Bank of America rebuffed earlier news reports that its chairman and chief executive, Ken Lewis, intended to suggest to President Barack Obama to separate commercial and investment banking. The Charlotte bank said in a statement, "Mr. Lewis was referring to people's understanding of banks and how they should view the difference between commercial and investment banks in terms of forming perceptions of their various activities."

It turns out he was just trying to tell the public where to direct its ire against "banking" in general: Hate those Wall Street bankers, but not the poor tellers in your local branch.

Acting under the expectation that the Senate will not consider recent sweeping and House-passed legislation to tax bonuses and compensation to failed executives of AIG and large Wall Street banks receiving TARP or bailout funding at a 90% rate, the House Financial Services Committee yesterday approved a more limited piece of bonus limit legislation (FSC release):

“This bill is based on two simple concepts. One, no one has the right to get rich off taxpayer money. And two, no one should get rich off abject failure," said Congressman Alan Grayson (D-FL).

Our position remains simple: Congress should enact and enforce the strongest possible (including retroactivity) limits on the use of taxpayer dollars for compensation as part of its efforts to ensure that they are used for their original purpose of stabilizing the economy and making loans to businesses, consumers and homeowners. Congress should also reform the TARP by enacting greater transparency, disclosure and accountability rules.

The notion by fans of the financial sector that its executives and even its middle managers and techies -- even those at failed firms -- all need to be paid like A-Rod is not supported by any facts; most facts say the opposite-- excessive greed caused members of the financial sector to take on excessive risk, further exacerbated by moral hazard (it wasn't their risk, it was ours); while the financial sector, traditionally an intermediary sector in the economy, became bloated, making the impact of its massive failure on the entire economy even worse. Cutting the bonuses and cutting the compensation is as much a part of the solution as is comprehensive regulatory reform.

If the local police stumble onto a bank robbery, they will say "stop robbing now" and arrest the perpetrators. But after the Fed stumbled upon the blatantly obvious idea that credit card banks were robbing their customers, the Fed said, "Keep robbing now, then stop robbing in July 2010." So, according to widespread reports, banks continue to tighten down the thumbscrews on their customers, by imposing higher fees and new fees (how about that Chase $10/month fee?) and jacking most consumers, even good risks, to higher interest rates.

Now, there is hope. As noted today by Reuters, the Senate Banking Committee and a House Financial Services subcommittee are scheduled to mark up (vote on) two PIRG-backed credit card reforms next week. On Tuesday, 31 March, the Senate committee will consider Chairman Chris Dodd's (D-CT) Credit CARD Act, S. 414. Our previous letter of support is attached. On Wednesday, the subcommittee on Financial Institutions and Consumer Credit will consider Rep. Carolyn Maloney's (D-NY) Credit Cardholders' Bill of Rights, HR 627, which passed the House overwhelmingly last year on a 312-112 vote.

In the Senate, we expect that the banks will simply oppose the Dodd bill because it is more comprehensive than the Maloney bill, which largely tracks important but narrower Federal Reserve rules declaring routine bank practices as illegal unfair and deceptive acts. The Fed rule was approved in December but is not slated to take full effect until July 2010. In the Senate, the banks will say, "the economy is bad, don't hit us when we're down," and in the House they will say "Wait for the Fed, or at least delay Maloney until the same timeframe as the Fed." Consumers need protection now, not in 2010. Call your committee members, now. House Financial Services (full committee) members. Senate Banking Committee members. All can be reached through the Congressional switchboard at 202-224-3121.

Treasury Secretary Tim Geithner has announced his broad financial re-regulation plan as comprising four parts, and provided generally encouraging details on the first part, systemic risk regulation. His testimony and draft legislation proposed to the House Financial Services Committee today.
The four parts:

1. Addressing Systemic Risk
2. Protecting Consumers and Investors
3. Eliminating Gaps in Our Regulatory Structure
4. Fostering International Coordination

We also look forward, in coming weeks, to whether Geithner formally endorses a Financial Product Safety Commission, which we support and the President has generally supported in recent speeches. A plan without an FPSC would be a mistake. Geithner's testimony implies a single "strong" consumer regulator (good) but refers to "uniform" consumer protection (very bad). A plan where an FPSC preempts stronger state actions or limits state attorney general or other regulatory authority would be a mistake. A plan that allows weak, permissive, industry-friendly international treaties, often negotiated in secret, to trump stronger state and federal consumer protections would also be a mistake. As introduced in the House and Senate, the FPSC establishes a federal floor of consumer protection but allows states to go further. Laws that allow states to do better are the only consumer protection laws that make sense.

Over at his Red Tape Chronicles MS-NBC's Bob Sullivan chronicles his nightmare with canceling his Sprint cell phone contract. It comes down to this comment:

If you want to know why U.S. companies seem to run rough-shod over consumers on a regular basis, now you do: federal regulators hold the door open for them.

I wouldn't buy a subscription to a for profit ID theft service. And you shouldn't either.

[W]hen Consumer Federation of America (CFA)(release and report) studied the websites of 16 for-profit identity theft services, it found that the descriptions of how they help consumers are often confusing, unclear, and ambiguous. Furthermore, these services may not always offer the protection that consumers are led to believe they will get.

We've joined a number of leading consumer and community groups in a letter to the full House in opposition to HR 1214, the Payday Lending Reform Act introduced recently by Rep. Luis Gutierrez (D-IL), chair of the House Subcommittee on Financial Institutions and Consumer Credit. We are disappointed that Mr. Gutierrez, with several other consumer champions as co-sponsors, has introduced a bill to legalize payday lending at the federal level at an allowable APR of 390% for a two week loan. It might better be called the Payday Lender Protection Act. Although Mr. Gutierrez has essentially said (statement) that because the lenders and the consumer groups both oppose it, he must be in the right place, we respectfully disagree. In actual fact, the lenders have supported large parts of his bill in state fights and must be privately cheering the federal proposal.

