Ohio Hampton Inn Entangled in HUD Loan Gone Sour.


  In 1998 Hampton Inn Developers including John Helline were granted federal loans to open a Hampton Inn in Massillon, Ohio, But since that time the developers have been unable to make the annual payments on the $2.25 million in federal loans.

    However Mayor of Massilion Frank Cicchinelli, has used taxpayer's money to make payments on the loans for the privately owned Hampton Inn. In 2010 Massillon paid $211,000 from it's federal Community Development Block Grant (CDBG), and to date has paid over $1.4 million dollars on the loan.    


As posted on IndeOnline.com :



With unanimous council approval, the city took out a federal $2.25 million, 20-year Section 108 Loan administered by the U.S. Department of Housing and Urban Development. The loan can be used for “economic development, housing rehabilitation, public facilities rehab, construction or installation for the benefit of low- to moderate-income persons, or to aid in the prevention of slums.” The public-private partnership is known as Canalview Center.


Technically, the city does not make a mortgage payment; it pays on the loan. The city took out the loan from HUD, securing it with payments from the developer and the CDBG.


In turn, the city loaned $2.25 million to Downtown Massillon Hotel Ltd. The developer’s loan from the city is secured by a mortgage on the hotel property. The city is a second mortgage holder. A bank holds the first mortgage, which Helline said is being paid with private dollars.


To date, the city has paid $1,416,985 million using the CDBG, while the developer has paid the city $777,851. Of the $2.2 million paid so far from both sources, $1.5 million is on the principal.




Like the Section 108 loan, the CDBG can be used for a variety of projects that benefit low- to moderate-income areas. The city has used the money to pave roads, provide housing assistance and to support social service agencies, such as the Salvation Army and Boys andGirls Club.




At the time the project was approved, the city received more than $1 million for the CDBG, but by 2010 the city’s share was down to $789,000. Community Development Director Aane Aaby recently cut the proposed budget by 15 percent, a reaction to deep federal cuts to the program.











  Essentially  Cicchinelli is robbing Peter to pay Peter, but in 2010 Development Director Aane Aaby stated that the city would save $500,000 through 2019 when the loan will be retired. Aaby stated that current interest rates range from 7.5 percent to 8 percent, but could drop below 1 percent if refinanced. When the loan were refinanced last year, records show the city owes $380,000 of interest and $1.725 million in principal on the loan. It refinanced last year through HUD, saving $98,000 in interest over the final eight years. Saving only a fifth of what Aaby initially said the city would save.






Ohio Democratic chairman hurls "f-bomb" at Tea Partiers


Ohio state Democratic Party Chair Chris Redfern seems to love ObamaCare and hate Tea Party activists. WTOV9.com, which also captured the event on video, describes the scene as follows:

As the United Steelworkers union was announcing its endorsement for a number of Ohio Democrats, including Gov. Ted Strickland, Chris Redfern used a variation of the F-word to describe opponents to his party's agenda.

A NEWS9 reporting crew was invited into the union hall in Clarington for the endorsement announcement, and the camera was rolling as Redfern leveled the expletive at critics in the Tea Party, who, in his words, believe health care is a privilege, not a right.

"If your kids are going to graduate from college, now he or she gets health care, your heath care, while he or she looks for a new job," Redfern ranted. "It's in the very base terms we win these arguments. Every time one of these [f***ers] says, excuse my language. . ."

Here's the unedited video clip.

One wonders if the other 49 Democratic state chairs feel the same way.

It is all about jobs


 This is what we are up against:


We can't stimulate the economy for several reasons.


1. Banking and too much housing. 

2. Jobs are gone and there are no jobs to go to.

3. You cannot create jobs if jobs are going overseas.

4. 2 billion cheap laborers will put pressure on the middle class and jobs. 

5. The tax cuts was for the here and now and is spent money. The tax cuts do not have the stimulative effect that it had before.

6. We have had low interest rates for a long time, and the interest rates do not have the stimulative effect that it had before.

7. Supporting small business does not work in my town with factories closed down. You need traffic and employed people provided that traffic.

8. Putting tax cut money into the hands of the consumer does not have the effect that it once did, because half the products are made overseas.

