When you sign a cell phone contract, you’re not just agreeing to pay thousands of dollars over a few years to AT&T or Verizon. You’re also signing away your right to sue the company or participate in a class action lawsuit against it.
If the cell phone provider systematically overcharges you or doesn't deliver, say, on its promise of "unlimited data," your only remedy -- unless the government steps in -- is forced arbitration, a private negotiation between the company and the customer where a non-judicial party decides your fate. Typically, the process is stacked in favor of the giant corporation.
Forced arbitration clauses have become widespread in recent years and there's one
buried in AT&T’s terms of service. It’s why the Federal Trade Commission, not customers, just sued AT&T for allegedly slowing down Internet speeds on customers' smartphones -- even though customers were complaining about the practice for years.
AT&T isn’t alone: the four other largest cell phone carriers – Sprint, T-Mobile, U.S. Cellular, and Verizon – also have forced arbitration in their terms of service.
The policies are aimed primarily at restricting customers from class action lawsuits, but they also forbid customers from taking cell phone providers to just about any kind of court -- except small claims court, familiar to most Americans as the setting for The People’s Court; hardly the venue for exacting justice against multibillion dollar corporations.
Buried in these contracts from AT&T, Verizon and T-Mobile are clauses that take away your right to sue
T-Mobile is unique in having a forced arbitration opt-out policy, but it must be completed within 30 days of activation to be valid. So before you applaud the company for such a progressive policy, consider the likelihood that someone who just bought a new phone would also have the forethought to consider the best potential legal strategy against the company they bought the phone from. If a customer really envisioned becoming entangled in a legal dispute with a company over a purchase, they wouldn’t probably simply avoid doing business with that company.
Telecom companies are hardly outliers. Banks, retail stores and electronics giants have all found ways to get customers to sign away their right to take a company to court.
Even Cheerios tried to jump on the bandwagon. In April, the General Mills' cereal brand changed its terms of service so that simply liking the cereal on Facebook voided a consumer’s right to sue. But after a New York Times story drew attention to the policy, the company quickly reversed itself.
In 2011, the practice was upheld by the Supreme Court by a 5-4 vote in AT&T vs. Concepcion. The court also upheld the legality of class arbitration waivers. That means that not only can terms of service waive your right to participate in a class action lawsuit, but also your ability to enter arbitration with other consumers. Individual arbitration is the only option.
The legality of these types of class action waivers was broadened even further by the Supreme Court in 2013 to include terms of service between businesses in the case of American Express vs. Italian Colors Restaurant. The court held that American Express could include class action waivers in its terms of service with merchants.
Some customers have tried to find justice against cell providers in small claims court, including one California man who sued and won $850 from AT&T in 2012. The stakes are low, but the companies’ monetary and legal advantage is narrowed. Here’s how Consumerist described the scene: “Since lawyers are not allowed in California small claims courts, AT&T was represented by its area sales manager.”
If you’re looking for a venue outside small claims court to shame companies into changing their policies, a petition may not be your best bet. Change.org has a forced arbitration clause in its terms of service.
Pop quiz: Which high-profile official faulted the Obama administration for the following botched responses to the financial crisis?
1) Policing bad banks: "The enforcement response we sought came way more slowly than would have been ideal ... and (inevitably) fell far short of what people thought would be appropriate ...
2) A mortgage task force Obama announced in his 2012 State of the Union speech "was not about the average individual victims, but more the fights among the consenting adults that had sold and bought mortgage securities that performed badly."
3) The government's $25 billion National Mortgage Settlement to fix botched foreclosures "was ridiculously protracted and ultimately unsatisfying in the penalties imposed and relief sought."
Outspoken progressive Sen. Elizabeth Warren, D-Mass.?
Libertarian firebrand Sen. Rand Paul, R-Ky.?
Sorry, no. The answer is actually Timothy Geithner, the former Treasury secretary, architect of the crisis rescue packages and, more typically, the Obama administration's stalwart defender.