In 2006, Congress capped loans to military families at 36% APR. Similar protections should be extended to all Americans, especially in an economic downturn when financial scams become an even bigger problem for cash-strapped consumers. Payday lenders represent one of the worst examples of wealth-stripping financial predators in the marketplace today. They should be required to comply with the same rules as other small lenders, not given Congressionally carved-out safe harbors to ply their sordid trade. Long excerpt from our letter after the jump:

H.R. 1214 provides Congressional approval to payday loans at rates of 390 percent APR for two weeks or 780 percent APR for one week. The loan cap of fifteen cents per dollar loaned in HR 1214 authorizes lenders to charge $60 for a typical $400 loan, which is due in one pay cycle. This means that, for the typical borrower with nine loans per year, H.R. 1214 authorizes lenders to collect $540 in finance charges for a $400 loan taken out over an 18-week period.

While the bill purports to provide other consumer protections, these provisions will not stop this product from being a debt trap for borrowers because they are easily evaded. They also fail to address the fundamental problem with the payday lending model--requiring the borrower to repay the entire principle and interest from a single paycheck in just two weeks--that ensures the typical borrower cannot pay back a loan without needing to take another. The provisions of HR 1214 haven’t worked in states where they have been tried; indeed, the industry has supported most of them at the state level.

Legalizing payday lending at triple digit interest rates runs counter to President Obama’s promise to cap payday and other loans at 36 percent annual rates and to existing protections provided by Congress to Service members and their families. In 2006, Congress outlawed loans that are based on holding checks or debit authorization for future payment at the request of the Department of Defense. Our organizations have also endorsed legislation introduced by Senator Durbin (S. 500) and Representative Speier to cap rates for all forms of consumer credit at 36 percent, including interest and fees. Last fall, voters in both Ohio and Arizona soundly rejected payday loan industry ballot initiatives that would have continued payday lending at 390 percent APR or higher, despite the fact that they were bombarded with industry messages about “reforms” similar to the provisions of HR 1214.

Federal legislation to authorize payday lending, instead of prohibiting the predatory small loan terms, is particularly counterproductive when the economy is in recession and families can least afford triple-digit rates. A growing body of research demonstrates that using payday lending is harmful to borrowers. Using payday loans doubles the risk a borrower will end up in bankruptcy within two years, doubles the risk of being seriously delinquent on credit cards, and makes it less likely that consumers can pay other bills and get healthcare. Payday loan use also increases the likelihood that consumers’ bank accounts will be closed involuntarily. Given the lower bank account penetration rate for minority consumers, this product undermines progress being made to bring unbanked consumers into mainstream financial services.

Although the bill does not preempt stronger state rate caps, it would send a message approving usurious lending at triple-digit rates. The practical impact of Congressional passage of this bill will be to stop the progress of reform in the states. No state has legalized payday lending since 2005. Since then Ohio, Oregon, New Hampshire and the District of Columbia have either capped rates at low levels or repealed payday lending outright. The Arkansas Supreme Court recently overturned that state’s payday loan law for violating the state’s constitutional usury cap.

We join Reps. Bill Delahunt (D-MA) and Brad Miller (D-NC) to announce the House version of the Financial Product Safety Commission Act, today at a news conference at 11am in Rayburn 2255. Also speaking are Professor Elizabeth Warren and Travis Plunkett of the Consumer Federation of America. Professor Warren came up with the idea that just as we have a CPSC for exploding toasters, we should have a Financial Product Safety Commission for credit cards and mortgages. Previous blog on Obama's support and on the previously introduced Senate bill from Durbin (D-IL), Kennedy (D-MA) and Schumer (D-NY). Here is my statement and below the jump is the advisory:

DELAHUNT & MILLER INTRODUCE FINANCIAL PRODUCT SAFETY BILL

Media Availability on Wednesday with Delahunt, Miller, Elizabeth Warren, and Representatives from Consumer Federation, U.S. Public Interest Research Group

WASHINGTON, DC – In the wake of President Obama’s endorsement of the concept, Congressman Bill Delahunt (D-MA) and Congressman Brad Miller (D-NC) will formally introduce the Financial Product Safety Commission Act this week. They will also host a media availability with consumer advocates on Wednesday March 25th, 2009 at 11:00AM in Room 2255 in the Rayburn House Office Building to discuss the merits of the legislation.

Who:

What: Media Availability on legislation creating the Financial Product Safety Commission

Where: Wednesday March 25, 2009 – 11:00AM Room 2255 RHOB

Rayburn House Office Building -- Washington, D.C.

The Financial Product Safety Commission Act would establish a consumer “watchdog” with a single objective to protect consumers against abusive financial products used in mortgages, credit cards, and retirement accounts. The current economic crisis has demonstrated that the nation’s existing financial regulation structure has diminished consumer protections and eroded consumer confidence.

Visit http://www.house.gov/delahunt for more information.

While Fed chief Ben Bernanke and Treasury Secretary Tim Geithner packed the Financial Services Committee across the hall, new FTC Chair Jon Leibowitz faced skeptical members of the House Energy and Commerce subcommittee on Commerce, Trade, and Consumer Protection at a less-crowded, but important, hearing today on Consumer Credit and Debt: The Role of the Federal Trade Commission in Protecting the Public. The committee members' concerns were echoed by a panel of three expert witnesses. Law professor Chris Peterson of the University of Utah, Ira Rheingold of the National Association of Consumer Advocates and James Tierney, a Columbia professor and former Maine Attorney General, all gave excellent testimony on the failure of the Bush FTC to work well with state attorneys general or to bring significant numbers of cases against financial predators. As Ira Rheingold pointed out:

While the FTC has historically attempted to bring some enforcement actions against some of the bad actors in the consumer credit marketplace (most notably Associates, Household and Fairbanks), their lack of staff and resources, and more importantly the lack of political will at top of their agency has minimized the effectiveness of the results of these actions. Had the FTC been willing, like the Massachusetts Attorney General in its Fremont case, to use its “unfairness” authority to declare the lack of underwriting, risk-layering, poisoned products pushing business model that was prevalent in the mortgage market to be a violation of the FTC Act, a real stand could have been taken against our nation’s corrupt mortgage lending system.

