Financial Reform Newsletter: Joe Stiglitz on CNBC, financial reform and the 2016 election and more…

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Financial Reform Newsletter

April 22, 2015

Trickle up, trickle down; pro-growth or pro-distribution and other false choices intelligently discussed by Nobel Prize winning Columbia University economist Joe Stiglitz on CNBC Squawk Box this morning: Too much of the discussion about economics, the economy, finance and financial reform are closed-minded, ideological, political point-scoring or disguised industry purchased propaganda, where people repeat robot-like fact-free opinions as if they are scientific principles. That is a gross disservice to the public, public policy and consumers of news and media. Joe Stiglitz on CNBC this morning showed how a measured, thoughtful, fact-based discussion can actually inform a debate on these critically important topics. We won’t summarize, watch it here and judge for yourself:

Watch Joseph Stiglitz Here
Because the American people care about financial reform, financial issues are playing a big role as the 2016 campaign gets underway: Possible Presidential candidate Martin O’Malley, former Governor of Maryland, has been the most clear and vocal on financial reform and economic issues. He wrote an op-ed in Iowa’s Des Moines Register entitled "Prevent Another Crash, Reform Wall Street" and has specifically addressed these key economic and financial issues a number of times.


Now, Bloomberg exclusively reported this week that former Secretary of State Hillary Clinton has brought Gary Gensler, former head of the Commodity Futures Trading Commission, on board her Presidential campaign as its chief financial officer. As Better Markets President Dennis Kelleher put it in reacting to the news, Mr. Gensler will go down in history as the person who tried to implement the Dodd- Frank financial reform law to the fullest. Importantly, he did it without fear or favor. He’s a proven fighter for financial reform and is just the kind of leader Secretary Clinton needs. But, only time will tell whether his influence in her inner circle results in Secretary Clinton having concrete, specific policies that will in fact protect the American people from reckless too big to fail banks and rebalance the economy to promote growth throughout the country and not just on Wall Street.

This news is just the latest sign that financial issues might (and should) play an important role in the 2016 election. And, it’s not just Democrats. We’ve already seen Republicans like Senator Cruz and Governor Kasich engage on these issues as they travel the country, because they all know this is a priority and concern for voters of both parties. The polls are clear: a majority of Americans distrust the biggest banks on Wall Street and they support stronger financial regulations holding them accountable and reigning in their high risk activities. Many have seen firsthand due to the economic wreckage caused by the 2008 financial crisis how those gigantic banks on Wall Street threaten their jobs, homes and savings when they’re allowed to run wild without strong, sensible regulations.


That’s why voters expect candidates from both parties to propose concrete policies outlining where they stand as the campaign continues. They’ll need to make clear whether they will protect the American people from the recklessness of Wall Street’s too big to fail banks, or whether they stand with the big banks that put their profits before what’s best for hardworking families.

Reports shows the urgent need to protect Americans’ retirement security with a best interest fiduciary duty rule: A previous study showed that Americans are losing at least $17 billion a year from their retirement accounts due to broker conflicts of interest. Because brokers aren’t required to put their client’s interests first, they can steer customers into products that enrich the broker at the expense of the client. If that was prevented by requiring brokers to act in their clients’ best interests, then more than $17 billion every year would stay in American’s retirement accounts to grow rather than being moved into brokers’ bonuses.

Although the Department of Labor (DOL) recently proposed a rule requiring retirement investment advisers to act in their clients’ best interest, the Securities and Exchange Commission (SEC) is just beginning the process of considering what, if anything, it might do to better protect investors in the securities markets from brokers who put their interests above their clients’ best interest. A new report out this week from the SEC and the Financial Industry Regulatory Authority makes clear how these investors also need protections that put their best interest first.

4fc5f761-704e-417c-a6d5-2b1dfc715a64.jpgThe report, which analyzed the findings from 44 brokerage firms providing advice to seniors, found that, "one-third of financial companies in a sample group recently examined by regulators were recommending to senior citizens certain variable annuities that were potentially against their best interests." But that’s not all – the regulators also found instances of "potentially misleading advertisements, potential failures in supervising the content of financial investment radio shows and seminar materials."