The criticisms all come from a cache of previously unreleased documents prepared for Geithner's recent memoir, "Stress Test," that are part of one of the biggest legal fights from the financial crisis, a case against the government by shareholders of insurance giant AIG.
The 500-plus pages of private papers obtained by ProPublica show a different side of Geithner – one more candidly critical of the administration's policies and of his own shortcomings. In some instances, they express views he watered down or left out of the book, particularly when it comes to the administration's efforts to police Wall Street and get relief to homeowners.
Geithner declined to comment, spokeswoman Jenni LeCompte said.
In the book's chief analogy, Geithner and the administration are firefighters battling a cataclysmic financial arson. They can punish the arsonists by letting the big banks burn down, but the greater good is to save them, though not necessarily their shareholders, and prevent the collapse of the whole financial system.
That theme is echoed in the private papers, but they also make clear that Geithner believed the rescue came up short on multiple fronts.
"We sought a very powerful enforcement response by competent authorities," he writes in a May 2013 memo titled "On the Politics of the Crisis Response" and slugged "TFG draft." "This didn't turn out as we'd hoped, in part because we didn't give it enough attention."
The memo, written after Geithner left the Treasury job, seeks to explain why the government rescues were not politically popular and tilted toward Wall Street rather than Main Street.
Enforcement was slow "in part because the illegal stuff was very hard to prove," Geithner writes, but also because of expectations "given the prevailing view that the crisis was caused by criminals [sic] behavior of a few bankers and mortgage brokers and investors."
Attempts to shake up supervision fizzled. "We changed part of the leadership of the financial oversight system, but not in a way that signaled a new team of sheriffs," he says. "The bank supervisors got tougher, but we had no high-profile firings."
Obama's regulatory picks, he goes on, were not initially seen as "likely to be tough enforcers." He cites his own background as "a former sort of bank supervisor" during his prior job as president of the Federal Reserve Bank of New York before and during the crash. (The New York Fed supervised giant Wall Street banks; Geithner's book acknowledges that he missed troubles at Citigroup and didn't push hard enough for bank safeguards.)
Some of the administration's enforcement efforts were misplaced, Geithner adds, singling out the Securities and Exchange Commission. "A huge part of the SEC's attention was on insider trading," he says, "which though offensive and damaging played no role in causing the crisis."
In "Stress Test," Geithner argued that the amount of mortgage fraud "deserved a more forceful enforcement response than the government delivered." At the same time, he said it would be "inaccurate" to say "Wall Street paid no price for its misbehavior," given that big banks paid more than $100 billion in fines related to the crisis.
The 2013 memo is less evenhanded. Besides criticizing the national mortgage settlement, which was mostly meant to help foreclosed borrowers, Geithner faults a Justice Department mortgage fraud task force as a "good idea, (that) delivered little."
"We put in place innovative and quite expensive programs to help homeowners refinance and restructure mortgages and to support small business lending," he writes. "Here, too, the programs seemed small, and limited, and late relative to the magnitude of the damage done by the crisis."
ProPublica has reported extensively on the failings of government mortgage relief programs and the failure to prosecute corporate wrongdoers.
The Geithner papers, portions of which are redacted, were produced in the ongoing AIG case in the Federal Court of Claims in Washington, D.C., and have not been widely available.
In the lawsuit, former AIG chief Maurice Greenberg and other shareholders are seeking $40 billion to resolve claims the government's 2008 bailout imposed more onerous terms on the insurer than banks. Geithner defended the government in testimony earlier this month.
Besides several memos like the one from 2013, the papers include transcripts of informal conversations Geithner had with his collaborators while working on the book. In some of this material, a visceral distrust of populists, business groups, labor leaders, politicians and the media emerges, as does a sense of being unfairly under siege.
"We took a pragmatic course focusing on things that were central to the crisis — wars of necessity not wars of choice," Geithner writes. "This put us in no man's land, as we found ourselves on so many policy issues, with reforms that enraged the right, but did not really satisfy the left."
