, Dimon was quite condescending telling the person that he would send him his shareholder letters from the past few years that the commenter obviously hadn’t read or he would understand. 

On another important issue, Lindsley’s union had filed a proposal last fall for JPMorgan to have an independent board chairman.  If the shareholders agreed with the proposal, Dimon would have to give up either the chairmanship of the board or CEO position.  That proposal was voted down 60%-40%.

But in addition to these duel positions held by Dimon, he also serves as a director at the Federal Reserve of New York.  Senatorial candidate Elizabeth Warren and Vermont Senator Bernie Sanders have both called on Dimon to resign from the New York Fed.  At yesterday’s meeting one commentator addressed that issue.  He said that as a director of the Federal Reserve of New York and JPMorgan board chairman, Dimon was his own boss and his own regulator….that’s pretty sweet.

Dimon’s response was that the New York Fed is only advisory and doesn’t make policy decisions. 

But isn’t that the point.  He is advising the Fed that makes the regulations to carry out the Dodd-Frank Financial Reform Act including the Volcker rule that Dimon has lobbied against.  Clearly Dimon and his company are only interested in promoting their own profit, not what is in the best interest of the country. 

And I’m willing to bet that another bad Federal Reserve decision recently was also recommend by Dimon.  Chinese government-owned banks have been approved to do business in the U.S.  As I mentioned in my blog last Friday, China already owns much of our nation’s debt and its businesses are bidding successfully for public project works here.  Add to that China holding the loans and lines of credit to our country’s small businesses because our domestic banks won’t lend is a recipe for a perilous future for America.

So why did the Fed open the doors to China’s banks?  Because our big banks want China to give them more access to investing in Chinese banks in order to gain access to China’s consumers.  It was a tradeoff that Scott Talbott, head lobbyist for the Financial Services Roundtable, said would “benefit the U.S.” 

This isn’t about benefitting our country.  It is about benefitting the profit greed of the big banks like JPMorgan, their CEOs and shareholders.  There doesn’t appear to have been any calculation by the Fed about the other potential impacts on our economy by having the Chinese government being able to undercut our local community banks and call loans and credit lines of our small businesses whenever they want for whatever reason.  And with China now ready to become a player in U.S. banking, how soon will they be influencing other Federal Reserve decisions?

The long-term consequence of the Fed’s decision to allow China to put its nose under our private financial institutions’ tent has enormous risks for our country.  But what the hell, at least JPMorgan and its ilk can make some good short-term profits and bonuses.

More heads should roll and not just at JPMorgan

It’s hard to believe that just over two years ago I spoke at a press conference at the U.S. Capitol along with Senators Dick Durbin, Jack Reed and Michael Bennet calling for the Senate to pass financial reform legislation to protect small businesses and the public from Wall Street causing another Great Recession.  The passage of the Dodd-Frank Act is the background for the current controversy involving JPMorgan.

Today we might hear of more JPMorgan senior executives losing their jobs over that big bank’s $2 billion and growing loss.  Maybe its CEO Jamie Dimon will accept responsibility and offer his own resignation.  According to former and current JPMorgan employees, the decisions to engage in the highly risky and self-destructive trading that Dimon has called “sloppy", “stupid” and “bad judgment”, were approved by Dimon himself.

But JPMorgan shouldn’t be alone in cleaning house.  Contrary to what Eric Gehrnstrom, a senior adviser to the Mitt Romney campaign, said on NBC’s TODAY this morning, the proprietary trading that is costing JPMorgan billions is not just a loss to the shareholders of that bank and therefore no taxpayer money was at risk. 

Proprietary trading was intimately involved in creating the financial meltdown that caused the Great Recession.  It was the first domino to fall.  When the banks were facing insolvency and shutting down because of their greedy gambling with their own money, the whole economy teetered on collapse forcing Congress to bail them out with taxpayer dollars. 