9. What widgets can be built in America and not in China or some other country. 

10. The 50 year old generation will have a tough time to retrain as companies replaced them with automation.

11. We have not invested in our country, in our people, and in the future. 

12. We have seen ideology used by political parties to run the country and that is a failure. Again, you have to do what I said on number 11.

13. The politicians are controlled by interest groups and lobbyists and that leaves out the little guy.

14. Tons of mistakes through the years and the ignorance of what globalization/free trade is doing to our country.

15. There is no upward movement for the middle class, as we lost the jobs and the jobs that do exist pay lower wages and it is just one competitor against the other. There is no new industries to go to.

16. Companies have learned to have less employees through automation and lean management and lean principles. (one person doing the job of two or three people)


And here is what the country has to do:



1. Fix the antitrust laws that Reagan relaxed. Monopolies and consolidations destroyed jobs.


Who Broke America’s Jobs Machine? | NewAmerica.net


2. Invest in your country: That is energy independence for security and jobs. Also a new air traffic control system that will save 12% on fuel. The savings to the airlines can go to build new aircraft. A high speed internet system. Perhaps high speed rail.


3. Invest in your people: That is mandatory vocational training. We live in a globalized world and you can no longer rely on factories. We have to be an educated society.


Hudson Institute > Promoting U.S. Worker Competitiveness in a Globalized Economy


4. Invest in the future: Federal research grants to be given to universities and business to bring out new technologies. Today there are no new jobs to go to for those unemployed. You need new areas of growth. No playing games with embryonic stem cell research. 


Is America Losing Its Mojo? | Print Article | Newsweek.com


5. Consider an "American job elimination tax" on companies that move out of the country. These companies do not pay middle class wages, healthcare, pensions, social security, or city and state taxes.


6. Get away from failed ideology. We saw it for 8 years. Tax cuts was used as an ideology. It did not prevent recessions. And did not create prosperity. You still have to solve problems. Ideology does not solve problems.


7. Supporting small business sounds nice and it is heard in Washington, but it does not work in my community as the big business left. That means you cannot have small business as people lost their jobs. Besides, small business will never pay what big business paid in wages.


8. We are losing the middle class. We cannot compete with 2 billion cheap laborers in the world that want our jobs. There are not enough jobs to go around. Competition is good, but it can be harmful also. All we are doing in this country is build the same business environment so that we can knock the other guy out. A person loses his job and has no place to go to. And the reason is that we did not invest in our country, in our people, and in the future. 


9. Have commissions to cut government spending. It seems to be the only approach to doing this. Obviously, one side or the other will complain, but something has to be done now.


10. Government appointed jobs and organizations need to be slimmed down. Every 50 to 60 years we need to go through this. There are too many secretaries, deputy-secretaries, under-secretaries, and under-under-secretaries. Information gets loss through the process and government becomes ineffective. The last time this was done was with the Hoover Commission in the late 40’s.


11. Pour money into new drugs and preliminary medical science. Drugs are becoming less resistant to diseases. And potential super bugs are coming. 


12. Fix the infrastructure. It is the reflection of our country and to the rest of the world.


Home | Report Card for America's Infrastructure


13. And if we have not kept up with it, every school should have physical education. Also wash your hands when you come home to prevent viruses and less trips to the doctor. And as we see so often, stop throwing pop cans, etc. outside the car.


14. We need to slow down urban sprawl. Inner cities are being abandoned. As people leave there is no money left to support the inner city. This maybe controversial to some, but at some point we will have to deal with the problem. Sprawl also takes away from farms and spreads cities out too far in a time when you have empty buildings. We cannot have cities in decay. And cities in decay cannot create jobs and small business.




YouTube - Rocky Mountain PBS: What is Denver Living Streets?


15. And finally, I don’t think our electoral political system works anymore. Every candidate is bought off and it takes huge amounts of money to run a campaign. I would suggest a management team or a turn around specialist to be a president for a couple of years. And there would be a board of directors who he answers to and for the middle class. The parties are riddled with failed ideologies. We can do better that what we have. 