"I had deep distrust and scorn for the prevailing populist impulse" and didn't expect "broader public acclaim for the shit we had to do," the 2013 memo says. In other musings, he declares himself no fan of the Tea Party or what he called "professional progressives."
In an accounting from his book, Geithner estimates that the various government rescue efforts, as of the end of 2013, resulted in a $166 billion surplus for taxpayers. That is the net difference between almost $200 billion in positive results from programs adopted in 2008 minus losses of more than $30 billion from Obama's auto and housing rescues.
But the media, in Geithner's view, didn't give enough credit to the administration's successes, which quickly became "old news," and were slow to correct mistakes.
In one transcript, Geithner calls a prominent news anchor who'd interviewed him a "super dick," though he also admits, "I kind of deserved it." Another widely followed business columnist, who he asked to correct a mistake, was a "crazy person," he says.
All the same, Geithner was willing to cooperate with writers who took a more humanistic or favorable approach; he mentions a 2010 article in Vogue as well as a 2009 interview with a prominent editorial columnist Geithner said didn't "really know anything about this stuff."
Geithner faults himself and the Obama administration for not doing a better job in communicating good news, especially the positive results from TARP, the $700 billion program to buy troubled assets and equity from banks.
The TARP was organized by Hank Paulson, Geithner's predecessor at Treasury under the Bush administration. President Obama "was not going to go out and say 'I just want to remind you of this stuff that Paulson and Geithner did that I supported' as a senator, Geithner says in one transcript. Obama could not trumpet the returns because unemployment remained too high, he adds.
In his book, Geithner took Washington's political culture to task for "backbiting and posturing and political gamesmanship." He is even more critical in private.
Labor leaders wasted their time on fighting regulation of derivatives – the complex financial securities that helped inflame the crisis – because "it was not going to have any measurable effect on the fortunes of organized labor," he wrote in the 2103 memo.
The business community, too, had its "share of extortion or protection rackets like the Chamber of Commerce," Geithner writes, though "it was often hard to tell who was corrupting whom. The politicians did all sorts of things to raise money, some of them extortion-like."
As for the "smart, old, global businesses," they were "stunningly naive about how easily they were played" and how their money was spent "in all sorts of dumb ways."
"I really had no idea of the limits of executive and president power on economic issues," he writes in the 2013 memo. "I had no idea how little leverage we had over individual members of Congress." Geithner says he made a "very good prop" at hearings because "I attracted so much attention. No questions were really ever asked with the purpose of being answered."
"Nothing with Congress was on the up and up," he writes. "Only the slimmest pretense of seriousness."
At one point Geithner admits to sounding "kind of whiney."
One misconception that troubled him was a persistent belief that he had once worked on Wall Street. That was not true; most of his career was in the government.
Once he left the administration, that changed. In late 2013, Geithner went to work in New York at the private equity firm Warburg Pincus, where he is president and managing director.
Do you have thoughts to share about Tim Geithner or the government's response to the financial crisis? Email Jeff.Gerth@propublica.org
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Taco Bell is known for appealing to a certain type of young diner: The (perhaps not-so-sober) teen or 20-something who craves a taco in a Doritos-flavored shell for his or her late-night “fourth meal” and a waffle-taco hybrid stuffed with eggs and coated in syrup for breakfast.
The chain's lure for millennials has kept Taco Bell growing over the past few months, even as other major fast food chains like McDonald's have struggled. Taco Bell’s U.S. same-store sales, an important measure of a retailer’s health, rose 3 percent last quarter from the same period last year. McDonald’s same-store sales, meanwhile, were down 3.3 percent last quarter from the same period a year ago.
Menu items like Doritos Tacos Locos have helped Taco Bell appeal more to young diners. (AP Photo/Taco Bell)
The flight of young people and middle-class diners from McDonald’s to places like Chipotle and Five Guys has been well-documented. But Taco Bell is a more direct competitor to the burger chain than either of those fast-casual joints. And with “innovations” like the Doritos Locos Taco and it’s foray into breakfast, the Mexican chain is gaining an edge over McDonald’s in catering to millennials -- the new demographic holy grail.
