Monday, April 18, 2011

Fighting Wall Street: Part II

Consumer cops: Why we need Mary Schapiro and Elizabeth Warren now

U.S. Securities and Exchange Commission (SEC) Chairman Mary Schapiro answers a question at the Reuters Future Face of Finance Summit in Washington March 1, 2011. REUTERS/Kevin Lamarque Two women are fending off a vicious man-handling of investor protection.

As Congress pettily wrangles over the debt limit and the next budget, Mary Schapiro and Elizabeth Warren are fighting to protect you against the ravages of Wall Street.

Wall Street and its Republican allies would like to make the Dodd-Frank financial reforms disappear. The money trust has been pouring millions into lobbying to eviscerate the budget of the Securities and Exchange Commission and blocking the formation of the Consumer Financial Protection Bureau.

Mary Schapiro, who chairs the SEC, said she can’t kick start the myriad pro-investor rules of Dodd-Frank without adequate funding. Republicans, lead by Budget Committee Chairman Paul Ryan, want to “starve the beast” in their fiscal year 2012 proposal.

Ryan’s new budget proposal wants to cut off the SEC budget at its knees by giving the SEC $112 million for fiscal year Consumer Financial Protection Bureau Advisor Elizabeth Warren listens to a question at the Reuters Future Face of Finance Summit in Washington March 1, 2011. REUTERS/Kevin Lamarque 2012. That effectively freezes the top securities regulator’s funding at 2008 levels. The current budget deal gives the agency a slight increase in funding.

Remember what happened to Wall Street in 2008? The Obama Administration wants $308 million for the SEC to prevent another year like that from happening. The money trust has deliberate amnesia.

While the SEC gathers most of its revenue from fees and fines, it can’t seed key investor protections like an office of investor advocate without the additional funds. Its budget was supposed to double under Dodd-Frank over the next five years. The money trust wants to keep the status quo and de-fund the agency.

Schapiro, who told a group of business journalists last week that investor protection would be hobbled if she didn’t get adequate funding, said under current budget proposals “there will be fewer cops on the beat.”

Also on the chopping block is one of the most powerful investor safeguards of Dodd-Frank: fiduciary duty for brokers. This one rule, endorsed by an SEC study earlier this year, would make brokers legally responsible to put their clients’ interests first. Right now, they only have to follow flimsy “suitability rules,” which gives them leeway to sell a raft of unsuitable investments like derivative-loaded “structured products.”

Although the SEC said it is still writing the fiduciary rule, after intense industry lobbying and the objection of two of its Republicans commissioners, Schapiro told me the agency would do “more economic analysis” on the proposal and take it up again in the second half of this year.

As a long-time observer of the agency, I can tell you that once the SEC decides to re-study a proposal, it’s often a death knell or produces an indefinite delay. The agency has been sitting on a proposal to reform onerous 12(b) 1 fees on mutual funds for years, even though these are marketing expenses that needlessly eat into your returns.

Elizabeth Warren is fighting a separate battle to save the funding and independence of her consumer bureau, which President Obama asked her to start up. Republicans have proposed that another commission run the agency or answer to other regulators, which is the bureaucratic equivalent of neutering it.

The consumer bureau, Warren hopes, would curb anti-consumer credit practices in banking. Her common-sense approach is simple: Boil every credit agreement down to a plain-language form that tells you how much it will cost you, is it affordable and is it the best deal. That’s something that would benefit every American who gets a credit card, mortgage or other financing.

Not only are GOP proposals punitive to Warren’s fledgling agency, they are unfair. No other banking agency would have to answer to a commission or be hostage to Congressional appropriations. The Office of the Comptroller of the Currency, a banking regulator, has a single director and obtains its budgets from bank fees, for example.

“We’re not going down without a fight,” says Warren, who is also a proponent of making the free market work for consumers in promoting accountability and competition.

There shouldn’t even be a fight over these two agencies. After the money trust nearly deep-sixed the global economy in 2008, triggered a massive recession and unemployment, they should welcome more cops on the beat. They are like three-year-olds with a pile of money and an endless supply of finger paint. They need parental supervision or things will get messy again.

Warren and Schapiro are right. You don’t police banks and brokers by stifling oversight. Let Washington know you want to keep politics out of your portfolio.

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