If the federal government is going to succeed in comprehensively modernizing and reforming our consumer finance laws, it is likely that one of two plausible paths must be followed. First, Congress could attempt to pass a large, highly technical, and controversial bill that implements the needed changes across nearly a dozen different statutes, through many committees, and over the objection of powerful financial services industry advocates. Or second, Congress could pass the heavy and more technical lifting on such reforms to an administrative agency. [...] The current crisis suggests that it may be time to seriously consider proposals calling for a new regulatory authority tasked with an exclusive focus on financial consumer protection.

One of the most important issues in a democracy was articulated in a 1945 Supreme Court case:

"The First Amendment rests on the assumption that the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public, that a free press is a condition of a free society."

We have to come up with a plan to convert failing newspapers into journalistic entities with the express purpose of assuring that fully staffed, functioning and, ideally, competing newsrooms continue to operate in communities across the country. The only way to do this is by using tax policies, credit policies and explicit subsidies to convert the remains of old media into independent, stable institutions that are ready to compete and communicate in the decades to come. To get from here to there, and especially to make possible multiple competing newsrooms in larger communities, policy-makers should be open to commercial ownership, municipal ownership, staff ownership or independent nonprofit ownership. Ideally the next media system will have a combination of the above; and the government should be prepared to rewrite rules and regulations and to use its largesse to aid a variety of sound initiatives.

We're still evaluating today's Treasury proposal (main financialstability.gov site (note: items scroll down as new ones added, but this program is at the top today)) to create a public-private partnership to purchase toxic assets of failed banks. At least two economists, Dean Baker and Paul Krugman, believe that its incentives still favor investors over taxpayers. Nevertheless, on the New York Times website, the lead story is Markets Leap More Than 6% on Details of Bank Rescue.

Chairman Barney Frank and the House Financial House Services Committee are holding an important hearing today at 10 am on Federal and State Enforcement of Financial Consumer and Investor Protection Laws. The testimony is already available for nearly all the federal agency and state agency witnesses. Also, you should be able to watch the video of the hearing at that link. The most important witnesses will be on the second panel, the state enforcers. In particular, consumer champion Lisa Madigan, Attorney General of Illinois, provides a scathing indictment of (1) federal preemption and (2) federal agency failure to enforce the laws they prevented states from enforcing as the twin accelerants that turned a house fire into a worldwide conflagration. From her testimony, on page 8:

State enforcement actions have been hamstrung by the dual forces of preemption of state authority and lack of federal oversight. The authority of state attorneys general to enforce consumer protection laws of general applicability was challenged at precisely the time it was most needed – when the amount of subprime lending exploded and riskier and riskier mortgage products came into the marketplace. For example, the Office of the Comptroller of Currency has taken the position over the past several years that it has authority to prevent state attorneys general from enforcing state fair lending and consumer protection laws against federal banks and bank subsidiaries. This position effectively created a void that was previously covered by state consumer protection and civil rights laws.

At a rally Wednesday in Costa Mesa, CA and on Jay Leno again last night, President Obama expressed support for both a credit card bill of rights and a Financial Product Safety Commission. If you watch the Leno video and slide the bar down to 14:20 or so, you'll hear this:

The President: When you buy a toaster, if it explodes in your face there's a law that says your toasters need to be safe. But when you get a credit card, or you get a mortgage, there's no law on the books that says if that explodes in your face financially, somehow you're going to be protected. So this is -- the need for getting back to some common sense regulations -- there's nothing wrong with innovation in the financial markets. We want people to be successful; we want people to be able to make a profit. Banks are critical to our economy and we want credit to flow again. But we just want to make sure that there's enough regulatory common sense in place that ordinary Americans aren't taken advantage of, and taxpayers, after the fact, aren't taken advantage of. (Applause.)

Conflicts of interest between credit rating firms (Moody's, Standard and Poor's and Fitch's, eg.,) and the companies whose securities, derivatives and other products they rated were at the center of the financial meltdown. Same thing with the FDA and food safety and prescription drug efficacy, according to two Gardiner Harris stories, House Panel Questions Industry on Food Safety and Drug Maker Told Studies Would Aid It, appearing in today's New York Times.

His food safety article reports on a food safety hearing held by Chairman Henry Waxman of the House Energy and Commerce Committee.

When Nestlé USA sent an auditor to examine a Texas peanut plant that is part of a salmonella outbreak, he found dozens of dead mice. But an auditor hired by the plant reported no problems with rodents and pronounced the facility, a former hog slaughterhouse, “superior” for processing peanuts.

“There is an obvious and inherent conflict of interest when an auditor works for the same supplier it is evaluating, and several documents show evidence of this cozy relationship,” said Representative Bart Stupak, Democrat of Michigan.

His prescription drug article reports on the relationship between a Harvard professor and drug giant Johnson & Johnson.

An influential Harvard child psychiatrist told the drug giant Johnson & Johnson that planned studies of its medicines in children would yield results benefiting the company, according to court documents dating over several years that the psychiatrist wants sealed. [...] Dr. Biederman — who was director of the Johnson & Johnson Center for Pediatric Psychopathology Research at Massachusetts General Hospital, in Boston — is in the middle of two controversies: one involves the use of antipsychotic drugs in children, and the other relates to conflicts of interest in medicine.[...] An inquiry by Senator Charles E. Grassley, Republican of Iowa, revealed last year that Dr. Biederman earned at least $1.6 million in consulting fees from drug makers from 2000 to 2007 but failed to report all but about $200,000 of this income to university officials.

We testify tomorrow afternoon in the House Financial Institutions and Consumer Credit subcommittee (hearing page with all testimony already posted) in favor of two bills from Rep. Carolyn Maloney (D-NY). HR 627, the Credit Cardholders Bill of Rights, passed the House 312-112 last year, but is opposed by the credit card companies. HR 1456, the Consumer Overdraft Protection Fair Practices Act, did not make it out of committee last year. It's opposed by all the banks, and many credit unions, too.

