Statement of U.S. PIRG’s Ed Mierzwinski on Defeat of Wall Street Bailout

“Today the House of Representatives listened to concerned Main Street voters and taxpayers and defeated a defective Wall Street bailout.

The flawed $700 billion package requested by the Bush administration had been fast-tracked to address the still-real threat of a financial markets meltdown. Any chance the bill would be worth passing fell apart when the Administration blocked the addition of real protections for homeowners and taxpayers and cynically insisted on provisions that made the bailout more like ice cream for the financial industry than tough medicine. That sweetness for Wall Street and bitter pills, and big tax bills, for Main Street doomed the bill in the House.

If serious about addressing the problem, Congress must make its number one priority protection for taxpayers by protecting homeowners from foreclosure. They must include a mandatory court-supervised program for modifying loan terms so people can pay their mortgages and stay in their homes. That will both lower the cost of the bailout and also preserve home values for their neighbors in communities across the country.

The Congress should also improve the bill’s vague and inadequate limits on executive compensation and improve accountability for the spending of the $700 billion taxpayer dollars on the table.

It is quite simple: If a company is going to rely on the taxpayer for cash, then taxpayers, not failed CEOs, deserve first choice of any bonuses and commissions for its success.

We will oppose any new bill before adjournment that fails to place Main Street first.

We also call on Congressional leaders to commit to addressing in the first 100 days of the next Congress a broader set of financial system regulatory reforms and of the economic stimulus package for Main Street that has stalled.”
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Today the House defeated (NY Times story) the Wall Street bailout plan developed by Treasury Secretary Henry Paulson on a 205-228 vote. Our statement. Votes in the House and Senate on a revised bill may occur Wednesday. While much of the news will likely be about some of the Republicans who opposed the plan on free market grounds, a large number of Democrats also opposed it.

Many of them, including members of the Congressional Black and Hispanic Caucuses, are running unopposed and presumably are not afraid of the voters. So why did they vote against the Speaker and the President? Perhaps they were making a statement that the bill really had nothing significant in it to help Main Street homeowners or taxpayers either.

As we have previously noted, our coalition's must-be-included plan to modify mortgages to prevent foreclosures was taken out of earlier drafts (it had been among the banking industry's "vote this off the island" priority list) late last week.

Yet, many believe that the voluntary measures to stop foreclosures remaining in the bill won't really work-- and that is the crux of problem. Why not? Well, because these are voluntary. As MSNBC reporter John Schoen writes today: Foreclosures are key element missing in plan. He goes on to point out why many think that those alternative voluntary measures won't work, and ultimately, why that matters to the whole concept of the bailout bill, not only to distressed homeowners and their neighbors:

But the biggest unknown is whether the government’s pledge to help homeowners at risk of losing their homes will be any more effective than past efforts to slow the pace of defaults and foreclosures. Until that tide begins to turn, the housing market will continue to be bloated with big inventories of bank-owned houses put back on the market at fire-sale prices. That puts downward pressure on all home prices. And until home prices stabilize, it’s impossible to assign a value to the troubled investments at the heart of Wall Street's problems.

According to a summary (below the "continue reading" jump) from the Speaker's office, final bi-partisan Wall Street rescue and bailout legislation will not include the consumer, civil rights, community, labor coalition's priority ask: giving bankruptcy judges the ability to prevent foreclosures to keep people in their homes and help taxpayers by reducing the cost of the bailout. The modest foreclosure prevention proposals remaining in the plan are expected to be inadequate. A deal on the unprecedented Wall Street bailout will likely be voted on today Sunday or tomorrow Monday. So, the foreclosure crisis will continue as homes, and entire neighborhoods, will continue to be boarded up. The question now is -- will the $700 billion dollars of market confidence money at the core of the bailout work? The taxpayers who will pay for it -- both in dollars and the opportunity cost of other programs that won't go forward -- are eager to know.

We can only hope that the Congress takes the few months before the new 2009 Congress to conduct vigilant oversight of what went wrong so it can conduct a more thoughtful implementation of additional reforms next year. Already this week, SEC Chairman Chris Cox has admitted the accuracy of a two-part SEC inspector general's report on its Bear, Stearns oversight failures (New York Times). We fully expect and will demand that Congressional hearings making plans for major financial reforms in 2009 include more than the usual suspects from the financial industry as witnesses. Those prudential reforms must put a higher priority on protecting taxpayers, homeowners, depositors and small investors and holding the financial regulatory system and its players accountable. After all, we taxpayers now own some of its former biggest players. Here is the Speaker's press release. Bailout summary follows.

Office of Speaker Nancy Pelosi -- Sept. 28, 2008

REINVEST, REIMBURSE, REFORM

IMPROVING THE FINANCIAL RESCUE LEGISLATION

Significant bipartisan work has built consensus around dramatic improvements to the original Bush-Paulson plan to stabilize American financial markets -- including cutting in half the Administration's initial request for $700 billion and requiring Congressional review for any future commitment of taxpayers' funds. If the government loses money, the financial industry will pay back the taxpayers.

3 Phases of a Financial Rescue with Strong Taxpayer Protections

* Reinvest in the troubled financial markets … to stabilize our economy and insulate Main Street from Wall Street
* Reimburse the taxpayer … through ownership of shares and appreciation in the value of purchased assets
* Reform business-as-usual on Wall Street … strong Congressional oversight and no golden parachutes

CRITICAL IMPROVEMENTS TO THE RESCUE PLAN

Democrats have insisted from day one on substantial changes to make the Bush-Paulson plan acceptable -- protecting American taxpayers and Main Street -- and these elements will be included in the legislation

Protection for taxpayers, ensuring THEY share IN ANY profits

* Cuts the payment of $700 billion in half and conditions future payments on Congressional review
* Gives taxpayers an ownership stake and profit-making opportunities with participating companies
* Puts taxpayers first in line to recover assets if participating company fails
* Guarantees taxpayers are repaid in full -- if other protections have not actually produced a profit
* Allows the government to purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families

Limits on excessive compensation for CEOs and executives

New restrictions on CEO and executive compensation for participating companies:

* No multi-million dollar golden parachutes
* Limits CEO compensation that encourages unnecessary risk-taking
* Recovers bonuses paid based on promised gains that later turn out to be false or inaccurate

Strong independent oversight and transparency

Four separate independent oversight entities or processes to protect the taxpayer

* A strong oversight board appointed by bipartisan leaders of Congress
* A GAO presence at Treasury to oversee the program and conduct audits to ensure strong internal controls, and to prevent waste, fraud, and abuse
* An independent Inspector General to monitor the Treasury Secretary's decisions
* Transparency -- requiring posting of transactions online -- to help jumpstart private sector demand

Meaningful judicial review of the Treasury Secretary's actions

Help to prevent home foreclosures crippling the American economy

* The government can use its power as the owner of mortgages and mortgage backed securities to facilitate loan modifications (such as, reduced principal or interest rate, lengthened time to pay back the mortgage) to help reduce the 2 million projected foreclosures in the next year
* Extends provision (passed earlier in this Congress) to stop tax liability on mortgage foreclosures
* Helps save small businesses that need credit by aiding small community banks hurt by the mortgage crisis—allowing these banks to deduct losses from investments in Fannie Mae and Freddie Mac stocks

Well, I guess they heard people like good news better, and, of course, they saved Internet bandwidth by not talking about WaMu's record-breaking failure (previous blog).
Ed

Exciting News for our Customers!
We're proud to announce that WaMu has become part of one of the nation's strongest banks; your deposits remain insured by the FDIC and are now also backed by the strength and security of JPMorgan Chase.