Post primary polling data positive news for Democrats

As statistically indicated, the Democratic Party WILL lose seats in the upcoming midterms.  No one questions this - not now and not in any midterm election.  Cases where the majority gained seats in a midterm are aberrant.  But the picture improved for the Democratic Party given the results of the primaries, primarily because the Right elected a handful of candidates that, like them or not, have thrown a number of races that were a slam dunk for Republicans back into the "leaning Democratic" category. 

There are several other variations on this theme, but the bottom line is that in yesterday's Senate Rankings at fivethrityeight.com, the meta-polling picture improved for the Democratic Party, who now is more likely than not to hold onto 55 seats.  The Republican Party's chances to take the Senate remains at about 6%.  And a lot depends on which party Charlie Crist caucuses with should he win the FL seat (which looks increasingly likely). 

Here's the goods from the dean of polling data:  http://www.fivethirtyeight.com/2010/06/senate-forecast-after-primaries-picture.html

Is there another bubble brewing?


 Arby's is planning to build a restaurant in a nearby town. Alright, so far so good, but the state is going to give $221,000 to hire employees. We have seen for decades incentives given to companies by the cities and states to stay or move in their localities. It is looking more and more an economy built on a house of cards. We want real employment and not trumped up by incentives. A government supported incentive to keep businesses and employees is going down the wrong path.

Our real concern should be globalization. I have talked many times on this. And of course, I have emphasized investing in our country, in our people, and in the future. And if you do that, then the restaurants and other businesses will follow. Taking jobs from one state to another makes no sense in a day of globalization. And supporting jobs through tax incentives makes no sense. It has to be real jobs, with real business, with future growth. In other words, the federal government must make the environment the best for business, but what business does in hiring is their problem and not the governments. 

The problems for business maybe the tax structure. And it maybe that cheap labor is undercutting the profits of business. And of course businesses shut down or they cut wages. It maybe that the federal government and the political parties do not have an updated model to work with, and it is up to the cities and states to find the incentives. 

We have seen the government support on housing. And we know it is wrong. And I am afraid they are doing that for jobs. Jobs will come about, just like housing, if you create real growth. 

Dangers from the right


 As each day passes, and having seen all the ups and downs of politics for the past 60 years of my life, I have come to the conclusion that not one political party has a foothold on how to run our country. We all have the fear of big government from the left and what that presents. But what fears hold true from the right? And maybe I can bring that out.

I have talked many times on globalization. What it will do is put pressure on workers and industry to cut costs. And if companies cannot compete in this country, they will either fold up or move out of the country. Employees feel the pressure and companies cut their wages. So this falls in the category of big business and more or less the loss of the middle class.

I watched a PBS program last night (POV-Point of View) and the title of the program was Food Inc.POV - Acclaimed Point-of-View Documentary Films | PBS  This documentary shows the mega chicken and beef farms. It shows how chickens are fattened up and the beef we eat is mostly corn. 

I got to thinking that today, our government is talking about controlling sugar, fat, and salt content in our products. But yet, it is our government that supports these mega farms from Tyson, Smithfield, and Monsanto. They control some 75% of the market. And they are aiming at 100% of the market. The possible dangers of this is that they drive out the farmer, our beef is raised on corn which creates the possibilities of bacteria, the hamburger comes from several cows instead of just one cow, contaminated beef, and you have soil and water ruined, so we could possibly have an eco-disaster. 

I was not aware of what our government was doing with the housing industry in the past decade. I live in a community that is small and is manufacturing. I saw our manufacturing and community destroyed. I say this as a lot of us do not know what is going on in other parts of our economy. The housing crisis hit California, Arizona, Nevada, and Florida. But what we have seen from Washington is that they will target a specific area (housing and low interest rates) and think that this will drive our economy and ignore the real problems. And I have always gone to the fact that we only need to invest in our country, in our people, and in the future in a pragmatic way. Republicans take a laissez-faire approach of just tax cuts. But they did support the housing buildup.

Putting all this together, what we are witnessing from the right is that it is a party of big business and our ecology could be ruined. Our middle class is being destroyed as republicans do not recognize problems of globalization, as if tax cuts solves all problems. We also see the dangers of religion in government and the right has no problem with this potential danger. We also see the Military Industrial Complex and its power. 