Combined, big banks, little banks and some (too many) credit unions make billions of dollars on so-called bounce protection loans:

"Ed, your debit transaction*** for that $4 latte overdrew your account by 50 cents. We knew you didn't have $4, but we let it go anyway because we figured you wanted us to clear it anyway. But here's the good part, for us, anyway. We protected you from overdrawing that account with a feature you didn't even know you had -- we call it "courtesy overdraft." It only costs you $35 bucks each time you overdraw. Of course, since the average debit transaction at point-of-sale is less than $20 it's not so good a deal for you. Good deal for us here at the bank, you think? How's that latte?"

*** Of course, this is all just a dream. I would never ever use a debit card. The risks of fraud are too great, not to mention the risks of unfair overdraft fees!

We've launched a new website campaign to help Congress and President Obama Stop the AIG bonuses. Congress and the Treasury are moving, albeit belatedly, to stop the bonuses (Washington Post story "White House Calls Bonuses a Late Surprise" ). There is no excuse, and no overriding, insurmountable legal reason not to do so. After all, without the taxpayer bailout, there would be no AIG to pay bonuses. As Steven Pearlstein points out in his Post column:

The legal argument for honoring these ill-considered contracts is that a deal is a deal and that trying to abrogate them will only wind up costing the government even more in legal fees and punitive damages. But that doesn't mean the government and its handpicked new management team at AIG were powerless to renegotiate those contracts long before last weekend's deadline.

Today, AIG's government-appointed CEO Edward Liddy appears before the House Financial Services Committee to attempt to defend his actions in awarding hundreds of millions of dollars in taxpayer-subsidized bonuses to failed executives, including some who'd left, or plan to leave, the firm. In another important, but probably less crowded, hearing, Orice Williams of the GAO will explain to the Senate Banking Committee that "Banking and securities regulators identified weaknesses in how certain large financial institutions monitored risk in recent years but they failed to take strong action until after the financial crisis took hold." (quote from Wall Street Journal, pd. subs. req'd).

Years ago, one G. Gordon Liddy, presumably no relation, got caught after masterminding the bungled Watergate burglary. That led to the downfall of a corrupt administration and major reforms of our political system. Let's hope that a review of the bungler Edward Liddy's actions lead to reform, oversight and accountability for the government's bungled Wall Street bailout and the reinstatement of a comprehensive system of financial regulation and accountability going forward. The taxpayers demand, and deserve, no less.

Unfortunately, the bungled bonuses story is eclipsing the other important AIG story: what did they do with the billions of taxpayer bailout money? See A.I.G.’s Bailout Priorities Are in Critics’ Cross Hairs by Gretchen Morgenson in the New York Times:

Every day, insurance companies sell policies to homeowners to cover the cost of damage in the case of fire. Why would those companies agree to pay out in full to a policyholder even if a fire had not occurred? That is the type of question being asked about the federal government’s bailout of American International Group in which the insurance company funneled $49.5 billion in taxpayer funds to financial institutions, including Deutsche Bank, Goldman Sachs and Merrill Lynch. The payments, which amount to almost 30 percent of the $170 billion in taxpayer commitments provided to A.I.G. since its near collapse last September, were disclosed by the company on Sunday.

The New York Times has a story Many See Privacy on Web as Big Issue, Survey Says by Stephanie Clifford on a survey to be released later today by TrustE:

When asked if they were comfortable with behavioral targeting — when advertisers use a person’s browsing history or search history to decide which ad to show them — only 28 percent said they were. More than half said they were not. And more than 75 percent of respondents agreed with the statement, “The Internet is not well regulated, and naïve users can easily be taken advantage of.”

Following weekend revelations (Sunday's blog) that it would pay failed executives over $165 million in bonuses despite their failures, the 80%-taxpayer-owned AIG released the names (in a release with a series of charts) of the counter-parties to its bad bets on now infamous credit default swaps and other derivatives. The counter-parties are U.S. and foreign banks and U.S. cities (their states only are listed with totals) that have received part of the $170 billion in taxpayer bailouts (AIG's release calls this "public aid") sent to AIG so far. Don't be fooled. The charts are rounded to billions. 1.6 = $1,600,000,000 or $1.6 billion).

It's a good first step, but we and Congress have been demanding it for a long time, as has the New York Times (editorial). Keep in mind that AIG only released the names to deflect pressure from the revelation that its failed executives would be receiving at least $165 million in bonuses. AIG and the U.S. Treasury and the Federal Reserve now need to figure out how to break those employee contracts. Today's New York Times AIG story. Washington Post AIG story.

Or, we should change the name from AIG to PIG. And here's another question. Why don't the Manchester United English football (soccer) club jerseys now say "U.S. Taxpayers" instead of AIG on the front?

In a reprise of comments he makes all the time in defense of the reckless and arrogant actions his agency has taken to preempt strong state consumer laws, Comptroller of the Currency John Dugan's letter in today's New York Times purports to absolve his OCC, its regulated banks and their subsidiaries of all blame for the world financial economic crisis that was started with predatory lending. Dugan's letter, a reply to the Times editorial Common Sense in Lending (8 Mar 09), is also a shortened version of a longer letter he sent Congressional Oversight Panel chair Elizabeth Warren last month.

Dugan is wrong. Without question, Congress too deserves some blame. It listened for years to the bank lobbyists whose massive campaign contributions helped influence Congress to allow OCC to usurp its own Congressional authority to make laws. Congress also failed to conduct adequate oversight of OCC's abysmal enforcement record and hold it accountable. Nevertheless, history will show that the OCC's sweeping preemption rulings and actions by its regulated banks, their affiliates and subsidiaries have played a major role in the collapse of the world economy.