As of September 25, 2008, JPMorgan Chase & Co. has acquired the deposits, loans, and branches of WaMu. Together, we offer superior banking convenience with over 5,400 branches and 14,000 ATMs in 23 states.
What will this mean for you?
• Your deposits continue to be insured by the FDIC, and are also immediately backed by the strength and security of JPMorgan Chase.
• If you bank at both WaMu and Chase, your deposits continue to be insured separately today just as they were yesterday, and generally will be for another six months. At that time, your deposits will be insured by the FDIC for up to $100,000 per depositor (with an additional $250,000 for self- directed retirement accounts), and will continue to be backed by the strength and security of JPMorgan Chase.
• Continue to bank just as you do today: same branches, account numbers, checks, ATM, debit and credit cards, customer service phone numbers, automated payments, and online banking.
• In the future, you'll be able to use Chase branches and ATMs nationwide; we'll let you know in advance.
Watch for more news to come on more products, new services and additional banking convenience!
JPMorgan Chase Bank, N.A., Member FDIC, Equal Housing Opportunity Lender.
(c) 2008 JPMorgan Chase & Co

While this is no longer accurate, since it is more than an hour old, the attached 102 page version of the Democratic discussion draft of Wall Street rescue/bailout legislation will give you details on progress from the original 3 page Paulson proposal. Also, here are what I am told are the Senate Republican substitute principles (1 page).

Here's a newer (Wednesday) version of our coalition's Monday letter to Congress -- updated with numerous new sign-on groups -- demanding that bankruptcy judges be given the right to make court-supervised loan modifications as a mandatory condition of any Wall Street rescue bill. Preventing foreclosures keeps people in their homes making monthly payments and preserving neighborhoods. Helping homeowners helps taxpayers by reducing the cost of the Wall Street bailout. What part of that don't the President, Hank Paulson and Congressional opponents understand?

Yesterday, Wall Street bailout talks collapsed (Washington Post story, New York Times story) as dissident House Republicans rejected the President's proposal that was being negotiated by Congressional leaders and the President and plan architect Treasury Secretary Hank Paulson at the White House. While the House Republicans have philosophical opposition to market intervention, a number of House Democrats led by John Conyers (D-MI) and Zoe Lofgren (D-CA) and a broad U.S. PIRG-backed coalition also continue to oppose the plan, for different reasons. The proposal, even as modified by Congressional leaders, still does nothing for Main Street. It still lacks our lead demand -- giving consumers in dire straits modest loan modification rights to avoid foreclosure. As the New York Times asks in its lead editorial: What About the Rest of Us?

Mr. Paulson has long opposed what is probably the best way to help Americans stay in their homes: allowing a bankruptcy court to reduce the size of bankrupt borrowers’ mortgages. Unfortunately, but predictably, drafts of the bailout plan circulated late Thursday do not mention that relief. It is simply outrageous that every type of secured debt — except the mortgage on a primary home — can be reworked in bankruptcy court. The law was designed to protect lenders, who have obviously and disastrously abused that protection. There would be no favors dispensed in bankruptcy proceedings. Lenders would have to accept less of a payback and borrowers would have to submit to the oversight of the bankruptcy court for years.

I am speaking later today at an all day FTC workshop on debt settlement firms. You can get the agenda, a live webcast and other materials (including consumer help brochures) at that link. Debt settlement firms have been the subject of numerous FTC and state enforcement actions for taking consumers' money for no good reason while using unfair and deceptive practices. The firms charge desperate consumers anxious to reduce credit card debt burdens massive upfront fees with the vague promise that the banks will reduce their debts because of the firms' sophisticated negotiating skills. Don't believe them. As you can see, I am a skeptic on this "industry." Not a problem, as I think they asked me to speak in the interest of fairness and balance, since there are a whole lot of "industry" types speaking!

Here's a great CNN video story The Money Pushers about recently released Youtube video interviews with former MBNA (now part of Bank of America) credit card call center "associates." Exposing the unfair tactics is a project of the PIRG-backed Americans For Fairness In Lending and the actual interviews are available at this "watch all the videos" page at AFFIL. From the AFFIL release:

Earlier this year, former employees of MBNA contacted AFFIL looking for a way to speak out about disturbing sales practices at one of the country’s largest credit card companies. “Everything that I was trained to do was about selling money, nothing else,” stated Cate Colombo, who worked for four years as a Customer Service Representative at MBNA, now run by Bank of America. “We were given financial incentives to drive customers more into debt. The company’s practices were absolutely unethical and should be illegal,” said Ms. Colombo.

We've worked with 26 leading consumer, civil rights, labor and community organizations to send Congress a detailed platform of Public Interest/Main Street Principles To Guide the Wall Street Rescue.

More details in the principles letter (same link as above).

Massachusetts regulators (their release, detailed regulations, Boston Globe story) have issued data protection rules for businesses, implementing its recent identity theft law, which was enacted following a spate (TJ Marshalls and other TJX stores, Hannaford Stores and Harvard U, etc) of high-profile data breaches right in the hub of Red Sox Nation. In addition, Governor Deval Patrick has issued an executive order

"requiring all state agencies to immediately take steps to implement security measures consistent with the requirements established by OCABR's regulations for private companies."

Shortly after the TJX incident, Patrick signed sweeping legislation requiring companies to notify the state of future security breaches and ordering the consumer affairs agency to craft new regulations. [...] After business groups raised objections to an early draft of the rules, Crane said, the agency made several changes. [...] Still, Eric Bourassa, a consumer advocate for the Massachusetts Public Interest Research Group, said he is pleased with the final version.

In some good (and non-Wall Street bailout-related) news, Public Citizen attorney Brian Wolfman explains over at the Consumer Law and Policy blog that consumer groups have prevailed over the Bush administration in federal court. Public Citizen, Consumers for Auto Reliability and Safety, and Consumer Action sued the Department of Justice over its 15-year unlawful delay in establishing a used vehicle database.