So while the right fears the lefts big government, we are seeing signs of the right of big business, the trashing of the middle class and unions, religion in government, big military, and the use of ideologies of just tax cuts, the constitution, and free market principles-which totally ignores our day to day problems. 

We have 535 congressmen and senators, interest groups, lobbyists, and corruption. It is too many bosses to run this country. Someone always says, "if we can just vote this guy in and everything will change" but it doesn't change. The system is too big and uncontrollable. Everyone is in bed with everyone. 

My only conclusion is that we cannot have political parties go to far to the right or the left. And that is what we have today and that the middle class is losing. I think the only way to run this country is to have a Donald Trump or an Alan Mulally come in with a management team and fix this country.

All it takes is one president to say that we have to cut costs at all levels, but in return our country will do its best in investing in our country so that it does not destroy the middle class. We want our country to work and not by some failed ideologies. 

The lost jobs: Monopolies and Consolidation "laissez-faire" "free markets"


 Barry Lynn for the think tank New America Foundation, was on C-span Washington Journal yesterday. He gives another reason on the lost of jobs. We used to have regulation to protect the little guy in America. This all changed under Reagan and it explains why we are losing the jobs. 

This goes across every industry in our country. Anheuser-Busch controls 80% of the beer. Wal Mart and Amazon controls most of the books and is willing to sell books at 10 dollars and take the loss, just to drive out others that can't sell books at that price. 

It seems to explain why my cousin cannot have animals on the farm as Smithfield and Tyson controls the market.

This is an interesting take on laissez-faire and "free markets" and how we lost the jobs and small business.

Who Broke America’s Jobs Machine? - Barry C. Lynn and Phillip Longman

The Horizon Project


 This is on trade and economic growth, education, healthcare, and public infrastructure.


Grand Theft: Media



Grand Theft: The Conglomeratization of Media and the Degradation of Culture

by Ben Bagdikian

For 25 years, a handful of large corporations that specialize in every mass medium of any consequence has dominated what the majority of people in the United States see about the world beyond their personal experience. These giant media firms, unlike any in the past, thanks to the hands-off attitude of the Federal Communications Commission (FCC) majority, are unhampered by laws and regulation. In the process, they have been major agents of change in the social values and politics of the United States.

They have, in my opinion, damaged our democracy. Given that the majority of Americans say they get their news, commentary and daily entertainment from this handful of conglomerates, the conglomerates fail the needs of democracy every day.

Our modern democracy depends not just on laws and the Constitution, but a vision of the real nature of the United States and its people. It is only humane philosophy that holds together the country’s extraordinary diversity of ethnicity, race, vastly varied geography and a wide range of cultures. There are imperfections within every individual and community. But underneath it, we expect the generality of our population to retain a basic sense of decency and kindness in real life.

We also depend on our voters to approach each election with some knowledge of the variety of ideas and proposals at stake. This variety and richness of issues and ideas were once reflected by competing newspapers whose news and editorial principles covered the entire political spectrum. Every city of any size was exposed to the early Hearst and E. W. Scripps newspapers that were the champions of working people and critics of the rich who exploited workers and used their power to evade taxes. There were middle-of-the-road papers, and a sizeable number of pro-business papers (like the old New York Sun). They were, of course, a mixed bag. Not a few tabloids screamed daily headlines of blood and guts.

With all of that, the major papers represented the needs and demands of the mass of ordinary people and kept badgering politicians who ignored them.

Today, there is no such broad political spectrum and little or no competition among media. There is only a handful of exceptions to the rule of one daily paper per city. On radio and television, Americans see limited ideas and the largest media groups spreading ever-more extreme right-wing politics, and nightly use of violence and sex that tell parents and their children that they live in a cruel country. They have made sex a crude commodity as an inexpensive attention getter. They have made sex, of all things, boring.

Instead of newsboys earlier in the nineteenth century hawking a variety of papers to the people leaving their downtown factories and offices for home, we have cars commuting between suburbs with radio turned to news of traffic and crime. At home, TV is the major home appliance. What it displays day and night is controlled by a handful of giant media conglomerates, heavily tilted to the political right. And all of them have substantial control of every medium — newspapers, magazines, books, radio, television and movies.