UConn Law Professor Patricia McCoy (praised in that New York Times editorial) and lending expert Elizabeth Renuart of the National Consumer Law Center explain in their 2008 Harvard Joint Center for Housing Studies article, The Legal Infrastructure of Subprime and Nontraditional Home Mortgages:

From The Legal Infrastructure of Subprime and Nontraditional Home Mortgages:

In the loan origination market, federal deregulation and preemption of state law combined to produce a system of dual regulation of home mortgages which precipitated a race to the bottom in mortgage lending standards. [...] As for the enforcement record of the OCC, in particular, it has been “undistinguished.” [...] In conclusion, the recent history of subprime and nontraditional mortgage loans is a story of failure and rank indifference by the federal government. [...] In a series of federal preemption rulings, the Office of the Comptroller of the Currency and the Office of Thrift Supervision excused national banks and federal thrifts and their nonbank mortgage lending subsidiaries from complying with the state laws. As a result, as long as lenders who enjoyed preemption complied with arcane federal disclosure laws, they could lend with impunity and pass off recklessly underwritten loans to unsuspecting investors through securitization. It only took three short years after the OCC’s preemption rule triggered a race to the bottom for recklessly underwritten subprime and nontraditional loans to plunge the U.S. economy into crisis.

In a cheeky and brazen but apparently legal move, "bailout king" AIG intends to pay hundreds of millions in bonuses and the feds claim that they cannot do anything about it. AIG's government-appointed CEO claims he needs to make the payments to keep his most "valuable" guys. Of course some of them proved valuable in digging the bottomless hole that taxpayers were pushed into, but what the hey.

AIG is by far the largest recipient of bailout dollars, with combined receipts from Treasury's TARP and Federal Reserve programs totaling $170 billion. According to today's Washington Post story Bailout King AIG Still to Pay Millions In Bonuses by David Cho and Brady Dennis, the payouts will occur despite opposition from Treasury Secretary Tim Geithner and despite passage of recent executive compensation restrictions:

Lawyers at both the Treasury Department and AIG have concluded that the firm would risk a lawsuit if it scrapped the retention payments at the AIG Financial Products subsidiary, whose troublesome derivative trading nearly sank AIG.

In the New York Times story A.I.G. Planning Huge Bonuses After $170 Billion Bailout, Edmund Andrews and Peter Baker report that

"[An] official said the administration will force A.I.G. to eventually repay the cost of the bonuses to the taxpayers as part of the agreement with the firm, which is being restructured."

Saturday's New York Times has a story Just Don’t Compare Kosmix to Google by Miguel Helft. Kosmix says its business model is different from Google's:

“Search does what it does well, very well,” Mr. Harinarayan said. “I don’t think we can ever compete with that.” Kosmix, he said, is not about finding the best set of documents for a specific keyword or phrase. Instead, its goal is to “tell me more about something,” he said.

On the "related in the Kosmos sidebar," I clicked on "pre-emption right." That page could use some work. It leads with a Wikipedia definition: "A pre-emption right is a right to acquire certain property in preference to any other person." It talks a lot about the Bush international preemption doctrine but has very little on federal preemption of state consumer, health and safety laws, which is my connection (I am against it). Regardless, Kosmix is an interesting, if still, in its term, "beta-ish," page. I will keep checking it out.

Snippets from the Wall Street bailout and other news of the meltdown:

These excerpts, first from today's Wall Street Journal:

The jailing of inmate No. 61727-054 marked the climax of three months of international intrigue after Mr. Madoff confessed his epic crime to his sons, leading to his arrest on Dec. 11. Mr. Madoff's decline and fall added to a national crisis of confidence and distrust of the financial system. The human costs have also been severe, with some investors losing all their money and at least one committing suicide. The moment was reminiscent of the arrests of Enron executives Ken Lay and Jeffrey Skilling, symbols of the corporate crime wave that followed the boom of the late 1990s.

Madoff and his once-exclusive investment club were in many ways emblematic of the get-rich-quick ethos that defined the last decade and a half of a stratospheric stock market and booming home values. And while the number of victims may be relatively small -- several thousand, plus pension funds and charities -- Madoff's exposure as a fraud, and the audacity of his $65 billion scam, has equally come to define a nationwide economic meltdown that has seen some venerable investment firms shuttered and once-prominent banks hobbled. If the nation's current economic crisis needed a face, Madoff supplied it.

If you saw the Tom Cruise techno-thriller set in the near future, Minority Report, you may recall where his character, John Anderton, is walking through a mall and the interactive billboards are using retina-scans to ID and then pitch him: "John Anderton, you could use a Guinness right about now."

Who needs retina scans? Advertisers are using smartphones. As Stephanie Clifford reports in the story Advertisers Get a Trove of Clues in Smartphones in today's New York Times:

Advertisers already tailor ads for small groups of consumers on the Web based on personal information. But cellphones have a much higher potential for personalized advertising, especially when they use applications like Yelp or Urbanspoon with GPS to identify a person’s location, right down to the street corner where they are standing.

“It’s potentially a portable, personal spy,” said Jeff Chester,[...]

NYTimes quote continues:

[Chester] who will appear before Federal Trade Commission staff members this month to brief them on privacy and mobile marketing. He is particularly concerned about data breaches, advertisers’ access to sensitive health or financial information, and a lack of transparency about how advertisers are collecting data. “Users are going to be inclined to say, sure, what’s harmful about a click, not realizing that they’ve consented to give up their information.”

Of course, Minority Report is based on a story by the late science-fiction writer Philip K. Dick (his official site). As Wikipedia notes, "monopolistic corporations and authoritarian governments" whose actions on privacy and civil liberties affect the lives of consumers and citizens were important themes in his often dystopian novels and short stories. They're still making his stories into movies today, years after his death in 1982.

Some of the other well-known movies based on his work include Blade Runner with Harrison Ford, Total Recall with Arnold Schwarzenegger, and Paycheck with Ben Affleck.

Back to Jeff Chester: Ten Questions To Ask Your Cell Phone Provider—and the Online Marketers They Work With—to Protect Your Mobile Privacy.

(updated) U.S. PIRG Tax and Budget Reform Advocate Nicole Tichon testified today before the House/Senate Joint Economic Committee, on TARP transparency. Link to Nicole's testimony; others at JEC website. She's author of our recent report: Failed Bailout. You can watch the archived hearing video at the committee link. Witnesses examined the degree to which the TARP has succeeded in its stated goals, the reasons for its success or lack thereof, and specific legislative or other steps that should be taken to enhance the success of the program.