The purpose of the database is to enable consumers to check the validity of a car's title and odometer reading and learn whether the car has been stolen or severely damaged.

Oops, a few days ago I said Tuesday was 9/24. It is actually today. In what seems like a short deadline for a recently approved settlement, consumers must register here by Tuesday WEDNESDAY 9/24, (name, address and some details but no bank account or credit card numbers required) to obtain benefits (either six months of credit monitoring with a possible cash payment OR nine months of enhanced credit monitoring) in a nationwide settlement of a lawsuit against the credit bureau Trans Union. More information in this pdf summary. The good news is that the settlement prohibits TU from automatically renewing you, although it certainly hopes and dreams consumers will convert to for-profit credit monitoring at the end. Take it for free but just say no when it is over.

Rep. Carolyn Maloney (D-NY) rolled a 300 game today, as the House approved her Credit Cardholders' Bill of Rights, HR 5244 by an overwhelming 312-112 vote. The victory sends a strong message to the banks that the Congress, as well as consumers, is tired of their tricks and traps. It also sends a clear message to the Federal Reserve to buck up and resist demands from the banks to weaken its similar rule proposal scheduled to take effect at the end of the year. Previous blog has details.

Now, we continue efforts to convince the Congress that (1) Secretary Paulson wears no clothes and (2) the banks wear no clothes, so (3) why is it so hard to tell them that any final Wall Street rescue must protect homeowners and taxpayers? We still don't have a guarantee that the proposal will allow bankruptcy judges to help keep people renegotiate loans so that they can stay in their homes. We have to get rid of the double standard in Washington-- where the banks can come to Congress with Mr. Paulson and ask for an unlimited bailout with the right to re-negotiate their debts, but consumers cannot. Previous blog.

[Updated; letter has more sign-ons 9/26.] We have joined leading consumer, civil rights, community and civic organizations in a letter -- updated with numerous new sign-on groups -- formally urging Congressional leaders to add a provision to the Wall Street rescue. The provision would simply allow bankruptcy judges to modify certain subprime loans so homeowners can avoid foreclosure proceedings and stay in their houses (and keep their neighborhoods strong). With all that Wall Street is getting in this proposed open-ended bailout, why do the banks continue to oppose this modest provision for Main Street, and, further, what moral ground do they have to stand on? See also previous blog on the bailout. Excerpt from our letter signed by (so far) 34 groups:

We cannot support, and urge you to oppose, legislation that fails to help the millions of families in danger of losing their homes, while spending hundreds of billions of dollars of taxpayer money to bail out those who caused the problem. Ever since the mortgage foreclosure crisis erupted into the public eye last year, our organizations have advocated Chapter 13 judicial modification relief as the most effective way, at no cost to taxpayers, to keep homeowners from losing their homes. We do not believe that this crisis can be resolved solely through voluntary efforts on the part of the financial services industry. It is no longer possible to trust the industry to dictate the terms of the public policy discussion about the mortgage foreclosure crisis. First, the industry insisted that there would be no mortgage foreclosure crisis.

UPDATE: The White House has issued a SAP (Statement of Administration Policy) opposing the Credit Cardholders Bill of Rights (which may come up as early as 10AM Tuesday). It's more like a SOP to its industry cronies.

Original post: We're urging all members of Congress to support the Credit Cardholders' Bill of Rights, HR 5244, sponsored by Rep. Carolyn Maloney (D-NY) and 155 co-sponsors. It's something that Congress can do for Main Street, in this week of extraordinary efforts on behalf of Wall Street. Oh, by the way, the Credit Cardholders' Bill of Rights is not a bailout, it simply bans the banks' worst unfair and deceptive practices. As our U.S. PIRG floor letter, our coalition floor letter and this letter signed by leading civil rights groups all point out, it is modeled on a similar Federal Reserve proposal. The bill could be considered as early as Tuesday. Of course, it enjoys fierce opposition from the banks that have placed Americans in debtors' prisons without walls due to their use of a variety of unfair and deceptive practices it would make illegal.

Update: Here are latest versions of the Treasury proposal and the Senate and House counter-proposals. We understand that the House proposal will have the Senate's consumer bankruptcy modification proposal added. It must. Any final Wall Street bailout law must include this Main Street provision. By the way, there's quite a bit of analysis of the proposals and the debacle over at Dean Baker's and Credit Slips and Consumer Law and Policy blogs.

Earlier post: On the last day for Yankee Stadium (The House that Babe Ruth built, AP photo, 1948), the last remaining Wall Street self-proclaimed so-called "masters of the universe" -- the Wall Street investment houses that Goldman and Morgan built -- announced plans (New York Times) to become regulated bank holding companies, giving themselves more regulation in return for more access to government capital at low rates. While the Yankees had a downturn this year, they never collapsed like failed masters of the universe Bear, Lehman and Merrill, along with the bailout kids at AIG and others. Based on the scenes at the Stadium last night, there is more fan confidence in a Yankee return to masters of the universe greatness than investor or consumer or taxpayer confidence in the Paulson "blank-check-bigger-than-the-Iraq-war" plan. It is critical that Congress add prudential safeguards to the proposal, including greater GAO and Congressional oversight and transparency. Congress must also insist on the following:

On the New York Times' op-ed page, in his column Cash for Trash, economist Paul Krugman explains some of the problems with the Paulson proposal.

UPDATE So it turns out that today Wednesday, not Tuesday. is 9/24, the deadline for free credit monitoring. Still time to sign up -- do it today.

In what seems like a short deadline for a recently approved settlement, consumers must register here by Tuesday WEDNESDAY 9/24 (name, address and some details but no bank account or credit card numbers required) to obtain benefits (either six months of credit monitoring with a possible cash payment OR nine months of enhanced credit monitoring) in a nationwide settlement of a lawsuit against the credit bureau Trans Union. More information in this pdf summary.

The good news is that the settlement prohibits TU from automatically renewing you, although it certainly hopes and dreams consumers will convert to for-profit credit monitoring at the end. Take it for free but just say no when it is over. TU actually broke the law throughout most of the 1990s, and lost a lawsuit against the Federal Trade Commission (ultimately the Supreme Court denied TU's request for an appeal of the ruling by the DC Circuit US Court of Appeals, which even industry commenters found to be an emphatic slapdown -- this made bad law for credit bureaus, but good law for consumers) before this private litigation took place. Trans Union felt it was above the law, and arrogantly used protected credit reporting data for target marketing in defiance of the law. This case offers fairly paltry (but easy to obtain) benefits in my view, and not enough punishment for a recidivist corporate wrongdoer. According to a recent AP story, the association representing credit bureaus and their less regulated ilk (data brokers) spent over $264,000 lobbying Congress in just the second quarter of 2008.