These big banks aren’t the small, community banks we know on Main Street.  These financial giants turned into investment gambling houses through their proprietary trading.  And they weren’t doing this to help the nation’s economy.  This was all about satisfying the greed of their CEO’s, traders and stockholders at the public’s expense.

That’s why the Volcker Rule was put into that financial reform Congress passed in 2010 to prevent another Great Recession by severely limiting proprietary trading by banks.  But that rule, along with other needed regulations passed over two years ago, still is not in effect because hordes of bank lobbyists descended on the regulators and Congress to water down the reform.

It appears that the regulators responsible for writing the rules intended by Congress have forgotten that they are public employees.  We pay their salaries to do their jobs protecting us, not the big banks.  And the bank regulators charged with overseeing JPMorgan and the other big banks obviously aren’t doing their jobs in protecting us.  According to JPMorgan insiders the current proprietary debacle has been building since 2007.

If we expect accountability at JPMorgan, we should also demand accountability from the government employees who have kowtowed to the wealthy and powerful.  The regulators at the Federal Reserve, Treasury Department and the Commodity Futures Trading Commission who have been intimately involved in overseeing JPMorgan and “negotiating” with the big banks to loosen needed regulations passed by Congress should be re-assigned or terminated. 

Now, I am supportive of government employees.  They shouldn’t be laid off or not receive proper compensation just because we don’t make multinational corporations and the wealthy pay their fair share of taxes.  Government employees are an important part of our economy spending their money with locally-owned businesses.

But I also expect these employees to work for us, not work for the big banks in hopes of a better private-sector paycheck tomorrow.

Just as heads rolling at JPMorgan will send a warning to the other big banks about irresponsible proprietary trading, some deserved-house cleaning at our regulatory agencies will send a clear message to all who we have entrusted to protect us and our economy.

Crowdfunding to the rescue for small investors

The Great Recession has apparently changed the way individual Americans view investing.  Buying stocks is no longer seen as safe for long or short-term investment and trading is way down.  Credit Suisse Trading Strategy reports that daily trading in American stocks continues to fall and is down almost 50% from the peak in 2008.

The lesson learned from the Great Recession is that Wall Street cannot be trusted.  While the market might be reaching new highs, it is doing it without individual investors who, unlike high-speed traders, can feel that something is wrong.

You would think that with this stock market crisis the financial institutions would welcome regulations to inspire investor confidence.  But instead of looking at Dodd-Frank—the financial reform passed to protect our economy from the practices that collapsed the market—as their vehicle to return to pre-Great Recession trading volume, Wall Street is doing everything it can to undercut and roll back the new rules.

And while the experienced Wall Street investors are walking away from trading, mom and pop small investors are looking for something else entirely.  Fortunately, Congress has recently opened the door to a dramatically different type of equity investment. Investments that Americans know the country needs—investments in their own communities.

Soon all of us will be able to invest, not in some faceless symbol on our computer screen, but in a tangible business we can see, touch and even taste in some cases. 

The new crowdfunding Security and Exchange Commission (SEC) rules will allow small, long-term investments in businesses not only in your community but in every community.   It is this sense of community that will give regular Americans more investment confidence.

Last Friday the American Sustainable Business Council held a webinar on crowdfunding, “Crowdfunding is the law, now what?” 

The webinar featured Andy Green, Legislative Counsel to Senator Jeff Merkley (OR) who was the prime sponsor of the crowdfunding provisions signed into law.  Also participating was Jenny Kassan, who launched the equity crowdfunding effort in 2010 with a petition to the SEC, and Mary Rick, a crowdfunding consultant and former director of the crowdfunding portal The Hoop Fund.

Get up to speed on this exciting new small investment opportunity and vehicle for small businesses to have more access to capital.  You can listen to the audio of the webinar here.  Be patient in opening the link since it is a large file.

Trading in stocks down

The U.S. stock market is in crisis.  Small investors continue to get out of stocks.  Read about the problem and one possible explanation in the stories below.  Tomorrow I’ll talk about an alternative for small investors.

