Elizabeth Warren isn’t exactly known for being a shrinking violet. She’s been one of the most vocal opponents of the Trump administration and its cohorts in Congress. We know Warren has gotten under Trump’s thin skin by the number of times he tweets about her using one of his particularly offensive pet names. But it seems back in March, the senator from Massachusetts also ruffled the feathers of her fellow Democrats when it came time to vote on what Warren calls the “Bank Lobbyist Bill”. This “dress down” of some of her colleagues got little attention at the time. No surprise. We were still reeling from the Parkland shooting and probably distracted by some White House shenanigans, and let’s face it, to most people banking is about as exciting as a soap dish.
Not to worry. This story has made its way back into the spotlight. But let’s back up a bit. Why did Warren read the Riot Act to some of her Senate colleagues on the blue side of the aisle? It may have something to do with the fact that almost half of the 26 cosponsors of the bill formally (and might I add hilariously) known as S.2155 - Economic Growth, Regulatory Relief, and Consumer Protection Act, were Democrats, including Heidi Heitkamp (D-ND), Claire McCaskill (D-MO), Doug Jones (D-AL), Joe Manchin (D-WV), Tim Kaine (D-VA), and Mark Warner (D-VA). Why was Warren so outraged by this sudden burst of bipartisanship? Could it be because S.2155, if signed into law, would be the biggest rollback of banking regulations since the financial crisis of the last decade and would eliminate many of the protections put in place by Dodd-Frank?
Warren was right to scold her colleagues and to prompt them to remember that there are real people and families behind the numbers. Let’s remind ourselves of what happened during “The Great Recession” in 2008. According to Warren, because of risky banking practices, almost 9 million people lost their jobs. Workers lost $2.6 trillion from retirement accounts. That amounts to 25% of their savings for someone who worked 20 years. Foreclosures spiked 81%, and 3.1 million notices went out to homeowners across the country telling them they would lose their homes. (Excerpted from Senator Warren’s address on the Senate floor-March 6, 2018) Now Congress and the White House are poised to let this happen all over again.
A Brief Overview of Dodd-Frank
Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama in 2010 in response to the financial crisis of 2007-2008. The legislation which was introduced by Representative Barney Frank (D-MA) and Senator Chris Dodd (D-CT), contained the most significant changes to financial regulations since the Great Depression. The changes affected all federal financial regulatory agencies and almost every part of the nation's financial services industry. Dodd-Frank established the Consumer Financial Protection Bureau (CFPB), which from the time it was formed to April 2017 "returned almost $12 billion to 29 million consumers and imposed about $600 million in civil penalties,” according to former CFPB director Richard Cordray. (Cordray left the position in 2017 and is now running for governor in OH. Mick Mulvaney, yes that Mick Mulvaney, is the current acting director.) Dodd-Frank didn’t just regulate banks and hedge fund managers. Provisions in Title XV of the act require the Securities Exchange Commission to report on mine safety “by gathering information on violations of health or safety standards, citations and orders issued to mine operators, number of flagrant violations, value of fines, number of mining-related fatalities, etc., to determine whether there is a pattern of violations”. Also included in Title XV is a mandate for the SEC to monitor what are known as “conflict materials”, such as tin, tungsten, and gold in places like the Democratic Republican of Congo where armed groups are benefiting from the sale of such commodities. Title V of Dodd-Frank addresses the insurance industry. One of its provisions includes “monitoring the extent to which traditionally under-served communities and consumers, minorities, and low-and moderate-income persons have access to affordable insurance (except health insurance).”
What will the Bank Lobbyist Bill do to some of the protections guaranteed by Dodd-Frank? First of all, it deregulates 25 of the 38 largest banks in the country. What does this mean? Current law requires any bank with assets greater than $50 billion to adhere to certain standards. This new bill will raise that threshold 5 times to $250 billion. Basically, banks will again be allowed to engage in the risky behaviors that led to the financial crisis in 2008.
Another concern that Senator Warren highlighted in her remarks in Congress had to do with mortgages on manufactured homes. Warren pointed out that about 18 million Americans live in manufactured homes. Many of these people are low income, elderly, disabled, and live in rural areas. Under Dodd-Frank, mortgage lender cannot sell a higher cost loan in order to get a bigger kickback. “Rules for mobile home lenders will be weaker rules-and that means it will be much easier to cheat buyers,” said Warren. Fraud is especially rampant in lending practices for manufactured homes, and this fraud is exacerbated by the fact that the lifespan of a manufactured home is usually less than that of traditional type homes. People who buy manufactured homes are often at a disadvantage by not being able to take out equity when reselling the home. According to Warren, fraud is rampant in lending practices for manufactured homes. Any questionable lending practices are made worse because the lifespan of a manufactured home is typically less than that of a traditional home. Purchasers of manufactured homes are often not able to take out equity by reselling the home.
But most disturbing of all, S.2155 would allow racial discrimination in mortgage lending practices. Long before Dodd-Frank, Congress enacted the Home Mortgage Disclosure Act (HMDA) in 1975. HMDA requires institutions to disclose to the public and the Consumer Financial Protection Bureau (CFPB) who they’re lending to, at what rates, and under which terms. This data is used to make sure families aren’t prevented from getting loans because of who they are. Warren points out that this bill makes 85% of institutions exempt from reporting HMDA data, meaning there will be no way to monitor whether people are being discriminated against because of race or gender. Warren also noted, “In 2015 and 2016, nearly two-thirds of mortgage lenders denied loans to people of color at higher rates than for white people. ‘In 2016, Native American applicants were 2.3 times as likely to be denied a conventional home mortgage as white applicants. For black applicants, it was 2.2 times as likely. For Latino applicants, it was 1.9 times as likely. For Asian applicants, it was 1.6 times as likely.’ We would know none of this if it weren’t for HMDA.
S.2155 passed the Senate despite Elizabeth Warren’s admonitions and is scheduled for a vote in the House on Tuesday. Some last minute amendments that are being suggested may cause some bumps in the road, but with the current make-up of the House, it could already be a done deal.
It’s been noted that a recurring theme in the U.S. is increased regulation after a financial crisis to deregulation during economic upturns. What is it they say? The definition of insanity is doing the same thing over and over and expecting a different result. You’d think we’d learn our lesson.
posted by Amy Levengood
Founded on 17 October 2016, Essential Consultants LLC is a limited liability company located at 160 Greentree Drive in Dover, Delaware. Being that the company is registered in the state of Delaware, it’s not required that the identities of the managers of said business be revealed. But we know, because of some fairly routine reporting, that the name of the “authorized person” attached to Essential Consultants LLC is none other than Trump attorney and self-described pit bull, Michael Cohen.
Put on the brakes. This is not going to devolve into a tawdry tell-all about Stormy Daniels nor become a shallow dive into the intrigues of the current Russo-American undercover pas de deux. What Trump and his “fixer” were/are up to remains to be seen. What our focus is here is the LLC that Cohen set up to shell out the payments to Stormy et al -not Essential Consultants LLC specifically, but LLC’s in general.
Ever think about retiring to Delaware? There’s a reason DE has become a haven for Pa ex-pats, namely low taxes, but Delaware’s low taxes come at the expense of those living in the rest of the country.
You’ve probably heard of an ambiguity in tax law known as the Delaware loophole. The Delaware loophole is a means by which a company can be registered in DE and avoid more onerous taxes levied in other states. This loophole is legal under state, federal, and international law. But just because it’s legal doesn’t mean it’s right or good policy. What this gap in the tax law actually does is siphon tax dollars from states where the corporations or individuals actually “reside”. Tax dollars collected from the over one million businesses registered in DE make up almost a quarter of that state’s budget. So you can see that it’s not just the financial industry and the DuPont’s making the First State an affordable mecca for retirees.
The U.S. ranks higher than the Cayman Islands on the Financial Secrecy Index, and the chief reason is Delaware, which is probably one of the largest tax havens in the world. Not only are the tax rates and filing fees low, but corporations are allowed to register in secret and with no requirement to divulge the names of their managers. Why Michael Cohen allowed his name to be public is odd, but why he formed Essential Consultants LLC in DE is not.
Why other states, including PA, allow companies to continue to take advantage of the Delaware loophole is hard to comprehend, especially given the fact that so many state budgets are stretched to the limit. Much of it, as you can imagine, is about politics and power. PA state reps have been trying to close the loophole but find themselves running into opposition from oil and gas companies in PA who have set up in Delaware, where they avoid paying millions of dollars in taxes -millions of dollars that could go to schools, infrastructure, and other public programs.
So what’s the solution? Governor Wolf has proposed that PA join with 25 other states to close the Delaware loophole. The PA corporate tax rate could be reduced by 2%, which would attract businesses, create jobs, and increase revenues by hundreds of millions. It’s a start.
Ultimately something needs to be done at the federal level, but until that happens our neighbor to the south will continue to reap the benefits. Not to knock Delaware. It’s got great beaches, quaint towns, mild weather, and some really good birding spots. But for the 2nd smallest state in the nation that sure is a giant sucking sound, and I don’t think it’s coming from the pensioners headed down Route 1 with their U-Hauls.
Click here for more detail on the Delaware loophole
posted by Amy Levengood
Last week in our Immigration blog, The common wealth, we discussed how difficulty in accessing higher education was causing the American dream to become a nightmare for DACA recipients. This week we are going to look at another sector of the populous for whom that same dream –the promise that going to school, finding a job, buying a home, raising a family, and working hard will eventually pay off in a comfortable retirement- may be looking a little tarnished -people beyond retirement years.
They say 70 is the new 40. Given the advances in modern medicine and improved health consciousness, many people who we’d traditionally think of as ready for retirement are staying in the work force longer than individuals just one or two generations ago. Many Americans continue contributing to the workplace, lending their experience, and even opening their own businesses well into their 70s rather than heading off to the golf course or carting around grandchildren.
According to the Pew Research Center, 9 million Americans age 65 or older-19% of the population- are working either part or full-time. That’s a steady increase since the turn of the 20th Century and in fact has more than doubled. The share of older workers has risen even when overall unemployment fell, and more are working full time.
In many cases sexagenarians and septuagenarians are staying in the workplace not because they enjoy good health and want to remain active. Unfortunately a great number of people are there because they simply don’t have a choice.
Beginning about 30 years ago, there was a shift in how companies treated retired workers. In the 1980s companies began dropping traditional pensions, forcing workers to become more dependent on personal savings. The concept of a pension itself is relatively new, fairly short-lived, and basically only existed during the mid 20th Century. The first pensions were offered by American Express in 1875, but under union pressure many companies began to adopt the idea. By the 1980s defined benefit pensions were the norm. Then things started changing because of three main factors:
In 1950 the average life-expectancy was 68, meaning a pension only had to last 3 years past the typical retirement age of 65. Today average life-expectancy is 79, and now only 24% of workers have traditional pensions. In 1978 Congress first set up 401(k)s, and workers began moving from traditional pensions to retirement accounts, which of course are at the mercy of fluctuations in the stock market. These retirement accounts were meant to supplement Social Security, which today barely covers basic needs.
According to the Fed’s 2016 Survey of Consumer Finances almost half of U.S. families don’t have any retirement account at all. Those who do don’t have enough funds. Estimates vary but one rule of thumb is to have built up a nest egg of 5-8 times your pre-retirement salary. The median savings account of workers is $25,000 -far less than what the average person would need per year to maintain their lifestyle.
The Bureau of Labor and Statistics notes U.S. seniors are employed at the highest rate in 55 years, and this trend will continue-by 2024 36% of 65-69 year olds will be in the labor market. We know that part of this is due to lack of resources needed to retire fully, but it’s not the whole story. People also continue to work past retirement age because of rising healthcare costs and stagnant wages.
So what are the implications? First of all, the job market is directly impacted by older workers holding on to their jobs, leaving less opportunity for entry-level workers. Furthermore, when defined pensions were more the norm, it was often easier for companies to weather down-turns in the economy by “easing” older worker into retirement, sometimes by enhancing pensions as an incentive. Perhaps the most important point is not only the fact that seniors are working longer but one need look at the type of work they’re engaged in. According to the Center for Economic and Policy Research (CEPR), 37% of males and 31% of females 58 and older hold what are considered physically demanding jobs. These jobs are also disproportionately held by minorities and those with lower levels of education. “Physically demanding” includes jobs requiring standing all day, lifting heavy objects, working outdoors, and with hazardous materials.
It’s natural that there will be change as a nation ages, its populace matures, and as the nature of the workplace itself is transformed. But what shouldn’t be altered is the very spirit of what our nation has to offer and the ability of its citizens to continue to see that promise as a bright, shining object still within their grasp. Maybe it’s time to burnish the American dream
posted by Amy Levengood