Financial Regulation

  • August 1, 2012
    Guest Post

    By Kent Greenfield. Greenfield is a Professor of Law, and Law Fund Research Scholar at Boston College Law School.


    Before the end of the latest SCOTUS term, flush with the excitement of the right’s anticipated victory in the ACA case, a small bank in Texas and a few additional plaintiffs sued to contest the constitutionality of the Consumer Financial Protection Bureau (CFPB) and the Financial Stability Oversight Council (FSOB), two new agencies created by the Dodd-Frank legislation in 2010. 

    Few would have noticed except that the main lawyer for the plaintiffs is C. Boyden Gray, the White House counsel for George H.W. Bush. The Wall Street Journal printed an op-ed the day they filed suit, and several other right-leaning media outlets gave it mention. One commenter on the WSJ page said the lawsuit is more important for the future of the country than the presidential election.

    If the lawsuit were to be victorious, it would disembowel the most important innovations of the Dodd-Frank legislation, which, even with its numerous flaws, was an important legislative victory during Obama’s first term. [image of president signing legislation in summer 2010] 

    Should progressives worry? 

    I read through the complaint, and I don’t think we should. 

    If you separate out all the sturm und drang, the main focus of the constitutional claim is that Dodd-Frank created independent agencies that have too much discretion to regulate, especially using post-hoc adjudication. While the arguments against such independence, discretion, and post-hoc adjudication could occupy several hours of discussion in an introductory constitutional law class, they are hardly questions of first impression in the courts. On the contrary, the questions of whether administrative agencies (1) may be insulated from political control by the president, (2) may define operative regulatory terms, and (3) use adjudication to make law have been answered in the affirmative for decades. 

    So this lawsuit is not like the suits brought against the ACA that arguably raised new arguments about the scope of the commerce clause (action versus inaction, broccoli, and all that). This is a lawsuit wanting to re-litigate decades of settled law. 

  • June 27, 2012

    by Jeremy Leaming

    Up until the $2 billion trading loss debacle at JPMorgan Chase, right-wing lawmakers in Congress, primarily the House, were feverishly working to water down with new legislative measures Dodd-Frank, the financial reform law passed in the wake of the Great Recession.

    But, as CQ Today reported, House Republicans halted their efforts “at least for now” to undercut the law aimed at ending the shady tactics employed by financial industry giants that led to the financial meltdown of 2008. Part of Dodd-Frank created the Consumer Financial Protection Bureau or CFPB, which is tasked with trying to bring some sanity to the financial industry.

    As CFPB Director Richard Cordray (pictured) said during the ACS 2012 Convention the agency is the first ever “created with the sole purpose of protecting consumers in the financial marketplace. It is not an easy task, but it is crucial because the financial marketplace is no easy place for our fellow citizens as they seek to manage their affairs.

    Cordray continued, “Our task is so crucial because, as we saw with the recent financial crisis, unregulated or poorly regulated financial markets can undermine the stability of the economy and with it the promotion of the general welfare that, as specified in the preamble to the Constitution, stands as one of the basic purposes of the federal government. For that reason, the new Consumer Bureau was also created to help ensure that the recent financial panic and economic meltdown does not repeat itself.”

    But government efforts to help the nation’s less fortunate or vulnerable run counter to the interests of the nation’s super wealthy. Columbia University business school professor Joseph Stiglitz, author of Freefall, has noted that the nation’ top one percent has the greatest sway in the nation’s capital, and that it is largely not interested in progressive legislation.

    So like the efforts to reform the nation’s health care system, which includes tens of millions of uninsured, the Right is turning to the federal bench to try stymie progress. And as noted by the Constitutional Accountability Center’s Simon Lazarus the Right and libertarians have proven their acumen in advancing their views of a radically cramped Constitution and selling wobbly legal claims to the public. 

    Media Matters’ David Lyle in a post for the organization’s County Fair blog called “First Health Care, Now Dodd-Frank: The Tea Party Constitution Rises Again,” urges progressives to be better prepared.

    “Although the legal arguments made in the suit [lawsuit lodged in federal court last week challenging the constitutionality of Dodd-Frank] are questionable, the case should not be dismissed as harmless,” Lyle writes. “The right-wing media’s proven ability to move dubious legal claims into mainstream debate combined with a conservative federal judiciary sympathetic to corporate interests mean the CFPB suit bears close scrutiny.”

    Lyle notes experts doubt the challengers have standing to lodge the lawsuit, and that at least one “financial services regulatory lawyer” has concluded it doubtful “that a court would find significant provisions of Dodd-Frank unconstitutional because of ‘general vagueness considerations.’”

  • June 7, 2012
    BookTalk
    So Rich, So Poor
    Why It's So Hard to End Poverty in the United States
    By: 
    Peter Edelman

    By Peter Edelman a law professor at Georgetown University, co-director of the University’s Joint Degree in Law and Public Policy, and Faculty Director for the school’s Center on Poverty, Inequality and Public Policy. Edelman is also the chair of the American Constitution Society’s Board of Directors, and will be signing copies of his book at the ACS National Convention next week.