I've received what appears to be a discussion draft of the proposed legislation to establish the $700 billion bailout authority. I cannot find this on the Treasury website but it looks accurate based on press reports. It certainly needs work over the next few days (it is supposed to pass into law by Friday) to meet the oversight principles I expect that the Congress will demand, and the public interest principles to protect homeowners, depositors and taxpayers that consumer and community groups are calling for, as I outlined in my previous blog entry. Below is the language. Sorry I don't have pdf-making software here on my home laptop.

Broad grant of authority to Secretary

LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY TO PURCHASE MORTGAGE-RELATED ASSETS
Section 1. Short Title.
This Act may be cited as ____________________.
Sec. 2. Purchases of Mortgage-Related Assets.
(a) Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.
(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:
(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;
(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;
(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and
(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.
Sec. 3. Considerations.
In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--
(1) providing stability or preventing disruption to the financial markets or banking system; and (2) protecting the taxpayer.
Sec. 4. Reports to Congress.
Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.
Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.
(a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.
(b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.
(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.
(d) Application of Sunset to Mortgage-Related Assets.--The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.
Sec. 6. Maximum Amount of Authorized Purchases.
The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time
Sec. 7. Funding.
For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency
Sec. 9. Termination of Authority
The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.
Sec. 10. Increase in Statutory Limit on the Public Debt.
Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.
Sec. 11. Credit Reform.
The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.
Sec. 12. Definitions.
For purposes of this section, the following definitions shall apply:
(1) Mortgage-Related Assets.--The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.
(2) Secretary.--The term “Secretary” means the Secretary of the Treasury.
(3) United States.--The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.

The New York Times reports in a story by David Herszenhorn on its website on Saturday: Rescue Plan Seeks $700 Billion to Buy Bad Mortgages. The amount is staggering as the story points out:

A $700 billion expenditure on distressed mortgage-related assets would be roughly what the country has spent in direct costs on the Iraq war and more than the Pentagon’s total yearly budget appropriation. It represents more than $2,000 for every man, woman and child in the United States.

Most of the assets in the S.& L. crisis were real estate — which are always going to have value. And the government didn’t have to acquire them; it simply took them over and, over time, sold them. This time, the assets are complex derivatives of uncertain value that the big firms will actually be selling to the government. But how is the government going to assess these securities — and what price will it pay for them? In many cases, these securities aren’t being sold because they are still overvalued on a firms’ books.

Last month we and other consumer groups and leading law professors joined a petition drafted by Consumers Union urging that the FDIC strengthen insurance protections for money on various prepaid and stored value cards, including payroll cards, certain tax refund and benefit cards and other cards including gift cards. As Consumers Union pointed out in its blog, "bank accounts and stock brokerage accounts are insured, but wages directly deposited to a prepaid card might not be." From the petition:

The public puts money and confidence in U.S. financial institutions partly because of the safety net of federal deposit insurance. The development of prepaid cards of various types not specifically connected to individual deposit accounts has created uncertainty and gaps in the deposit insurance safety net that must be closed now, as the nation begins to grapple with an anticipated series of bank failures. We are particularly concerned about various forms of prepaid cards, also called stored value cards, that hold the wage payments of individuals and other funds that are important to individuals and families.

We've joined Public Citizen, the Center for Economic Justice and other groups (our letter) in opposing HR 5840 (Kanjorski-D-PA) to establish a federal Office of Insurance Information. That's a laudable goal, but despite Mr. Kanjorski's well-intentioned efforts to improve the bill, it still includes dangerous state preemption language that even goes so far as to give the U.S. Treasury Department unprecedented authority to preempt state laws on the basis of its interpretation of the intent of international treaties and trade agreements, or even to make such agreements and thus preempt state law. The bill may be voted on as early tonight and is being considered on the suspension calendar, usually reserved for non-controversial bills (does require 2/3rds vote in approval, no amendments are in order). Reps. Jackie Speier (her release) (D-CA) (former chair of the California Senate Insurance Committee) and Dennis Kucinich (D-OH) are leading the effort against the bill. From our letter:

Never before has the U.S. government allowed a federal agency to interpret or enter into international agreements on subject matter under the authority of the legislative branch, and then preempt states through rule-making on the basis that state policies are in contradiction to those agreements. HR 5840 would allow the Treasury to “coordinate federal efforts and establish federal policy on international insurance matters” (emphasis added) and then preempt state law via administrative action upon its own determination that the state law is “inconsistent with such policy.”

The CPSC has recalled 600,000 more cribs made by Simplicity. According to the Washington Post story by Annys Shin, the previously recalcitrant SFCA, the private equity fund that acquired Simplicity's assets, is cooperating with retailers this time (previous recall where it did not) although this is not mentioned in the CPSC release. According to the Post: "the drop side can come off, creating a gap where infants and toddlers can become trapped and be strangled..."

Retailers include:

AAFES, of Dallas, Texas
Babies“R”Us, of Wayne, N.J.
Burlington Coat Factory/Baby Depot, of Burlington, N.J.
K’s Merchandise (out of business)
Meijer Distribution Inc., of Grand Rapids, Mich.
Nebraska Furniture Mart, of Omaha, Neb.
ShopKo, of Green Bay, Wis.
Target, of Minneapolis, Minn.
Wal-Mart Stores Inc, of Bentonville, Ark.

From today's joint news release Secret Counterfeiting Treaty Must be Made Public, Global Organizations Say :

More than 100 public interest organizations (including U.S. PIRG) from around the world today called on officials (go to release and letter website or letter only (pdf)) from the countries negotiating Anti-Counterfeiting Trade Agreement (ACTA) -- the United States, the European Union, Switzerland, Japan, South Korea, Canada, Mexico, Australia and New Zealand -- to publish immediately the draft text of the agreement.

[...] Worsening the problem is the perception that industry lobbyists have access to the text and are influencing the negotiations. "The lack of transparency in negotiations of an agreement that will affect the fundamental rights of citizens of the world is fundamentally undemocratic. It is made worse by the public perception that lobbyists from the music, film, software, video games, luxury goods and pharmaceutical industries have had ready access to the ACTA text and pre-text discussion documents through long-standing communication channels.

UPDATE: The NYTimes is reporting that the State of New York will allow AIG to borrow $20 billion from its own state-regulated subsidiaries.

ORIGINAL POST: Floyd Norris at the New York Times is "live-blogging" Wall Street crisis updates today. At 10:55AM he has some interesting analysis about the still-looming likely failure of insurance giant AIG:

It was a couple of years ago that we learned AIG had sold, and bought, so-called finite insurance to manipulate financial statements.[...] Lesson: If you find out management is willing to cut corners in the financial statements, you should flee.