This is just another reminder of the retirement crisis we’re seeing every day in this country. The DOL and SEC should both be using their separate mandates and missions to protect investors so that Americans get the most from their savings. Seniors shouldn’t be forced to live in poverty, rely on family and friends, or turn to state and local governments for help – they deserve to retire with dignity, and deserve financial advisers who will help them do so.

And don’t miss SEC Chair Mary Jo Whites’ recent testimony in the House Appropriations Committee, where she agrees that DOL has a separate and important mission to protect retirement savers with a fiduciary duty rule to put investors’ best interests first. Learn more and watch the testimony here.

Conference in Washington will highlight the role of finance in society: Next month, the Institute of New Economic Thinking (INET) and an independent committee that includes Anat Admati of Stanford University, Ceyla Pazarbasioglu of the International Monetary Fund (IMF), Gudrun Johnsen from the University of Iceland and Signe Krogstrup of the Swiss National Bank, will hold a conference in Washington, DC on the role of finance in society. This follows INET’s conference in Paris earlier this month. Invited speakers include Senator Elizabeth Warren, Federal Reserve Chairwoman Janet Yellen, and IMF Managing Director Christine Lagarde.

Re-thinking and understanding the proper role of finance in society is critical. Without hardly any thought, a Wall Street/finance-centric mentality has captured the policy making process which too often simply assumes and believes that what is good for Wall Street is good for America. However, finance is supposed to serve society and support increasing jobs, wages and living standards. That is going to require a re-balancing because finance has overshadowed the real economy and, indeed, become a lethal threat to it and society more broadly: tens of millions of Americans are still working to recover from the 2008 financial crash that touched every corner of our society and will cost more than $12.8 trillion.

Unfortunately, far too many policy makers, elected officials, regulators and prosecutors have failed to learn the lessons of the worst financial crash and economy since the Great Depression. To learn more about and register for the conference, click here. To learn more about INET’s recent conference in Paris, click here.

Better Markets in the News:

f59c120c-a9a7-4b1e-bec1-12b2a7d6d64f.pngFight looms over including capital surcharge in stress tests:

"Banks and public interest groups are squaring off on whether the Federal Reserve Board should extend its proposed capital surcharge on the largest and most complex U.S. banks to be included in the agency’s annual stress test analyses." More>>

73700251-d663-4d24-8693-9f0a9d7996bd.pngHillary snags a watchdog, with Wall Street pedigree:

"Hillary Clinton’s decision to hire one of Wall Street’s fiercest regulators could assuage concerns she is too close to the sector, while at the same time handing her an expert financial mind to oversee the massive election effort." More>>

f59c120c-a9a7-4b1e-bec1-12b2a7d6d64f.pngWhy Clinton just brought a Wall Street scold on board:

"Hillary Clinton said Friday she had tapped Gary Gensler, the former chairman of the Commodity Futures Trading Commission, as the chief financial officer of her 2016 presidential campaign, a move that will likely bolster her credibility as a hawk on Wall Street regulation." More>>


Battle looms over retirement advisor conflict-of-interest rule: "A newly proposed rule to ban retirement planners from creating conflicts of interest with their customers might appear to put an end the years-long policy fight over the issue." More>>

News You Don’t Want to Miss:

d4715e88-f37b-4634-a36f-0a1549d8e343.pngMisbehaving banks must have their day in court: "Almost seven years since the financial crisis crashed over the global economy, many of its repercussions are still being felt. Among them is the public’s opinion of finance, which remains low despite repeated attempts by the industry’s leaders to turn the page on its role in the crisis." More>>

3e5a8c42-4fc5-412c-aaa1-491de508716a.pngRegulatory relief for banks that rarely fail: "Rolling back regulations created after the 2008 crisis has been Job 1 for leaders of many of the nation’s large and powerful banking institutions. So it’s no surprise that recent proposals for regulatory reform in the financial industry have overwhelmingly been the work of big banks or their supporters." More>>

3e5a8c42-4fc5-412c-aaa1-491de508716a.pngRules to make retirement investing safer: "In a giant step forward for investor protection, the Department of Labor proposed new rules this week to ensure that financial advisers act solely in their clients’ best interests when giving advice and selling products for retirement accounts." More>>

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