Instead of suing the behemoth credit bureau Experian for deceptive advertising of its overpriced $10-$15/month credit monitoring services through its nauseating TV and web ads for freecreditreport.com, the FTC has decided to go youtube to educate consumers. Yesterday the commission added its own parody to the dozens, if not hundreds, of paraodies of the obnoxious ads already on youtube. The FTC's own goofy band sings that annualcreditreport.com is the only free credit report. That's true. But a civil action against Experian for deceptive marketing would be a truer exercise of new chairman Jon Leibowitz's authority. The FTC's consumer cop mission is more important than its education mission here. And, it would help consumers more. Don't get me wrong, all consumer advocates should be making more Youtube videos (a few of mine are here and here (actually, this one is flash player, not youtube), and that's unfortunately more than most consumer advocates have made) so give the FTC some cred for that. But we need to stop freecreditreport.com, not laugh at it. Previous blog on freecreditreport.com scam.

According to an article (check out the picture of the rent-to-own boys partying it up) in the rent-to-own industry's online newspaper, Congress has promised to hold a hearing on the industry's fifteen year old (and getting really old) proposal to override the states that have failed to enact the industry's safe-harbor legislation that allows it to keep consumers in perpetual debt paying for refrigerators, TVs and furniture. It would be a mistake for Congress to move forward on preempting stronger state consumer laws. From RTOOnline:

The Consumer Rental Purchase Agreement Act will be submitted in both the House and Senate this week and may come before a congressional sub-committee as early as mid-April. [...] The challenge will be to gain support for a fair and balanced bill while consumer advocates, a group that sees no middle ground, push for legislation that would eliminate the rental-purchase option for millions of consumers at a time when traditional consumer credit is increasingly difficult to obtain.

The Capitol Hill political tabloid Roll Call reports today (pd. subs. may be req'd) that

A handful of lawmakers, mostly Democrats, are now refusing political contributions from the banks that received hundreds of billions of dollars in federal bailout funds. Yet most members of the House Financial Services Committee, the panel charged with overseeing the industry, are staying mum on the subject. Sixty offices of panel members — including ranking member Spencer Bachus (R-Ala.) — did not respond to a Roll Call survey of their plans for fundraising from Wall Street firms that got taxpayer help.

For the majority party, at least, that reticence could soon change. The Democratic Congressional Campaign Committee is considering whether to recommend to Democrats that they spurn donations from political action committees and employees of firms receiving Troubled Asset Relief Program funds.

Some good work by the WSJ in looking under the TARP. In Saturday's Wall Street Journal, Serena Ng and Carrick Mollenkamp report that Top U.S., European Banks Got $50 Billion in AIG Aid (Pd. subs. req'd).

The beneficiaries of the government's bailout of American International Group Inc. include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant. Among those institutions are Goldman Sachs Group Inc. and Germany's Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008, according to a confidential document and people familiar with the matter.

We've released our second weekly Bailout Briefing-- a series of briefings to the media on the need for greater transparency and accountability in the government’s TARP and other Wall Street bailout programs. In this issue: (1) New COP report; (2) AIG Needs more money; (3) Sheryl Crow; (4) Treasury trying…but.

Here's the item on the new COP report:
1. COP: FINANCIAL CRISIS WILL CONTINUE UNTIL FORECLOSURE CRISIS SOLVED

The Congressional Oversight Panel on the bailout released its latest report today, The Foreclosure Crisis: Working Towards a Solution. “In this report, COP examines the roots of the foreclosure crisis and offers a checklist for evaluating proposals to deal with this problem.[…] COP members believe that the country will not be able to pull out of this recession and end the financial crisis without a plan to address the foreclosure crisis at the root of the downturn.”
Full REPORT (9mB): The Foreclosure Crisis: Working Towards a Solution
COP Release accompanying report
COP blog with more links.

We've joined other leading groups, including the National Consumer Law Center, Center for Responsible Lending, AARP and others, in an amicus, or friend of the court, brief to the Supreme Court in Cuomo v. Clearinghouse and OCC urging that the court overturn an Office of the Comptroller of the Currency (OCC) rule preventing state attorneys general from enforcing state laws applicable to national banks. The case concerns efforts begun by former NY attorney general Eliot Spitzer (Andrew Cuomo is the current NY Attorney General) to enforce applicable fair lending laws against national banks. The OCC claims that it and it alone can be the sole enforcer of state fair lending and other remaining state laws that it could not find the authority to preempt. Several years ago, in Wachovia v. Watters, the court upheld a separate overly-intrusive OCC rule that preempts most state laws from being applied to national banks, but we believe that the court will find that in this case, the OCC went too far. We and numerous other observers think OCC went too far in Wachovia, also, but the business-friendly Roberts court ruled the other way. Previous blog.

We're on Air America with Ron Reagan, in a few minutes (around 7:15 PM Eastern) to talk about freecreditreport.com, which I also discussed on HuffingtonPost today. Why the FTC hasn't shut this down, I have no idea (well, actually, I have several and some are discussed in that Huffington piece by Arthur Delaney). In any case, don't go to freecreditreport.com, it isn't free and it won't stop identity theft.

Over at the Consumers Union defendyourdollars.org blog, plastic card (credit, debit, gift, payroll, etc.) expert Michelle Jun has a warning to online gamers: If you get a re-loadable pre-paid plastic card with your favorite capcom.com hero or bad guy emblazoned on it, you don't have a credit or a debit card. You have an eating card. It eats your money. You'll pay fees, and more fees. It won't matter how many secret potions or laser pistols or invisibility cloaks you're carrying, or how many lives you've accumulated, or what level you play at, you'll lose. Make a note of it. More on cards and card rights.

UPDATE: Our coalition letters to the House (to Reps. Pallone and Waxman) and Senate (to Sens. Kennedy (D-MA) and Enzi (R-WY) supporting the PIRG-backed Medical Device Safety Act.