Sunday was no Sunday at the beach for Wall Street self-proclaimed masters of the universe. We'll have to see what that ultimately means for small investors. Venerable investment bank Lehman Brothers announced it will file bankruptcy; Merrill Lynch likely dodged that bullet by finally agreeing to be acquired by Bank of America; and meanwhile, insurance colossus AIG and S&L giant Washington Mutual teetered. Following round the clock meetings all weekend, surviving bankers agreed to backstop themselves with a multi-billion dollar emergency borrowing facility while regulators who refused any more full Bear Stearns style bailouts for non-depository institutions that also thought they too were too-big-to-fail did agree to flexibility (New York Times story) in capital requirements and emergency loan standards. The operative words were the F-words fear, faltering, failure:

Even leaving aside the obvious need to regulate the shadow banking system — if institutions need to be rescued like banks, they should be regulated like banks — why were we so unprepared for this latest shock? When Bear went under, many people talked about the need for a mechanism for “orderly liquidation” of failing investment banks. Well, that was six months ago. Where’s the mechanism?

Annys Shin of the Washington Post is reporting in a story Tighter Lead Rule for Kids' Items that the CPSC will announce today Monday a legal opinion that confirms that the new Consumer Product Safety Improvement Act requires that all children's products containing lead in amounts greater than 600 ppm must be off the shelves by February, and will require that product previously manufactured and in inventory be destroyed. The bad news is that at a recent public meeting, the CPSC all but told industry lawyers and lobbyists that -- (paraphrase) "except for toys with toxic lead (and probably also toxic phthalates) where that pesky Congress has boxed us in, not to worry as we intend to go out of our way and interpret all other effective dates for all new product standards as loosely as possible, so you can keep on selling dangerous products you've already made." I noted this pro-industry slant in my blog after that meeting, as did Annys Shin in her blog. Page 11 of this CPSC slideshow from that meeting explains the rationale for lead and phthalates; previous pages explain why other dangerous products may be treated with less deference to safety.

In an editorial Consumer Protection today, the New York Times calls for Presidential candidates to urge House leaders Speaker Nancy Pelosi (D-CA) and Majority Leader Steny Hoyer (D-MD) to bring the PIRG-backed Credit Cardholders' Bill of Rights to the floor for a vote and to introduce a similar Senate bill.

For all of these candidates who keep talking about helping the ordinary American, this should be an easy one. Get behind the Credit Cardholders’ Bill of Rights now, before the election.

Public Citizen Litigation Group attorney Paul Alan Levy, one of the leading defenders of free speech on the Internet, thinks so. He has an interested post Trademark Abuse by Jones Day to Suppress Free Speech over at Consumer Law and Policy blog:

A new entry in the contest for “grossest abuse of trademark law to suppress speech the plaintiff doesn’t like” comes from Chicago, where the giant law firm Jones Day has sued BlockShopper.com, a web site that reports on real estate purchases in two upscale specific Chicago neighborhoods, as well as in Las Vegas, Palm Beach, and St. Louis.

Apparently, Jones Day didn't like links to its attorneys or its website. Levy says:

"That is what web sites do – they link to other web sites (that’s what makes it a “World Wide Web”)."

"that Jones Day is simply using an unsustainable legal theory, as well as the threat of ruin by litigation against a huge law firm, to try to bully Blockshopper.com into submission."

One observer briefed on the situation described the session as a “game of chicken” between the government and the heads of the major banks.

We must avoid simply merging regulators and hoping for synergies. We need a system that focuses on the prevention of crimes and crises...

He makes the interesting proposal of walls between classes of customers. We are not sure that will be enough of a solution to address the meltdown that has been created by numerous factors ranging from the too-big-to-fail doctrine that placed deposit insurance and taxpayers at risk and the interconnections that created flashpoints and accelerants instead of fire breaks, but it could be a part of a solution. Excerpt:

Seventy-five years later, instead of trying to limit what products innovative financial firms can offer, it would be more prudent to limit the markets to which they can sell their wares. In other words, the customers, not the companies, should be divided. This could be accomplished by extending the current system of government classification of “qualified investors,” used to limit who can invest in things like hedge funds. By demonstrating expert knowledge or the ability to absorb loss (because of high net worth), qualified investors could be given a pass into the caveat emptor world of modern Wall Street. Those without the inclination, the sophistication or the deep pockets to qualify would be limited to the more closely regulated menu of stocks, bonds and mutual funds.

We often point out that all plastic is not created equal. This week, we joined Consumers Union in a petition to the FTC to improve the rights of gift card holders (AP story via Rocky Mountain News). If you were the recipient of a now-valueless Sharper Image gift card following its bankruptcy, you know what I mean. If not, here is an excerpt from our joint petition (the Consumer Federation of America and National Consumer Law Center also joined CU).

Gift cards do not have adequate consumer protections, particularly when a retailer files for bankruptcy. Consumers are now discovering their gift cards may be greatly devalued or not worth anything at all when a retailer declares bankruptcy. There is no guarantee to consumers that they will be able to obtain the prepaid value on their gift cards from struggling or bankrupt retailers.

Declare the sale of gift cards without both segregating the funds and holding those funds in a trust to be an unlawful and deceptive practice; and

Prescribe new rules that require retailers to both segregate and hold in trust gift card funds, and to automatically honor a consumer’s gift card from those segregated funds for goods or services until or unless a bankruptcy court orders otherwise.

Over at his Surveillance State blog, Chris Soghoian Debunks Google's log anonymization propaganda.

Google announced on Monday that the company will be reducing the amount of time that it will keep sensitive, identifying log data on its search engine customers. To the naive reader, the announcement seems like a clear win for privacy. However, with a bit of careful analysis, it's possible to see that this is little more than snake oil, designed to look good for the newspapers, without delivering real benefits to end users.

After years of delay, today the U.S. National Highway Traffic Safety Administration finally opened a cranky, clunky but still helpful version of its public Early Warning database at Safercars.gov. Public Citizen has long advocated the reform. From its release and statement by its president and former NHTSA Administrator Joan Claybrook:

Auto manufacturers have been submitting this important data on deaths, injuries, damage claims and possible defects since 2003 but NHTSA kept it secret in violation of the law. Public Citizen was instrumental in pushing Congress in the 2000 Transportation Recall Enhancement, Accountability, and Documentation Act, or TREAD Act, to require reporting of early warning data after NHTSA failed to identify the defects in the Firestone tire/ Ford Explorer rollovers. NHTSA’s action today falls short of complying with the spirit of the law.