Now, Taco Bell is deploying another weapon in the battle for the youngs: a new version of its app that allows people to create a custom order, pay for it and save those payment and order preferences for next time.
The new app is slightly more advanced than the one McDonald's currently offers, gives diners access to promotions and coupons for local stores. McDonald's is trying to make a larger digital push, testing new technologies and opening a digital office in San Fransico to recruit tech-savvy workers, according to Becca Hary, a spokeswoman for the brand.
Taco Bell's app, which rolled out for Android and iPhone users Tuesday, allows people to customize their orders and pay for them directly. Taco Bell fans can then use the app to signal when they've arrived at the restaurant, so cooks can start preparing the food. The app also allows customers to re-order their favorites simply by turning their phone to the right.
Can your cell phone make breakfast hip?
“When you think about Taco Bell, it’s less of a family oriented business than McDonald’s,” said Mark Kalinowski, the lead restaurant analyst at Janney Capital Markets. “You can see a lot of 20-somethings going to Taco Bell, and 20-somethings love their technology. You want to do things that resonate with your customer base.”
Taco Bell's waffle taco. (AP Photo/Taco Bell)
An intuitive app can also be a huge boon for an eatery. Starbucks' app, which allows users to pay, tip, save preferences and build rewards, processes millions of transactions a week.
It's possible that ordering via app also makes customers spend more. Customers tend to be more price-conscious when they're spending with cash, research has shown. Remove cash from the equation via credit cards or apps, and the dollars flow more freely.
The hope is that Taco Bell's app, along with other moves like aggressively opening more restaurants, will double the chain’s system-wide sales to $14 billion by 2022.
Part of the strategy is to position the company as less of a traditional fast food eatery and more like the popular fast-casual chains known for fresh food that is made to the diner’s expectations. Taco Bell's new app ensures that food isn’t sitting out because cooks wait to make it until the person who ordered is at the restaurant. The app also offers people the option of either choosing a burrito, taco or other menu item as it appears, or the chance to customize their order from a Chipotle-style set of ingredients.
Diners can use Taco Bell's app to add extra chicken or guacamole, or to take away cheese.
c Taco Bell President Brian Niccol told The Huffington Post. Indeed, even McDonald’s, which is known for serving up the exact same food everywhere, is testing a build-your-own-burger concept.
Still, it may be hard for fast food chains known for cheapness and speed to trounce fast-casual restaurants on quality and the number of preferences, according to Darren Tristano, an executive vice president at Technomic, a food market research firm.
“They really can't compete at that level; they just aren’t that type of a concept,” Tristano said. “Their focus is on value and speed of service, and its harder to be customized.”
WASHINGTON, Oct 27 (Reuters) - A program that compensates victims of accidents caused by a faulty ignition switch in General Motors vehicles has approved one new death claim, bringing to 30 the total number of fatalities linked to the issue so far, according to a report on Monday.
Since it began accepting claims on Aug. 1, the program has received 1,580 claims for deaths and injuries, said the report from the office of attorney Kenneth Feinberg, who was tapped by GM to run the program. The report listed all of the claims received and approved as of Friday.
GM has been criticized for waiting 11 years to begin recalling millions of cars with ignition-switch problems that have been linked to fatalities.
The switch can slip out of position, stalling the vehicle and disabling air bags. The defect led to the recall of 2.6 million vehicles earlier this year.
So far, 61 claims have been deemed eligible for compensation, including 30 deaths and 31 injuries, the report showed.
Overall, the receipt of claims for injuries and deaths in the latest week has slowed, with the number up almost 4 percent from 1,517 the previous week. That compares with an 11 percent jump the week before, the report showed.
Feinberg, who ran compensation programs for victims of the Deepwater Horizon oil spill, the Sept. 11, 2001 attacks, and other catastrophes, has said it is typical to see the number of claims dip in the middle of a program's cycle.
