Federal Reserve leaders should be representative of the country’s population. If they don't understand us, they can't represent us.
In February 2018, Rachelle Faroul became a symbol of racial discrimination in lending when an award-winning investigative report from Reveal covered her experience trying to buy a home. Faroul, who is Black, had good credit, plenty of savings, and a steady job when she first applied for a mortgage, but was denied twice. Only after her partner, who is half-White, co-signed did the bank approve Faroul’s loan. Her partner was working part-time at a grocery store, earning $144 per week.
Several big Wall Street banks have been cited for lending discrimination. Yet, not long after Faroul’s story was published, Congress approved a partial rollback of the landmark Dodd-Frank law passed after the 2008 financial crisis. One provision in that law, known as S. 2155, now makes it harder for journalists and law enforcement to even find out if discrimination occurs.
Why would Congress do such a thing? As always in politics, follow the money.
A new report from Americans for Financial Reform found that in the 2017-2018 electoral cycle, big banks and financial interests pumped almost $2 billion into American politics through campaign contributions and lobbying, and spent heavily to get S. 2155 passed into law. That means that the industry spent an average of $2.5 million per day trying to influence lawmakers.
And it often works. Wall Street has succeeded in getting legislation that the public opposes, and fending off any action to rein in its abuses.
After the 2008 crisis, Congress established a Consumer Financial Protection Bureau to safeguard ordinary Americans from financial chicanery. Over almost a decade, the CFPB won $12 billion in restitution and cancelled debts for over 29 million Americans. One of them was Shirley Banks, who was charged exorbitant fees for a service her debt settlement company didn’t even provide. Thanks to the CFPB, she received a $1,000 check as compensation.
Things look different now that the bureau’s leadership has changed hands. Trump’s first CFPB director, Mick Mulvaney, spent his tenure trying to dismantle the agency which once cracked down on payday lending, an industry which heavily funded Mulvaney’s campaigns when he was in Congress. Now, he’s passed the seat off to his protege Kathy Kraninger. In late January, Kraninger settled a case against Mark Corbett, a shady lender who forced ex-service members to hand over their pensions to get relief from his high interest rates. Corbett’s fine? One dollar.
Private equity firms have also earned dividends for lining pockets in Washington. When private equity strip-mined Sears and Toys R Us for assets before bankrupting the companies, they left lifelong employees behind. Some, like Anne Marie Reinhardt Smith, organized to get a small hardship fund, but only after she and her husband were left to choose whose medicine they could afford to buy each month. Other private funds gobble up housing everywhere from metro Atlanta to rural manufactured housing parks. Wherever Wall Street becomes a landlord, the same patterns follow: neglect, rent hikes, and no recourse for tenants.
An industry with a consistently harmful track record shouldn’t go without oversight. But the Blackstone Group — on track to become the largest private equity company in history, and recently cited by the United Nations for its single-handed contributions to the global housing crisis — spent $18 million influencing federal lawmakers last year. There’s also a well-established revolving door between private equity and high political office, from Mitt Romney and Newt Gingrich to Joe Lieberman and Al Gore.
Candidate Trump declared that the carried-interest loophole — which grants hedge fund managers a lower tax rate than teachers and firefighters on their salaries — allows Wall Street “get away with murder.” In office, led by a treasury secretary who once worked for Goldman Sachs, Trump abandoned plans for change. Trump’s tax cut law merely delays the period at which the carried-interest loophole kicks in.
Of course, if housing is your worry, you need not look to private equity for Wall Street abuses. Wells Fargo, the fourth-largest bank in America, denied mortgage modifications for at least 870 homeowners over five years for no reason but its own incompetence, resulting in the eviction of 525 families who had done everything right. Jose Aguilar was one of the foreclosure victims. He stayed in a friend’s basement for three months.
Wells Fargo has shown little interest in cleaning up its many messes in a decisive manner, and has avoided real accountability, like legislation that would break up large banks. Wells posted $22 billion in profit last year, boosted by the 2018 tax cut legislation. In other words, all $10.5 million of its direct influence spending cost the bank just 0.17 percent of its earnings.
Voters Want Change
We know that voters of both parties want tougher enforcement of the rules on Wall Street. But the industry uses money, plain and simple, to head off meaningful change and preserve its ability to rip off consumers.
The good news? House Democrats made a package of democracy reforms to get money out of politics, restore voting rights, and close the revolving door the first bill introduced in the 116th Congress. Also, this Congress’ freshman class is resisting the tug of Wall Street’s wallet. Rep. Katie Porter has made a name off her prosecutorial questions to Wall Street CEOs and lax regulators alike. Rep. Alexandria Ocasio-Cortez famously refuses to spend her time making calls to big-money donors. Some politicians are starting to hear their voters’ demands to take on Wall Street and other corporate titans. But not enough.