UPDATE: Despite DOJ's absurd, deplorable opposition, the Senate Judiciary Committee just approved on a voice vote S. 2838 (Martinez (R-FL) to ban pre-dispute mandatory arbitration clauses in nursing home contracts. Over 100 public interest, consumer, labor and civil rights support the bill.

Original post: Check out Paul Bland's blog entry over at Consumer Law and Policy blog concerning PIRG-backed legislation to reform the nursing home industry:

(excerpt)The United States Justice Department has completely disgraced itself. On July 30, 2008, Keith Nelson, Principal Deputy Assistant Attorney General of the United States, wrote a letter to the U.S. Senate Judiciary Committee in which he attacked S. 2838, a bill that would ban the use of pre-dispute mandatory arbitration clauses in nursing home contracts.

UPDATE: The report.

The Senate Permanent Subcommittee on Investigations, chaired by Carl Levin (D-MI) has issued a new report (release) charging that

some financial institutions have designed, marketed, and implemented transactions to enable foreign taxpayers, including offshore hedge funds, to dodge millions of dollars of taxes on U.S. stock dividends each year. [A hearing today], which follows a year-long bipartisan investigation, is part of a series of Subcommittee hearings on offshore tax abuse, which costs the United States an estimated $100 billion in tax revenues every year.

We need legislation to take these abusive tax avoidance gimmicks off the market, and we need to end the silence and inaction of the Treasury and IRS in the face of rampant dividend tax dodging.”

...singles out Morgan Stanley, Lehman Brothers, Deutsche Bank, Merrill Lynch, UBS and Citigroup.[...]A Morgan Stanley spokeswoman said that “we believe that Morgan Stanley’s trading at issue fully complied and continues to comply with all relevant tax laws and regulations.

The report also cited an internal e-mail message in which a Lehman employee hailed Microsoft’s announcement in 2004 of a special dividend and declared, “the cash register is opening!!!!” It then quoted a senior Lehman official as saying, “Outstanding. Let’s drain every last penny out of this [market] opportunity.”

In an exclusive, the Chicago Tribune's Patricia Callahan, one of the nation's leading CPSC watchdog reporters, finds that Feds, Graco withheld bassinet warning:

The U.S. Consumer Product Safety Commission botched the recall of the Simplicity bassinets, telling some American families that they should not put their babies to sleep in the bassinets while allowing others to continue placing their infants in a potentially deadly product.

Federal safety regulators and Graco Children's Products knew two weeks ago that bassinets sold under the Graco name had the same dangerous design that caused two babies' deaths but did not alert the public as part of a larger recall, the Tribune has found.

"Oh, my God," said Cara Smith, Illinois Atty. Gen. Lisa Madigan's deputy chief of staff, who has been investigating the bassinets. "What possible reason would you not get that information out? Utter disregard for the safety of babies. They sat on that information while people continued to use these bassinets believing they were safe."

U.S. PIRG Staff attorney John Krieger testifies (his testimony) today before the Senate Environment and Public Works Committee at a hearing on “Improving the Federal Bridge Program: Including an Assessment of S. 3338 and H.R. 3999.” Hearing video on this page. Excerpt from Krieger's testimony:

In order to revamp our transportation system for the needs of the 21st century, “fix it first” policies and accountability for spending must be prioritized. Unless we change the way that America finances bridge repair, we remain doomed to repeat mistakes of the past. The bridge collapse in Minnesota should serve as a wake-up call. We urge this committee to embrace an approach to highway spending that prioritizes maintenance and repair of our existing roadways and bridges. Our country can no longer afford the cost of inaction and misplaced priorities as our bridges continue to age and deteriorate.

Yesterday, in an editorial, USA Today urged the OCC, the obscure but powerful bank-friendly regulator that has allowed the credit card industry's fees and practices to spin out of control, to change its ways. The OCC has joined banks in a chorus opposing the proposed new Federal Reserve unfair and deceptive practices rules making many common credit card practices illegal. Says USA Today:

In some ways, the comptroller's action was predictable. In the past decade, when it came to protecting consumers, the agency has often been absent, late to the game or playing for the wrong side [...] In 2000, when hundreds of consumers complained of improper rate increases by FleetBoston Financial Corp., the OCC in essence told them to go file a lawsuit. When they did, the comptroller weighed in on FleetBoston's side.

Hundreds of thousands of Connecticut residents are among those just learning in the last few weeks that BNY Mellon (its breach site) placed them at financial risk when it lost unencrypted data tapes (excuse me, it blames a trusted courier) containing millions of customers' Social Security Numbers, bank account numbers, addresses and other building blocks of new account identity theft. But BNY Mellon apparently lost the information in either February or May. Its letter to customers in late August claims that its "forensic investigation" was responsible for the delayed notification. Neither Connecticut's Republican Governor Jodi Rell (her release) nor its Democratic Attorney General Dick Blumenthal (his release) think BNY complied with the state's timely data breach notification requirement, which provides that:

"Such disclosure shall be made without unreasonable delay ...[unless]...a law enforcement agency determines that the notification will impede a criminal investigation and such law enforcement agency has made a request that the notification be delayed."

My colleague Dr. Phineas Baxandall, Ph.D, U.S. PIRG's senior analyst for tax and budget policy, testified today (his written testimony) before the House Transportation and Infrastructure Committee at a Hearing on H.R. 6707, the "Taking Responsible Action for Community Safety Act." Link to full hearing. Excerpt from Baxandall's testimony:

The TRACS Act would address the fact that mergers can also undermine the public interest by affecting how railway companies reroute traffic, maintain existing tracks, or develop new lines. The legislation would appropriately empower the Surface Transportation Board to consider the broader public interest, including the impacts on commuter and intercity rail. This makes sense as we look toward the challenges of the future and the role that transportation must play in meeting those challenges.

There's a lot of bluster and blubber out on the net about Fannie and Freddie. If, instead, you want common sense analysis you can count on, check out the latest from public interest economist Dean Baker: Statement on the Conservatorship of Fannie Mae and Freddie Mac. He recognizes the importance of their role:

By creating the secondary-mortgage market, they created first a national and then an international market for home mortgages. This had the effect of equalizing interest rates across the country and making homeownership affordable to millions of families.

We would have benefited enormously had Fannie and Freddie operated in a conservative manner - buying up mortgages that met solid lending criteria, and packing them into standard mortgage-backed securities. Fannie and Freddie's eagerness to keep market share, even at the cost of acquiring riskier mortgages, was the main cause of their bankruptcy. Their innovative private-sector practices are likely to cost taxpayers tens of billions of dollars in this bailout, in addition to the much greater harm they caused to the economy by extending the housing bubble.