The program will continue to receive applications until Dec. 31 on behalf of individuals injured or killed in accidents they say were caused by the switch problem.
GM has given Feinberg free rein to determine eligibility criteria and to approve or reject claims. The amount of compensation has not been capped, and GM has set aside at least $400 million to cover the costs.
The total number of death claims received by the automaker is now 192.
Under the program's protocol, eligible death claims can expect a payout of at least $1 million, depending on whether the deceased had any dependents or whether any other "extraordinary circumstances" apply.
Claims for less serious injuries, those that required hospitalization but did not cause serious permanent damage, continued to make up the bulk of the claims. These were up in the latest week to 1,286 from 1,240.
Once claims are approved, Feinberg's office makes cash offers to the eligible claimants, who can either accept them or pursue a legal case.
A spokeswoman for the program said 23 of 31 offers made have been accepted and no one has rejected an offer so far. (Editing by Peter Galloway and Bernadette Baum)
Steve Ballmer could score a $1 billion tax break from his purchase of the Los Angeles Clippers, according to an analysis by the Financial Times.
The former Microsoft CEO shelled out $2 billion to buy the NBA franchise in May, following the ouster of owner Donald Sterling. But Ballmer can use a little-known tax credit called "goodwill" to claim roughly $1 billion over the next 15 years, according to FT.
Ballmer -- and the markets at large -- are bullish on sports franchises as the value of media rights for college and professional sports teams skyrocket. Ballmer has reason to believe the Clippers are a wise investment, even though he paid four times more than anyone ever has for an NBA team.
"Do I think my investment in the Clippers will be as good as an investment, total return, as an S&P investment fund? I believe it will be, and I believe it has less downside," Ballmer told Charlie Rose last week. "If you compare it to tech stocks, it's got real earnings."
The FT explains that "goodwill" is "commonly used by tax specialists to structure deals for sports teams." Using a conservative estimate, the outlet finds that Ballmer could be looking at $1 billion in tax credits.
While Ballmer may get a break on his purchase, critics have called out other professional sports leagues for their use of tax breaks to build costly stadiums with public money. Leagues like the NFL and NHL are registered as nonprofit, tax-exempt organizations, and they receive millions in public subsidies.
The NBA, in contrast, is not tax-exempt, but the league did just finalize a record-breaking TV deal with Walt Disney and Time Warner worth $24 billion. And some leading players are reportedly pushing to remove maximum salary contracts to better reflect their value to the franchises.
"I don't see how the owners can say they're losing money now," Kevin Durrant, the league's MVP, told reporters.
But judging by Ballmer's recent Clippers' pep rally, he's excited about a lot more than just a good tax deal:
CHARLOTTE, N.C. (AP) — Chiquita shareholders have rejected plans to merge with Irish fruit importer Fyffes that would have made the world's largest banana supplier.
Chiquita Brands International Inc. said Friday that the shareholders didn't approve a revised transaction agreement between the two companies during a special shareholders meeting. Chiquita and Fyffes PLC have given notice to terminate their agreement.
The proposed agreement with Fyffes was an all-stock deal, with the companies planning to incorporate in Dublin to take advantage of lower tax rates. Chiquita is now based in Charlotte, North Carolina.
On Monday proxy advisory firm Institutional Shareholder Services recommended that Chiquita investors support the Fyffes deal because it is the best option for shareholders. ISS had previously said shareholders should vote against the deal because Chiquita might get a better offer elsewhere.
Chiquita President and CEO Edward Lonergan said in a statement that while the company was convinced Fyffes would have been a strong merger partner, the companies "will now go forward as competitors."
Chiquita said it now expects to enter talks with investment firm Safra Group and juice company Cutrale Group on their competing offer of $14.50 per share in cash, or $681 million. Chiquita received the latest bid from the pair on Wednesday after previously rejecting buyout offers from the two Brazilian companies. The prior offer from Safra and Cutrale was $14 per share. They had bid $13 per share in August.