The giant conglomerates with this kind of control are Time Warner, the largest media company in the world; Rupert Murdoch’s News Corporation, which owns the Fox networks, a steady source of conservative commentary; Viacom, the old CBS with similarly heavy holdings in all the other important media; Bertelsmann, the German company with masses of U.S. publications, book houses, and partnerships with the other giant media companies; Disney, which has come a long way from concentrating on Mickey Mouse and now, in the pattern of its fellow giants, owns 164 separate media properties from radio and TV stations to magazines and a multitude of other outlets in print and motion picture companies; and General Electric, owner of NBC and its multiple subsidiaries.

One radio firm, ClearChannel, the sponsor of Rush Limbaugh and other exclusively right-wing commentators, owns 2,400 stations, dwarfing all other radio outlets in size and audience.

In their control of most of our newspapers, the great majority of our radio and television, of our most widely distributed books, magazines and motion pictures, these conglomerates have cheapened what once was a civilized mix of programming.

We have large cadres of talented screen writers who periodically complain that they have exciting and touching material that the networks reject in favor of repetitious junk. These writers do it for the money and could quit, as some of them have. But they once got paid for writing original dramas like those of Paddy Chayevsky and other playwrights whose work was heard in earlier days of television.

Programs appealing to the variety of our national tastes and variations in politics are so rare they approach extinction. The choices for the majority of Americans are the prime-time network shows that range from the relatively harmless petty jokes and dating games typified by “Seinfeld” to the unrelieved sex and violence of Murdoch’s Fox network and “reality” shows in which “real people” — that is, non-professional amateurs — are willingly subjected to contests in sexual seduction, deceit and violation of friendships. Most TV drama is an avalanche of violence.

This is not an appeal for broadcasting devoted solely to the nostalgia of “Andy Hardy” and “Little House on the Prairie.” Nor is this an appeal for solely serious classics designed for elite audiences (though surely more of such programs would be good). It is an appeal for a richer variety to meet the range of tastes, regional interests, ethnic documentaries and dramas for the millions of Americans who embrace memories of “the old country,” as well as other appeals, like of soap operas, popular music and classical music, lectures.

Here and there, at later hours of the evening, there are occasional book-and-author, actors-and-producers interviews, as well as talented performers of the contemporary pop forms. But they are rare gems glimpsed through the masses of stereotyped nightly trash.

A basic root of the problem is two-fold. One is the domination of our broadcasting by a handful of giant media conglomerates whose performance is measured not just by Nielsen or Arbitron ratings, but what these create on the stock market, whose major investors’ standards are, “I don’t care how you do it, but if your program doesn’t raise your stock market prices, your president and CEO will be out of their jobs.”

The other is a Federal Communications Commission which, for the last 30 years, has forgotten its mandated task of making certain that broadcasters serve “the public interest.” Instead, the present majority members believe that, contrary to broadcast law, the free market of maximized profits is what constitutes the standard for what is in “the public interest.”

More than 40 years ago, a Commission member, Newt Minow, electrified the industry and most of the listening and viewing public by describing television programming as a “vast wasteland.” It was a measure of the standards of that day. It is a measure of today’s standard that this would be ignored as the whining of a crank; and defense of today’s far more bleak “wasteland” lets the broadcast industry sneer all the way to the bank.

The media giants argue that they are only giving people what they want. But that lost much of its democratic gloss when the two Democratic minority members of the FCC at the start of the decade held hearings in major cities across the country to hear what citizens felt about current broadcasting. The hearings were packed with people who testified with seriously documented complaints that they are not getting what they want, and that more concentration would only make the problem worse.

Behind these country-wide complaints is the bitter knowledge that, in effect, “The media giants have stolen our property.”

It is Grand Theft.

“Stolen our property” is not just a figure of speech. Communications law established that the American people are the owners of the radio and television frequencies, not the commercial broadcasters.

The theft is not just of the electromagnetic frequencies on which the giants broadcast. The theft is also of the inherent and varied needs and wants of the country’s real families and individuals, citizens in the real country.

That loss tells us that we are in danger of losing some part of what we call “America.”

Ben Bagdikian is the author of The New Media Monopoly and other books on the media.