The CPSC has a new gateway webpage for all things - rulemakings, comment deadlines, notices and more -- related to the implementation of the landmark Consumer Product Safety Improvement Act (CPSIA). Since the new law has some very tight regulatory timelines, the page also allows you to sign up for either an old-school email list or a more modern Web 2.0 RSS feed to learn about updates to the page.

It's that time of year when the credit card companies are tabling on campus, offering "not-really-free-if-you-think-about-it" food and gifts to students who will impulsively sign up for a credit card without really thinking about it. Consumer reporter Liz Crenshaw of WRC-4 here in DC has a video story you can watch and Kara Spak of the Chicago Sun-Times has a story Helping students avoid debt, which also discusses state legislative efforts to ban "freebies" on campus. Kara's lede: "Sydney Maier wanted a free 6-inch veggie sub. She ended up with a credit card." More at our website on campus credit card traps, Truthaboutcredit.org.

As expected (my previous blog explaining our opposition) the FCC on Saturday issued an order granting AT&T and other telco companies their forbearance requests to provide significantly less information about consumer complaints, infrastructure buildouts and other matters of public concern to the commission. In his statement, Commissioner Michael Copps explains some of what he and Commissioner Adelstein (his statement) were able to salvage for consumer protection:

Rather than having certain ARMIS data that is currently submitted to the FCC disappear into the abyss via forbearance, we reached a compromise with regard to the ARMIS reporting requirements which can keep us from plunging off a cliff. First, the Commission grants covered carriers forbearance from certain ARMIS reporting requirements. Second, forbearance is conditioned on carriers continuing to collect and publicly make available their data on service quality and customer satisfaction for two years. They also must continue to collect infrastructure and operating data for the next two years. Third, we launch a Further Notice of Proposed Rulemaking to, hopefully, accomplish what we have avoided all these years—a reasoned, rational and relevant approach to ensuring that the data necessary for consumers and for state and federal regulators will be available going-forward.[...] For these reasons, I approve in part, concur in part, and dissent in part – a messy vote for a truly messy item.

Today's New York Times has a story Voter Registration by Students Raises Cloud of Consequences by Tamar Lewin on the latest skirmishes between local voter registrars and students attempting to assert their well-established rights to choose to register and vote where they go to school, instead of where their parents live. The story features PIRG's Sujatha Jahagirdar:

“There’s no issue for snowbirds who live in Iowa but fly to Florida for the winter,” said Sujatha Jahagirdar, program director of the Student Public Interest Research Group’s New Voters Project. “One demographic group, like students, shouldn’t have to overcome a special hurdle to vote. We impose all the responsibilities of citizenship on students, and we have to provide them with the privileges of citizenship, too.”

As expected (my previous blog), Treasury Secretary Paulson (remarks, fact sheets, etc) and the little-known Fannie/Freddie overseer, the Federal Housing Finance Agency director Joe Lockhart (statement), held a Sunday morning news conference to announce the takeover of the quasi-public Fannie Mae and Freddie Mac. Fed chairman Bernanke's statement. Joint bank regulator news release. New York Times website story. Washington Post website story. Floyd Norris in the NY Times. Blog by Dean Baker, an economist and co-director of the public interest think tank Center for Economic and Policy Research: "Yes, this was predictable." More from Baker:

From Dean Baker:

As I said back in September of 2002: "If housing prices fall back in line with the overall rate price level, as they have always done in the past, it will eliminate more than $2 trillion in paper wealth and considerably worsen the recession. The collapse of the housing bubble will also jeopardize the survival of Fannie Mae and Freddie Mac and numerous other financial institutions."

The Treasury Department on Sunday seized control of the quasi-public mortgage finance giants, Fannie Mae and Freddie Mac, and announced a four-part rescue plan that included an open-ended guarantee to provide as much capital as they need to stave off insolvency. At a news conference on Sunday morning, the Treasury secretary Henry M. Paulson Jr. also announced that he had dismissed the chief executives of both companies and replaced them with two long-time financial executives.

Freddie Mac and Fannie Mae have also inflated their financial positions by relying on deferred-tax assets — credits that the companies have built up over the years that can be used to offset future profits. Fannie maintains that its worth is increased by $36 billion through such credits, and Freddie argues that it has a $28 billion benefit. But such credits have no value until the companies generate a profit -- something they have failed to do over the last four quarters, and something that is increasingly unlikely within the next year.

The New York Times has a story today by Bob Driehaus -- Some States Set Caps to Control Payday Loans. It's a good overview of recent state efforts to push back against predatory payday lenders. The loan sharks enjoyed a good run for a while, and used massive campaign contributions to successfully pass numerous laws preserving their right to charge triple digit interest and keep consumers in perpetual debt, but state legislators are finally realizing that high cost lenders are bad guys, not good guys, and that payday loans aren't a choice worth having in the marketplace. Of course, as the story notes, the lenders are mounting ballot initiative campaigns in states where allowed, in efforts to try and overturn the new pro-consumer usury limits that many states have approved. My previous blog.

In an extraordinary move, the government is moving to place the once high-flying, once public, long "private" government sponsored enterprises (GSEs) that securitize mortgages -- Fannie Mae and Freddie Mac -- into conservatorship. In this case, average shareholders will apparently be left with nothing, but the banks and financial institutions that hold the firms' preferred stocks will get some value. The latest story, Loan Giant Overstated the Size of Its Capital Base, by Gretchen Morgenson and Charles Duhigg for tomorrow's New York Times, says that both, but especially Freddie, cooked the books to make their financial situation appear less precarious.

I used quotes around the word "private" up above because the two GSEs had long enjoyed a presumption of government backing and loan guarantees that had enabled them to grow perhaps too large in shareholder value as well as in political power and arrogance. This led to them losing touch with their primary mission as they sought to increase profits. Even though they serve a critically important role in the liquidity of the housing marketplace, this rampant political power probably caused Congress and even some outside groups to let the firms' growing abuses of accounting standards slide for too long, despite the warnings of a significant group of academic and independent critics. Worse, their executive bonuses spun out of control, beyond rational or reasonable levels, as if the executives who worked there -- even for very short times -- had been deserving entrepreneurs who'd bootstrapped the firms' successes from inventions in their own garages based on their own genius, rather than leaned back in their leather chairs and relied on the explicit and implicit government guarantees and a booming housing market and economy for their actual successes.