Shares of Chiquita added 49 cents, or 3.6 percent, to $14.25 in morning trading.
FRANKFURT, Oct 26 (Reuters) - Twenty five of the euro zone's 130 biggest banks have failed a landmark health check and ended last year with a collective capital shortfall of 25 billion euros, the European Central Banks said on Sunday.
A dozen of those banks have already addressed the gap by raising 15 billion euros over the course of this year.
Italy's financial sector faces the biggest challenge with nine of its banks failing the test, according to watchdog the European Banking Authority, which coordinated the fourth EU stress test with the ECB.
Monte dei Paschi had the biggest capital hole to fill at 2.1 billion euros, even after its money raising efforts so far this year.
The EBA said three Greek banks, three Cypriots, two from both Belgium and Slovenia, and one each from France, Germany, Austria, Ireland and Portugal had also fallen short as of the end of last year.
The ECB has spent the last year reviewing the leading banks' assets and subjecting them to rigorous stress tests - an exercise aimed at flushing out any problems before it begins supervising the sector from Nov. 4.
The ECB's pass mark was for banks to have high-quality capital of at least 8 percent of their risk-weighted assets in the most likely economic situation for the next three years, and capital of at least 5.5 percent under a bleaker scenario.
Banks with a capital shortfall will have to say within two weeks how they intend to close the gap. They will then be given up to nine months to do so.
The EBA required 123 lenders from across the EU to submit themselves to theoretical shocks such as a three-year recession and said 24 flunked in total. The ECB's test included a higher number in the euro zone as it also included subsidiaries of big banks.
A CORNER TURNED?
The ECB has staked its reputation on delivering an independent assessment of euro zone banks in an attempt to draw a line under years of financial and economic strife in the bloc.
But there is no certainty that bank lending will now pick up as the ECB hopes, to breathe life into a moribund euro zone economy.
"Thinking that lending somehow can lead GDP is an illusion, and I don't know how that has somehow crept into the policy debate," said Erik Nielsen, global chief economist at Unicredit.
Digging down into bank's balance sheets, the ECB said as of the end of last year, banks' book values needed to be adjusted by 48 billion euros and that non-performing loans had increased by 136 billion euros to 879 billion.
The ECB will not immediately force those lenders with overvalued assets to take remedial action but they will have to hold more capital eventually, leaving less room to expand, lend or pay dividends.
For lending, the more fundamental question is whether the demand for credit is there.
"Businesses need to believe in an increase in the demand for their products before asking for credits, and now that external demand growth is no longer there, this is when the euro zone needs demand stimulus," Nielsen said.
The ECB is about to take on its new regulatory responsibilities but it may be its monetary policy powers that the euro zone needs most. (Additional reporting by John O'Donnell and Paul Carrel in Frankfurt, Huw Jones and Steve Slater in London. Writing by Mike Peacock, editing by Alexander Smith)
Lululemon can't even donate to charity without miring itself in controversy.
The yoga-wear retailer is getting slammed after announcing a partnership this week with the Dalai Lama Center for Peace and Education. Lululemon will contribute $750,000 to the Tibetan spiritual leader's nonprofit organization over the next three years to expand education initiatives and for "researching the connection between mind-body-heart," according to the company's press release.
Some critics say the alliance is hogwash. They don't think the Dalai Lama's name should be associated with a money-making enterprise and complain he's been "hijacked" and turned into a mere corporate marketing tool.
A mob flocked to Lululemon's official blog, lighting up the comments section with accusations of hypocrisy.
"As he believes that luxuries are not necessities, you believe in $100 yoga pants," one commenter pointed out.
"It is offensive that you have sunk so low as to use the Dalai Lama and his image as part of your branding," another wrote.
"I am put-off by Lululemon’s bizarre effort to hijack the Dalai Lama for brand-building and commercial gain," a third added.