Monster banks



Monster Banks: The Political and Economic Costs of Banking and Financial Consolidation

by Jake Lewis

Commercial banks in the United States have been on a wild ride over the last 25 years. They have seen record profits, vastly expanded powers and a new post-Depression record for bank failures. Today the industry is still in the midst of a massive concentration of financial resources.

As President Reagan’s first term came to a end in 1984, there were 15,084 commercial banks and thrift institutions in the 50 states. By the end of 2003, the number had dropped to 7,842 — almost a 50 percent reduction. The majority of the decline from 1984 to 2003 was among banks of $1 billion or less in assets, many them swallowed up in mergers and acquisitions by the mega institutions.

But the decline was also the result of the massive failures among both banks and thrifts in the mid 1980s and early 1990s. Between 1984 and 2003, 2,700 banks and thrifts failed. Nearly three-fourths of the failures came in a five-year period, 1987 to 1991.

As a result, the deposit insurance fund for savings and loan institutions collapsed and ultimately required a half trillion dollars of tax funds to cover the losses and restore deposit insurance. The bank deposit insurance fund itself dipped into the red in 1991, requiring Congress to vote a $30 billion contingency fund to back up the insurance.

While the number of financial institutions continued to decline in the 1984-2003 period, banking assets were increasing. During this period, banking industry assets more than doubled — totaling $9.1 trillion at the beginning of 2004. And the rapidly increasing level of concentration began to show dramatically.

The share of assets in institutions with more than $10 billion rose from 42 percent in 1984 to 73 percent by 2003. Meanwhile, the share of industry assets in community banks — defined as institutions of less than a billion dollars — plunged from 28 percent to 14 percent in the same period. The truly small banks with 8 percent of the nation’s assets in 1984 saw their share drop to only 2 percent by 2003.

Measuring concentration by deposits produces equally stark evidence of a banking industry already controlled by a relatively small handful of dominant players. The top four bank holding companies — Bank of America-Fleet, Citigroup, J. P. Morgan-Bank One and Wells Fargo — control nearly one fourth of all domestic deposits, and the top 25 banking institutions have nearly half of all U.S. deposits. In fact, Bank of America, after its merger with Fleet, is now bucking up against a 1994 law which prohibits any one institution from controlling more than 10 percent of domestic deposits. So Bank of America may have to shed some of its deposits or seek a liberalization of the statute — certainly not an impossibility for an institution with its economic and political clout.

Banking marries finance

But just becoming big wasn’t enough. The mega institutions wanted a broader financial role by moving into insurance and securities. That meant repeal of the Glass-Steagall Act, passed in the wake of the stock market crash of 1929 — a measure designed to firmly separate banking from securities activities. For years, these and other efforts to expand the economic role of banks was blocked by Representative Wright Patman, the Texas populist who served as chair of the House of Representatives Banking Committee.

After Patman’s death, the legislative calendar was dotted with a variety of proposals to deregulate the banks and let them roam across the financial landscape. Often these proposals failed because of intramural fights involving banking, insurance and securities industries — each jealously guarding their special niches.

The collapse of the savings and loan industry at a cost of $500 billion to the taxpayers in the 1980s and early 1990s — plus a post-Depression record number of commercial bank failures — scared the Congress and temporarily cooled the more radical deregulation proposals. Nonetheless, in 1994, Congress passed the Interstate Banking and Branching Act, which allowed banks to branch nationwide. As a result, institutions like Bank of America today stretch from coast to coast.

But the big prize of deregulation — expanded powers — was still out of reach. Major deregulation legislation was introduced in 1982, 1988, 1991, 1995 and 1998. It was like a never ending series of summer television reruns. The legislation was designed to allow the formation of giant financial conglomerates composed of banks, insurance companies.

In 1999, the deregulatory stars were in alignment. By this time, the legislation had a new and deceptive name, “Financial Modernization.” Senator Phil Gramm, R-Texas, the truest of true believers in deregulation, was chair of the Senate Banking Committee. In the House, the Financial Services Committee was headed by Republican Representative Jim Leach of Iowa, who had only one big concern — that deregulation not go so far as to allow financial institutions and non-financial companies to combine — the long-standing issue of banking and commerce. Once that was settled, Leach was on board. The House Commerce Committee shared jurisdiction with the financial services committee, and its chair, Tom Bliley, R-Virginia, was a cheerleader for deregulation.