While the Supreme Court rejected preemption (6-3) of state law injury claims in a prescription drug labeling case yesterday (previous blog), the Roberts court, in particular, has generally been pro-corporate in other cases. In the last term, for example, it upheld preemption (8-1) in a medical device case known as Medtronic (previous blog). Leading members of Congress, led by Reps. Frank Pallone (D-NJ) and Henry Waxman (D-CA), yesterday introduced legislation, the Medical Device Safety Act of 2009, to overturn the Supreme Court's Medtronic ruling. Unless the bill becomes law, the Medtronic decision will lead to more unsafe products being embedded into people's bodies while preventing their ability to obtain compensation if harmed. From Waxman and Pallone's release:

The Court's decision has left consumers without any ability to seek compensation for their injuries, medical expenses and lost wages resulting from injuries caused by defective premarket approval (PMA) devices or inadequate safety warnings. It also removed one of the industry's most important incentives to maintain product safety after approval and disclose newly-discovered risks to patients and physicians. The Medical Device Safety Act of 2009 protects patients from dangerous and defective devices by correcting the Court's flawed interpretation of the MDA. The legislation explicitly clarifies that state product liability lawsuits are preserved.

Over at the Public Citizen Consumer Law and Policy blog, check these interesting and detailed entries out:

Cotton farmers in [India] have defaulted on bank debt, and then become further indebted to illegal moneylenders... [due to]...regulatory failures that permitted Monsanto Corporation to sell genetically modified cotton seed (Bt Cotton) representing it as disease resistant and high-yielding, when in fact it turned out to be neither.

UPDATE, Thursday evening: The bill just passed, 243-191. YEA is the pro-consumer vote.

Last week, House leadership pulled HR 1106 from the floor after some members of two conservative Democratic coalitions -- the Blue Dogs and the New Democrats -- objected to its most important provision: language allowing bankruptcy judges, in limited circumstances, to make first-mortgage loan modifications to prevent foreclosure and keep people in their homes.

Foreclosure is the most expensive option a bank faces when a mortgage cannot be paid as agreed. It makes a great deal of sense to avoid it. Helping homeowners helps neighborhoods and it helps banks. Helping banks helps taxpayers who are bailing out banks. The opposition to this sensible provision has us confused. Further, similar authority has long existed for modifications to business loans, farm loans, second-home loans and boat loans.

We have sent up a group letter reiterating our strong support for granting this authority to judges; a compromise provision is expected to be approved today. The full bill is also expected to pass. We hope it will move swiftly through the Senate and to the President's desk. From our letter:

At a time when an estimated 6,600 families are losing their home to foreclosure each and every day, there is no time for delay. We urge Congress to act immediately to pass legislation, without weakening amendments, to lift the ban on judicial modification of primary residence mortgages. It is perhaps the most important thing we can do right now to help arrest the terrible toll that the recession is taking on American families.

From our colleagues at Essential Action:

The financial sector invested more than $5 billion in political influence purchasing in Washington over the past decade, with as many as 3,000 lobbyists winning deregulation and other policy decisions that led directly to the current financial collapse, according to a 231-page report issued today by Essential Information and the Consumer Education Foundation. [Here is the report home page, with links to the report, executive summary and release.] The report, "Sold Out: How Wall Street and Washington Betrayed America," shows that, from 1998-2008, Wall Street investment firms, commercial banks, hedge funds, real estate companies and insurance conglomerates made $1.725 billion in political contributions and spent another $3.4 billion on lobbyists, a financial juggernaut aimed at undercutting federal regulation.

In a strong 6-3 ruling in Wyeth v. Levine, the Supreme Court has held that musician Diana Levine, who lost her arm after a bungled allergy drug injection, can pursue state law claims for injury against the drug behemoth Wyeth, which had argued that FDA's rubber-stamp approval of its warning label preempted all consumer causes of action and rights to compensation.

Whoa. Stop to take a breath. Supreme Court rules in favor of injured consumer over powerful special interest. Yes. That is the holding. Our previous blog. SCOTUS blog:

The history of the federal law on drugs shows, Justice John Paul Stevens wrote for the Court, that Congress did not intend to bar failure-to-warn lawsuits that are based on state law. The decision also rejected a claim by the pharmaceutical company, Wyeth, that a 2006 regulation of the Food and Drug Administration expressing concern about the impact of state failure-to-warn lawsuits on federal regulation should mean that such cases are barred. The Court said that, since Congress has not authorized a federal agency directly to preempt state lawsuits, the Court would give less weight to FDA’s views on that issue.

We asked our members what questions they'd ask the Wall Street bankers if they were sitting on a House or Senate panel investigating the bailout. Most of your questions fall into five categories. You want Wall Street bankers to:

Meanwhile, today's Wall Street Journal (pd. subs. req'd) has a page 1 story by Susanne Craig called Merrill's $10 Million Men: Top 10 Earners Made $209 Million in 2008 as Firm Foundered. Excerpt:

While Merrill staggered, 11 top executives were paid more than $10 million in cash and stock last year, say people familiar with the situation. An additional 149 received $3 million or more. The stock awards, which accounted for much of the compensation, have fallen sharply in value since they were made last year. New York Attorney General Andrew Cuomo has subpoenaed information about Merrill's highest-paid employees in connection with his probe into $3.6 billion in bonuses paid by Merrill in the days before it was taken over by Bank of America Corp. Thus far, Bank of America hasn't turned over the names of Merrill's highest-paid executives, claiming it would help rivals woo its top talent.

Live blog-- update7 In response to query from Sen Dodd, Professor McCoy says her research into bank S.E.C. filings following issuance of regulatory "light touch" guidances shows that big banks felt that they could continue to break laws with impunity. This empirical research provides critical backup to concerns consumer groups have long had.

Update6 Sen. Schumer (D-NY) making late opening statement with good news that he will be joining Sen. Durbin this week in introducing a bill to create a consumer regulator to respond to "Peddlers" of financial "elixirs."

update5 Steve Bartlett continues to preach lender gospel of weak and preemptive federal rules as solution to all problems. Pat McCoy expands on her point of regulator reluctance to act --making point that current system is opaque and non-transparent and secretive.