New York Times
May 7, 2012
Stock Trading Is Still Falling After ’08 Crisis
By NATHANIEL POPPER

Even though American stocks have doubled in price in the last three years, investors and traders large and small keep giving the market the cold shoulder.

Trading in the United States stock market has not only failed to recover since the 2008 financial crisis, it has continued to fall. In April, the average daily trades in American stocks on all exchanges stood at nearly half of its peak in 2008: 6.5 billion compared with 12.1 billion, according to Credit Suisse Trading Strategy.   Read more.

-------------------------------------

Myrtle Beach Sun News
May 6, 2012

Some rules to prevent another stock market collapse yet to be enforced

Regulations to prevent collapse have yet to take effect, could be watered down

By Kevin G. Hall - McClatchy Newspapers

WASHINGTON -- Almost four years after America’s financial near-collapse, regulators are now empowered to police financial markets as never before. Yet some of the most important rules to curb Wall Street’s bad behavior have yet to take effect – and could be watered down. Historians likely will view Barack Obama’s presidency through the prism of the worst financial crisis since the Great Depression. Like that period in the 1930s, the legislative and regulatory response to this crisis is sure to influence the U.S. economy for decades. . . .

“The regulatory framework has changed, but the attitude of financial services companies hasn’t. It’s been one constant pushback after another since Dodd-Frank was put on the books,” complained Travis Plunkett, director of regulatory affairs for the Consumer Federation of America. “In some cases the securities and financial services industries have won rollbacks that pushed back to well before the financial crisis.”  Read more.

We need more financial regulations...not less

The story below is must read for all, especially those who think financial reform (Dodd-Frank) went too far.  To all those in Congress who want to repeal Dodd-Frank, here’s the story about the big banks you are defending and why Dodd-Frank didn’t go far enough.

Bloomberg
11-28-11

Secret Fed Loans Gave Banks $13 Billion

By Bob Ivry, Bradley Keoun and Phil Kuntz

Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.

Read more

If you can't compete...attack the rules of the game

This week the U.S. House is expected to start voting on legislation to turn back regulations and make it nearly impossible for federal agencies to develop new regulations in the future. If that happens, Congress might as well just stop passing any new laws because the rules for implementing them will never be developed. 

One of the big targets for the anti-regulation crowd is Dodd-Frank, the financial reform that passed last year to try to put regulations of big financial institutions in place so we won’t repeat this great recession.

The majority party in the House, spurred on by the big banks, blame Dodd-Frank for stopping loans to small businesses.  But apparently what the real problem for these banks is that Dodd-Frank has fostered greater competition for the commercial and industrial (C&I) loan business and smaller banks are winning.

According to Jeff Harding, writing in the Daily Capitalist:

What we see is that C&I loans took off starting in the first quarter of 2011. While the data for large domestic banks shows steady C&I loan growth since the fourth quarter of 2009, small domestic bank C&I lending shot up in the first quarter of 2011, from zero base to $20 billion.  Even more surprising is that average loan size for small banks increased from about $100,000 to almost $650,000….The main reason for this sudden increase in loan activity is competition. Ever since Dodd-Frank, banks have been scrambling to figure out how to make more money, as many credit card and other account fees were prohibited in an attempt to protect consumers. One way to offset that loss is to gain more business customers, and there has been a scramble by both large and small banks for SME customers….Small banks have the most to gain or lose in this competition because SMEs are their territory. So they are pursuing customers. Many also believe that there is a window of opportunity with favorable spreads and thus the timing is critical to expand business before that window closes. The initial beneficiaries seem to be the banks in the $5 billion to $10 billion asset range, which are classified as small banks.

No wonder the big banks want to repeal Dodd-Frank with its unintended consequence of fostering loan competition.  They’re not doing so well in the “small-business friendly” department.

Unfortunately this new competition isn’t leading to more smaller loans in the $50,000 and under range that so many microenterprises need.  But still, Dodd-Frank is working so obviously it MUST die.