The Clinton administration had no problems with pushing for deregulation. Its Secretary of the Treasury, Robert Rubin, who had been a major player on Wall Street, enthusiastically promoted the legislation. At times, the Clinton administration even toyed with the idea of allowing a total blurring of the lines between banking and commerce, but was forced to back away from this radical move after fire from former Federal Reserve Chair Paul Volcker, Leach and the ranking Democratic member of the Senate Banking Committee, Paul Sarbanes of Maryland.

The banking, securities and insurance corporations — the big ones at least — were beginning to see mutual advantages and new roads to big bucks in the deregulation scheme. And they saw little to be gained by a prolonged fight over banking and commerce and everything to be gained by passage of financial modernization.

In 1998, the end of Clinton’s second term as President was on the horizon and financial lobbyists were anxious that the bill get to the President’s desk before the national political campaign was in full swing. But the bill was floundering. Predictions of still another in a long tale of failures were beginning to appear.

The upturn in the fortunes of the legislation can be traced to many reasons and many personalities. At the forefront were John Reed of Citicorp, Sanford Weill of Travelers Insurance Group (who later was to succeed Reed at Citigroup, after Citi and Travelers merged) and David Komansky of Merrill Lynch. They became familiar figures in the halls of the Senate and House office buildings.

Big banks, securities firms and insurance companies spent lavishly in support of the legislation in the late 1990s.

During the 1997-1998 Congress, the three industries spent $58 million in the form of campaign contributions, along with $87 million in soft money contributions to the Democratic and Republican parties and an estimated $163 million in various lobbying efforts.

While the money certainly helped grease the wheels of the legislative bulldozer, two individuals — Senator Phil Gramm, the Senate Banking Chair and Federal Reserve Chair Alan Greenspan — were the key to the ultimate passage of “financial modernization.” Greenspan, a conservative anti-regulation Republican, had no philosophical problems with wiping out statutory safeguards. More important, he saw an opportunity to strengthen his and the Federal Reserve’s role as the major overseer of the financial industry. He wanted the role of the Office of the Comptroller of the Currency — which regulated national banks — diminished and the Federal Reserve firmly installed as the dominant regulator.

To accomplish the goal, Greenspan became a one-man cheerleader for Senator Gramm’s legislation. When the legislation became snagged on controversial provisions, Greenspan would invariably draft a letter or present testimony supporting Gramm’s position on the volatile points. It was a classic back-scratching deal that satisfied both players — Greenspan got the dominant regulatory role and Gramm used Greenspan’s wise words of support to mute opposition and to help assure a friendly press would grease passage. Deregulation became law in 1999.

Consumers be damned

Proponents of financial modernization had the chutzpah to attempt to sell the legislation as a boon to consumers. Press releases and testimony were filled with claims that consumers who were supposedly clamoring for large conglomerates which would be “one stop” financial centers where customers could dabble in a variety of expensive and esoteric financial transactions. Through the years of hearings, no one ever produced the consumers who were supposedly yearning for one-stop money shops.

The legislation did nothing to build on the consumer protections which started coming on the scene in the late 1960s. These efforts produced laws like Truth in Lending — which require that consumers be fully informed of the costs when they borrow money — along with the Community Reinvestment Act, Home Mortgage Disclosure Act, Equal Credit Opportunity Act, Fair Housing Act, Fair Credit Reporting Act, Truth in Savings and more recently legislation to protect the privacy of consumers’ bank records.

The titles of the various consumer protection statutes are impressive. In the real world, the protections have been diminished by a financial regulatory system which traditionally has been focused on the “care and feeding” of banks, not on enforcement of protections for bank customers. The saving grace, in some cases, has been the willingness of the Federal Trade Commission (FTC) to enforce consumer protections while the bank regulatory agencies looked the other way.

The 1977 Community Reinvestment Act, which requires banks to help meet the credit needs in all areas of its communities, was weakened as part of the modernization scheme. Small banks under $250 million will be subject to CRA examinations only every four to five years.