    It’s never hard to find a policy hook to discuss poverty in the United States, but one we have just now is the recent budget for FY 2013 proposed by Paul Ryan and the House Republicans which proposes to slash virtually every program that helps low-income people in our country.  My new book is called So Rich, So Poor: Why It’s So Hard to End Poverty in the United States. Paul Ryan and colleagues are definitely a policy hook for talking about my book.

    I could just say that people like Paul Ryan and the House Republicans are the reason why it’s so hard to end poverty in our nation. That’s not wrong, but the story is much more complicated than that. We have a long list of successful programs without which we’d have 40 million additional people in poverty over and above the 46 million we have now. Don’t let anybody tell you that nothing works. Paul Ryan’s line is that if we have 46 million people in poverty now, it’s because the programs are a failure – because social security, food stamps, the earned income tax credit, housing vouchers, and Medicare and Medicaid are failures. And some people – all too many -- take him seriously.    

    No, we have 46 million people in poverty and tens of millions more struggling every day to make ends meet for other reasons. There are two problems here, actually: the millions who work as hard as they can and can’t get out of poverty or near-poverty, and the smaller (but not small) group who are virtually destitute, with incomes below half the poverty line, or below $9,000 for a family of three. The first group – whose basic problem is the huge number of low-wage jobs now extant in our economy – now constitutes a third of the population, 103 million people who have incomes below twice the poverty line (below $36,000 for a family of three). The second – those in deep poverty – now number 20.5 million, up by almost 8 million since 2000. Both numbers are staggering, each in its own way.

  • May 24, 2012

    by Jeremy Leaming

    JPMorgan Chase CEO Jamie Dimon has been a loud, at times obnoxious, critic of serious efforts to strengthen regulations of the financial industry. Specifically he has fought the Volcker rule, which would bar federally insured banks from risky trading ventures, similar to the ones that Dimon’s bank engaged in that led to a multi-billion dollar loss.

    Dimon is also on the board of the Federal Reserve Bank of New York, which is instrumental in supervising and regulating financial institutions. A growing number of people, including Treasury Secretary Timothy Geithner, are suggesting that Dimon is unfit to serve on the board of an institution that is charged with checking the actions of JPMorgan, which as The New York Times has noted emerged from the Great Recession as “the nation’s biggest bank.”  

    Simon Johnson, former chief economist of the International Monetary Fund, is the latest influential voice to call for Dimon to go.

    Writing for The Baseline Scenario, Johnson noting that the NY Fed is a “key part of our regulatory and supervisory apparatus,” concludes that it makes no sense for Dimon to remain a part of the apparatus that “oversees his activities, decisions, and potential losses.” Johnson is asking others to join the effort urging Dimon to resign from the board.

    The JPMorgan debacle centers on a trader in London dubbed the “London Whale,” apparently for playing a central role in a risky hedging strategy that led to the announcement of a $2 billion, likely far higher, trading loss.

    In a post for his Rolling Stone blog, Matt Taibbi says, “If you’re wondering why you should care if some idiot trader (who apparently has been making $100 million a year at Chase, a company that has been the recipient of at least $390 billion in emergency Fed loans) loses $2 billion for Jamie Dimon, here’s why: because J.P. Morgan Chase is a federally-insured depository institution that has been and will continue to be the recipient of massive amounts of public assistance. If the bank fails, someone will reach into your pocket to pay for the cleanup. So when they gamble like drunken sailors, it’s everyone’s problem.”

  • February 1, 2012

    by Nicole Flatow

    In recess appointing Richard Cordray to the Consumer Financial Protection Bureau and three others to the National Labor Relations Board, President Obama has acted “sensibly and soundly to defend his own prerogatives,” UNC Chapel Hill constitutional law professor Michael Gerhardt said during a House Oversight and Government Reform Committee hearing Wednesday.

    During a more than three-hour hearing that featured sharp questioning and a host of objections to President Obama’s actions by Sen. Mike Lee, Gerhardt explained the clear constitutionality of President Obama’s action, and praised the Office of Legal Counsel’s recent memorandum defending the legality of the action as a “perfectly good example” of the kind of nonpartisan legal analysis performed by the office.

    After dismissing arguments that President Obama did not act during an actual “recess” because the Senate held pro forma sessions every three days, Gerhardt went further to explain that Obama has an affirmative constitutional duty to enforce the laws faithfully, which he was aiming to effectuate in making recess appointments.

    “No doubt in this case the president considered that if he didn’t act there would be laws left unenforced --  laws that he’s obviously trying to do what he can to put into implementation,” Gerhardt said.

    Some of the other witnesses testified that the recess appointments have resulted in uncertainty for businesses, because decisions made by the NLRB and actions taken by the CFPB may be invalidated if legal challenges to Obama’s appointments are successful.

    But Gerhardt agreed with Rep. Danny Davis during questioning that all actions and major pieces of legislation are subject to legal challenge, and there is nothing unique about Obama’s recess appointments.

    “It’s sort of a false premise to say that recess appointments are likely to create litigation when the litigation is likely to take place in any event,” Davis said. “Whether these are recess appointees or any other kind of appointees, individuals still have the option to ask for judicial review.”

    Around the same time that this hearing was occurring, the Senate Banking Committee was also reviving the issue of Obama’s recess appointments during an oversight hearing involving Richard Cordray.

    As The National Law Journal’s Jenna Greene explains: