Thursday, May 24, 2018

The Economic Growth, Regulatory Relief and Consumer Protection Act and How America's Banks Got Their Way

With very little fanfare or attention from voters, the House has now passed S.2155, the misleadingly named "Economic Growth, Regulatory Relief and Consumer Protection Act" which is now headed to the President for a quick "pencil-whipping".  Most Americans have no idea that this legislation could have a very significant impact on the federal government debt/deficit situation and that, thanks to Congress and both sides of the political divide, the banking sector is far more vulnerable to a repetition of what happened at the dawn of the Great Recession and the home buying public is more vulnerable to abusive banking practices.

While Congress likes to tout S.2155 as a "community bank bill", any benefits to Main Street America are far outweighed by the benefits to Big Banks.  This bill seeks to roll back some of the safeguards that were put in place with the Dodd-Frank Wall Street Reform and Consumer Protection Act aka the Dodd Frank Act.  The bill would alter the regulatory framework for two types of banks; banks will assets exceeding $50 billion and small community banks with assets under $10 billion.  Let's look at an analysis of S.2155 by Americans for  Financial Reform, looking at the sections of the bill that can best be described as a gift to America's banking sector and a negative for Main Street's homebuyers.

1.) The impact on banks:  

Let's start by looking at the pluses to the America's banking sector.  Under Section 401, the bill eliminates most of the requirements for special risk controls that were put in place after the 2008 - 2009 crisis for banks that range in size from $50 billion to $250 billion.  These banks are among the largest banks in the United States and include 25 out of 38 of the biggest banks in America.  In case you've forgotten, Countrywide and Golden West, contributors to the 2008 - 2009 crisis, had assets that fell into this range, requiring nearly $50 billion in taxpayer-funded bailouts.  As well, the Trump Administration has announced that it will use S.2155 to deregulate the operations of giant foreign-based megabucks like Barclays, Deutsche Bank and Credit Suisse, banks that also played a role in the 2008 - 2009 crisis.  It is important to note that, while these banks fall under the $250 billion asset limit in the United States, they have multi-trillion dollar global operations and, as such, pose a major risk to the U.S. economy.

Under Section 402, the bill would allow two of the largest and systemically significant banks to reduce their loss-absorbing capital levels.  BNY Mellon and State Street, banks that received $5 billion in taxpayer-funded bailout funds, would significantly reduce the level of their ability to protect themselves against insolvency.

Under Section 214, the bill would prevent regulators from requiring that banks, even the largest of Wall Street's megabanks, accumulate additional capital to absorb potential losses in commercial real estate loans (i.e. the supplementary leverage ratio).  It was risky investments in commercial real estate lending that drove the implosion of Lehman Brothers in September 2008, giving support to the "Too Big to Fail" mantra.

2.) The impact on consumers:

Now, let's look at the provisions of S.2155 that will impact America's consumers of housing.  Under Section 107, the bill exempts key montage lending for sales of manufacturing homes, allowing the sellers of these homes to manoeuvre customers into overpriced loans, making the public more susceptible to the same types of lending practices that created the unsustainable mortgage/housing market in the period leading up to the Great Recession.

Under Sections 101 and 109, the bill would weaken protection for millions of Americans who borrow mortgage funds from banks with under $10 billion in assets.  The provisions would eliminate protection against overpriced and adjustable rate mortgages at these smaller banks and would eliminate the requirements that ensure that consumers can pay tax and insurance on their homes to prevent these non-payment  bills from resulting in foreclosure.

Under Sections 103 and 100, the bill would weaken protection against fraudulent practices in home sales, making it easier to misinform homebuyers about the terms of their mortgage loans and eliminating the need for homes sold in rural ares to have an appraisal.

Now, let's look at the bottom line.  Thanks to the Congressional Budget Office, we can see that the implementation of S.2155 will have an impact on the federal government's finances as shown here:

In total, over the decade between 2018 and 2027, S.2155 is expected to add $671 billion to the federal deficit, rating from $19 billion in 2019 to $100 billion in 2021.

Now, let's look at the legislative background of S.2155.  The bill was sponsored by Senator Mike Crapo (R-ID) on November 16, 2016 and here is a list of co-sponsors:

Here is a list of who voted for and against S.2155 in the Senate:

Here is a list of who voted for and against S.2155 in the House:

As you can see, S.2155 appealed to both sides of the political divide with and with 16 Democratic Senators voting in favour along with 51 Republican Senators and  33 Democratic House members voting in favour along with 225 Republican House members. 

Let's close this posting with a quick look at how much the commercial banking sector spent on lobbying in Washington over the past two decades:

Here is a breakdown of how much the commercial banking sector contributed to political candidates in the period 2017 to 2018:

I think that we now have a pretty good idea of who we can blame the next time that Washington is forced to, once again, bail out America's banking sector and why S.2155 was enacted in the first place.  As we already know Washington is for sale and America's commercial banks are buying.

Wednesday, May 23, 2018

Donald Trump's 2017 Financial Disclosure - The Small Details

While the mainstream media focuses on the significant size of Donald Trump's 2017 Personal Public Financial Disclosure Report (OGE Form 278e), for this posting, I'm going to look at some of the more interesting but relatively small parts of Trump's asset base and annual income. 

1.) Book Writing: Donald Trump is credited with writing a total of 19 books, many of which were written by ghost writers.  Even though some of the books were published two to three decades ago, sales of some of these books are still producing royalty income as follows:

The Art of the Deal (1987) - $100,000 to $1,000,000

Trump: Surviving At The Top (1990) - less than $201

The Art of the Comeback (1997) - less than $201

The America We Deserve (2000) - less than $201

The Way To The Top (2004) - $1,001 to $2,500

How To Get Rich (2004) - $15,001 to $50,000

Think Like a Billionaire (2004) - $2,501 to $5,000

The Best Real Estate Advice (2005) - less than $201

Why We Want You To Be Rich (2006) - less than $201

Trump 101: The Way to Success (2007) - less than $201

Think Big and Kick Ass (2007) - less than $201

Never Give Up (2008) - less than $201

Think Like a Champion (2009) - $15,001 to $50,000

Time to Get Tough (2011)  - $15,001 to $50,000

Crippled America (2015) - less than $201

2.) Pensions: Donald Trump's involvement in television production has earned him pensions from two organizations as follows:

Screen Actors Guild (started participating in 1992) - $64,840

American Federation of Television and Radio Artists (started participating in 1989) - $6,543

3.) Movie and Television Cameo Appearances: In case you weren't aware or had forgotten, Donald Trump actually made a cameo appearance in the Little Rascals movie from 1994 for which he actually receives an IMDb credit.  Here he is:

Donald Trump also made a cameo appearance on the Fresh Prince of Bel-Air in 1994 in an episode entitled "For Sale by Owner" with his then wife, Marla Maples as shown here:

Donald Trump still receives residual income from both appearances as follows:

Little Rascals - $201 to $1,000

Fresh Prince - $201 to $1,000

He also earned between $201 and $1,000 in residual income from other appearances in movies and television, however detailed information regarding these appearances is not available.

While the income from his ventures outside of real estate development are relatively insignificant, in total, they add up to far more than the median family income of $72,707.  Nonetheless, it is still interesting to note that his income stream is extremely diverse and is, at the very least entertaining.