That provision has now prompted regulators to propose limiting full CRA examinations to institutions of $1 billion or more in assets. This means only 428 out of 7,263 banks will be subject to complete exams.

CRA requirements for public hearings of merger applications have given community organizations opportunity to reveal and protest poor lending performance by banks and gain future commitments. The requirements for hearings are sharply reduced under financial modernization. The legislation provided no improvement in the ratings of bank CRA performance, leaving in place a system under which 98 percent of all banks receive satisfactory or outstanding ratings. Presumably if these ratings were accurate, housing and community development needs would be met fully. Any survey of inner city housing and depressed rural areas would establish the inflated CRA ratings as gross frauds.

The financial conglomerates created under financial modernization have access to a marketing gold mine in the information gathered and shared by banks, securities firms and insurance companies. Consumer groups and privacy advocates fought to ensure that personal records, including medical data, would not become open secrets.

But, in the end, privacy was the loser. All that was left as a protection was a weak “opt out” provision which gave the conglomerates the right to use and misuse personal data unless consumers took affirmative steps to “opt out” of the scheme.

In notifying consumers of their rights to opt out of the information sharing, the financial firms set a new record for obfuscation. Mandatory notices of consumer rights to opt out were often buried among a welter of other enclosures in billing envelopes and obscured by legal verbiage that only served to confuse.

Regulatory impotence

Even more absurd is the fact that the deregulatory bill was titled “Financial Modernization,” when the financial regulatory system was left as a disjointed, fragmented and overlapping creature — anything but modern. Four federal banking agencies and 50 state regulators have jurisdiction over banks. And now the securities powers of the banks also involve the Securities and Exchange Commission (SEC). As part of this jumbled system, the nation’s monetary policy machinery is housed in the Federal Reserve, which also serves as a bank regulator.

A study by the Federal Deposit Insurance Corporation (FDIC) pointed to the growing international trend toward a coordinated regulatory system with monetary policy and bank regulation clearly separated:

“At a time when questions are increasingly being raised in the United States about our fragmented piecemeal system of financial regulation, in many other countries functional regulation has given way to consolidated supervision by a single regulator. Although many countries continue to regulate and supervise their financial institutions through multiple entities, in nation after nation, serious study and thought have been given to devising regulatory arrangements to deal with a new, more integrated financial world. The trend has been to bring together in one agency financial supervision and regulation of the major types of financial institutions (banks, securities firms and insurance companies). ... Many nations are achieving this consolidation by moving the regulatory and supervisory functions outside the central bank.”

But under the rubric of financial modernization, the United States took another step backward into the morass of overlapping agencies. Instead of moving bank regulation out of the central bank, the Congress anointed the Fed as the “umbrella” regulator.

The problems created by the regulatory gaps under the present system are not academic. They are illustrated by the celebrated shenanigans engineered by banks like Citicorp, J. P, Morgan Chase and Merrill Lynch. In the Enron scandal and in other cases, these banks engaged in various kinds of fraudulent activity in one part of their financial empires in order to generate profit in another. The breach of the wall between banking, investment banking and insurance led directly to these abuses.

Senator Carl Levin, D-Michigan, then-chair of the Senate Permanent Subcommittee on Investigations, in 2002 described the banks’ role this way:

“The evidence shows that Citigroup and Chase actively aided Enron in these transactions, despite knowing they employed deceptive accounting or tax strategies and were being used by Enron to manipulate its financial statements or deceptively reduce its tax obligations. Citigroup and Chase received substantial fees for their actions or favorable considerations in other business dealings.”

Both banks loaned billions of dollars to finance Enron’s deals. And, as Senator Levin bluntly remarked, Merrill Lynch “assisted Enron in cooking the books.”

All three corporations were major lobbyists for the financial modernization legislation.

At the conclusion of the hearing, Senator Levin stated the obvious:

“There is a regulatory gap right now.”

Yet only three years earlier, Congress and the national media had proclaimed financial regulation” modernized.”

Jake Lewis, a former professional staff member of the Banking, Finance and Urban Affiars Committee of the U.S. House of Representatives is on staff at the Center for the Study of Responsive Law.



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