See a recent Congressional Research Service summary of GSE issues. See also an older CBO study. While few would doubt that the dire circumstance of the interconnections between the U.S. housing crisis and the world economy necessitate some sort of drastic, rapid action by regulators, this entry by Alan White over at Consumer Law and Policy blog points out that:

The imminent nationalization of Fannie Mae and Freddie Mac (NYTimes story) while perhaps restoring some confidence in the short-run, cannot resolve the underlying debt crisis. The GSE's are being hit by both the decline in home values and the losses on subprime mortgage-backed securities they hold. Without government intervention to stop the tide of foreclosures and their attendant loss and waste, taxpayers will have to absorb continuing losses after the GSE shareholders are wiped out. As the taxpayers become the mortgage investors of last resort, it seems all the more reasonable for taxpayers to demand action to broadly restructure existing mortgages to align them with home values, instead of allowing foreclosures at 50% loss rates to continue.

This week, the Ninth Circuit US Court of Appeals (decision, San Francisco Chronicle story) reinstated part of a landmark PIRG-backed California financial privacy law, SB 1, that will prevent banks and other financial firms from sharing some of your information with affiliates if you choose to opt-out. The new decision differentiates between sharing for credit purposes, which will still be subject to a "no-opt" rule and sharing for marketing or profiling purposes, which will have a newly enforced opt-out right. From the Chronicle:

For example, Deputy Attorney General Catherine Ysrael, the state's lawyer in the case, said customers provide personal and financial information to banks that maintain their accounts, and their credit card statements might reveal buying patterns that a bank could turn over to affiliated retailers. The law allows customers to block the sharing of such information.

Federal law (the 1999 Gramm-Leach-Bliley Financial Modernization Act) allows unfettered sharing between firms and their affiliates regardless of your preference; it only gives you a limited right to opt-out whenever information is shared with some third parties. California law now says that some sharing (for marketing or profiling) with affiliates requires the firm to first offer you a right to opt out (say no) and that all sharing with most third parties requires you to first affirmatively consent (opt-in or say yes). That part of the law had not been challenged and has been in force. (Note that some third parties selling financial products on behalf of the bank are treated as if they are affiliates; so, the opt-in that applies to "most third parties" applies primarily to sharing with all telemarketers and their ilk). SB 1 was championed by then-state senator Jackie Speier, who became U.S. Rep. Jackie Speier (D-CA) in a special election earlier this year following the death of Rep. Tom Lantos (D-CA).

During Congressional consideration of the 1999 Gramm-Leach-Bliley Financial Modernization Act, it became clear that information sharing among corporate affiliates was an issue of bi-partisan concern. While much has been written of the Victoria's Secret catalog that helped us, gross abuses of privacy by some of the nation's biggest banks -- including U.S. Bank and Bank of America predecessor NationsBank also helped us make the case for privacy. However, due to the power of the banking lobby, the final federal law resulted in privacy notices, but not much in the way of actual privacy rights. However, former Senator Paul Sarbanes (D-MD), a consumer champion, inserted language allowing states to pass stronger financial privacy laws. As it often does, California went first, passing SB 1. However, the legal turmoil (my 2005 blog entry) that ensued caused other states to drop similar efforts. The GLBA had unfortunately also included language preserving the Fair Credit Reporting Act. This conflict between its anti-preemptive Sarbanes amendment and its cross-reference to the preemptive Fair Credit Reporting Act's definition of affiliate led to the myriad court decisions before today. The court's decision this week recognizes that affiliate sharing not for credit reporting purposes should not be preempted by this cross-reference. This is important for privacy since it gives consumers the right to prevent unwanted marketing and invasive profiling. More older background from EPIC.

As early as today (Washington Post) the FCC may act on a petition from AT&T asking that FCC weaken its requirements for telecommunications companies to provide it with important data on consumer complaints and other matters, including levels of infrastructure investments. The company makes the absurd claim that consumers can analyze JD Power and other outside rankings instead of analyzing FCC complaints. Last month, we joined Free Press and Consumers Union in a filing opposing the proposal. We said:

The Commission should deny AT&T’s petition on both substantive and procedural grounds. We believe the ARMIS reports continue to serve the public interest by openly providing valuable information to the Commission, consumers, public interest groups and state authorities seeking to protect their citizens.

Comcast has sued to overturn an important FCC order requiring it to comply with the FCC's net neutrality, or Internet freedom, principles, according to stories appearing today first at the Wall Street Journal website (pd. subs. req'd.) Here is a Marketwatch (free version) of the story. In three petitions filed on behalf of PENNPIRG, Consumers Union and Vuze.com, our attorneys at the Media Access Project have asked the court to enforce the FCC order immediately. More from MAP attorney Harold Feld's personal blog. My previous blog.

Somehow my fairly unknown cell phone number has been put on the list used by fly-by-night extended auto warranty hacks who try and sucker people into buying their useless product that costs up to $700/year or more. I just received the latest of what seems to be about a call a week from various numbers threatening dire roadside emergencies and other dramas unless I re-up my supposedly expired factory warranty with them. Over at his MSNBC column, ConsumerMan Herb Weisbaum has more on why paying these guys is a bad, bad idea and why their entire practice of calling cell phones should be investigated by the FTC.

Annys Shin has a followup story in today's Washington Post on the Simplicity bassinet recall that SFCA -- which owns Simplicity's assets -- has refused to participate in, claiming it is not liable. Previous blog. SFCA is a unit of the private equity fund Blackstreet and claims it is not a successor company under the law:

In April, SFCA bought Simplicity's assets at auction. At the time, SFCA was aware of Simplicity's recall of 1 million cribs and voluntarily set aside resources to continue carrying it out. A May news release from Blackstreet said: "The Simplicity brand is well known for its exceptional value, innovative design and unparalleled focus on safety."

I just left some of my consumer colleagues at the second half of an all day CPSC seminar on the implementation of the landmark CPSC Improvement Act. The event is being held in an auditorium at the Commerce Department downtown. The building is named for Herbert Hoover but seemed older than that. In addition to the scant ten of us, the other 400 plus seats were full of industry lobbyists. Most of the questioners from the industry seemed to be asking the CPSC to interpret the law in a way that would allow them to keep selling existing but soon-to-be non-compliant inventory. In addition, one CPSC official seemed to directly suggest that for certain products that would become banned hazardous substances six months after August 14 (when the President signed the bill) it would be best to leave the room and book some containers on ships for export as soon as possible.

My analysis is that the CPSC's regulatory culture has always leaned toward interpreting the law prospectively -- that is, in favor of reading newer, more stringent laws to only apply to future products -- but that in some of the important provisions of the CPSC Improvement Act it is clear that the Congress did not intend them to continue to do that. Nevertheless, I got the sense by the tone of many of the agency comments -- and I hope I am wrong -- that they appear ready to bend over backwards wherever possible to find a tortured statutory interpretation that is favorable to continued sale of existing but-soon-to-be-non-compliant inventory.

Sorry, minor technical server burp there for a few days put us back in the way back machine to November 2007. We are back in real time. We hope soon to be upgraded to a more modern platform for the blog that takes and posts comments and all that, too.