Update4: Senator Shelby's excellent questions to the witnesses are rehabilitating his
Opening statement where he went out of his way to criticize some homeowners.

3: Citing her academic research in response to a query from Sen. Dodd, Pat has described a "distinct reluctance" by the Fed, OTS, and OCC to impose formal consent orders or penalties. She suggests that the new consumer agency should be able to step in itself when this occurs. We agree.

Update2: Ellen concluded her open by posing some important questions needing answers. Pat McCoy is up. She is strongly supporting the new independent consumer regulator idea and issuing a powerful denunciation of the Fed and other regulators and their myriad failures, while also supporting the need for state AGs to have shared jurisdiction. You can get the witness testimony at the Banking Committee website under hearings.

Update: Ellen Seidman is backing the Consumer Credit Safety Commission idea provided that bank regulators retain their power to enforce its enacted rules to protect consumers.
Live blog-- The Senate Banking Committee -- chaired by Chris Dodd (D-CT) is holding a hearing on the future of consumer protection in banking. Senator. Dodd has given a powerful opening statement alluding to the need for a new consumer protection agency like the CPSC for banks. We expect Senator Durbin (D-IL) to re-introduce such legislation as suggested by Harvard law professor Elizabeth Warren soon. Senator Shelby's (R-AL) opening remarks not so much in favor of the idea, plus he took a shot at homeowners (and bankers). Witnesses are UConn Law professor Patricia Mccoy, former Clinton regulator and current New America Foundation fellow Ellen Seidman and finally Steve Bartlett of the bank and insurance lobby known as the Financial Services Roundtable. Bartlett has leaped out to attack state attorneys general again (see last post) and the Durbin bill, which hasn't even been filed yet. He is now describing an industry "reform" wishlist.

Today's Congress Daily (pd. subs. req'd) leads with a story on banker efforts to strip Section 626 from the Omnibus Appropriations Act, HR 1105. The important provision was inserted by Senator Byron Dorgan (D-ND). It authorizes the FTC to investigate and initiate rulemaking on predatory lending, gives state attorneys general authority that they already have in numerous areas to enforce certain federal predatory lending statutes and, very importantly, closes a loophole in the Federal Trade Commission Act that limits its civil penalty authority against lawbreakers. The Financial Services Roundtable has sent this shrill, overheated letter of opposition to the hill.

So, class, let's summarize today's lesson: Members of the Financial Services Roundtable have failed at their jobs, leaving consumers, taxpayers and homeowners in the lurch as the economy crashes. They then received hundreds of billions of taxpayer dollars in loans to bail them out even though they'd failed. Meanwhile, instead of fixing this mess, they're out lobbying against consumer protection that would help prevent this from happening again. Write an essay on whether this make sense to you.

Come on in! The economy's fine! How do I know?

Simple, I read it in this press release [bold material in brackets added for clarification by this blogger]:

[The notorious triple-digit payday lender] Check 'n Go Not Affected By National Credit Crunch

Unfair credit card practices don't just hurt consumers, they hurt small businesses also. Credit card reform makes the Top 10 Priority Issues for 2009 list for the National Small Business Association. Small businesses pay anti-competitive interchange fees and face the same "change the rules and interest rates at any time" regime consumers face. Even worse, the consumer protection laws that protect consumers generally only apply to credit for "personal, family, or household purposes." So if a small businessperson has a bank dispute, they're even worse off than you or me. Those "zero-liability" promises for fraud on debit cards? Good luck collecting if you have a small business card.

Over at her Huffington Post blog, Mena Trott writes that Citibank hates old people. It has tripled her grandparents' credit card interest rates. They're in their eighties and do pay their bills. Citibank raised interest rates because it can, not because these and other Americans (like me!) were higher risk. Trott notes:

During the election there was a lot of talk of not using a hatchet when a scalpel is needed. It seems as if Citibank just brought out their hacksaw and blunt hatchet.

At the end of January, we joined Consumers Union and numerous other groups in a letter to Treasury Secretary Tim Geithner arguing that recipients of special taxpayer bailouts from the TALF (Term Asset Backed Loan Facility) program (that is, not mere recipients of general bailout funds) should be required to immediately comply with Federal Reserve rules against unfair credit card practices issued in December that do not take effect until July 2010. No reply yet from Tim Geithner on this reasonable request.

Economic historians have documented that usury laws -- or caps on allowable interest rates -- have existed since pre-biblical times. Unfortunately, over the last 30 years or so, federal, and most state, usury ceilings had been eliminated through a series of wrong-headed court and Congressional actions. In 2006, we were successful in passing a law, the Military Lending Act, reinstating usury ceilings at 36% APR for loans to military personnel. Last week, Senator Dick Durbin (D-IL) introduced legislation, S. 500, to extend that protection to loans to all Americans. Here's the important part-- we're not just talking about predatory payday lenders, rent to own stores and their ilk. The limit would apply to credit cards and shameful bounce-overdraft protection loans made by banks. While 36% APR may sound higher than most credit card rates, the bill limits would apply to their punitive fees as well, which have the effect of triple-digit interest.

Here is a copy of the support letter from 100 organizations, including U.S. PIRG. Also, Rep. Jackie Speier (D-CA) is expected to file a companion bill this week.

The military lending law was passed because soldiers, sailors and airmen with bad credit records caused by the tricks and traps of credit cards and payday loans fail security clearances and are therefore ineligible for deployment overseas: predatory lending hurts our military preparedness, said the Pentagon.

Here is a copy of Senator Durbin's opening statement. I am having a little trouble manipulating Thomas.loc.gov (go there and type in "s. 500," select "bill number" and search) and the online Congressional Record today, but you can read Senator Durbin's statement in the actual Record if you go here and search that page for Senator Durbin's name and page S2571 (click on S2571) near the bottom. Then, you can move forward to other pages at the bottom right of that page.