A few who spoke out against the partnership claimed not to like the Dalai Lama, with one calling him "cruel" and another calling him "greedy."
Lululemon appears to disagree. "Both organizations share a common vision for developing the next generation of compassionate leaders in the world and are committed to engaging and empowering healthy communities," the company said in its press release.
Lululemon and the Dalai Lama Center did not respond to requests for additional comment.
Lululemon has a lot on its plate. Last spring, quality control issues sparked a recall of too-sheer yoga pants. Then, last fall, co-founder Chip Wilson irked many customers when he said Lululemon's pants "don't work" for some women's bodies. Earlier this month, Lululemon managed to offend the entire city of Buffalo, New York, by making fun of its NFL team.
One commenter summarized: "Dear Lulu, your product is still in question, don’t get me wrong. Great marketing, done! Now get back to improving your product and winning clients back."
WASHINGTON -- The Federal Reserve was aware of risky practices at JPMorgan Chase as early as 2008 but failed to follow up for more than three years until those risks had snowballed into the company's $6.2 billion London Whale scandal, according to a new report from the central bank's Office of Inspector General.
Financial reform advocates' response to this unhappy but perhaps not surprising news was summed by Dennis Kelleher, president and CEO of Better Markets.
"The remarkable thing here is that the Fed's own people identified the high-risk activities at JPMorgan Chase's offshore units and alerted their supervisors and others that a comprehensive systematic review of those activities should be undertaken quickly," Kelleher said. "And then they didn't. They just didn't do it."
But the implications of the IG report reach well beyond the Whale debacle, highlighting how much power the Fed's New York branch wields and how little influence the public interest has within that branch.
While the Fed Board of Governors, based in Washington, is a public agency, the regional Fed banks are private sector entities. The London Whale report has led bank watchdogs to suggest that, at the very least, the New York Fed presidency should be a fully public position, appointed by the president and confirmed by the Senate.
"The New York Fed is the key on-the-ground supervisor of the largest Wall Street banks, including JPMorgan," Marcus Stanley, policy director at Americans for Financial Reform, told HuffPost. "So I think there are some questions about this hybrid public-private structure given the critical public interest in all these issues."
"Nobody with that much power and authority should be unaccountable to any publicly elected official," said Kelleher.
The London Whale rocked the American financial establishment when JPMorgan began taking sudden, heavy losses in 2012. The bank had placed big risky investment bets on an index of credit derivatives that then backfired. JPMorgan, which declined to comment for this article, was able to shoulder the brutal losses. Yet their speed and severity caused many to question whether the banking system was vulnerable to more and potentially bigger such problems.
Under the Volcker Rule approved by U.S. regulators in 2013, banks would now be barred from making such trades for their own accounts. But rules only matter if they are enforced, and the IG report offers little reason to have confidence in the New York Fed's oversight.
The Fed's IG report lays the London Whale regulatory breakdown at the feet of the New York Fed under multiple leaders. The New York Fed discovered the problematic proprietary trading at JPMorgan in 2008. The following year, it recommended a deep review of the JPMorgan division that ultimately harbored the London Whale trades. That review was never performed, and the New York Fed never coordinated -- as it should have -- with the Office of the Comptroller of the Currency, which also has regulatory authority over JPMorgan.
Part of the problem may be that the top levels of the Fed are not fully staffed for regulatory oversight. The Fed's seven-member Board of Governors has two longstanding vacancies. One of those slots should be held by a new vice chair of supervision. The 2010 Dodd-Frank financial reform law created the job -- effectively a formal regulatory boss at the Fed -- but it has never been filled.
"The Fed board vacancies -- we want reformers for those positions and people who are focused on better regulation of the financial sector," Stanley said. "And this kind of thing shows why."
One person who's been touted as a potential pick for vice chair of supervision is Elise Bean, a longtime staffer with Sen. Carl Levin (D-Mich.), chairman of the Senate Homeland Security and Governmental Affairs Subcommittee on Investigations. Bean has done extensive financial research for the subcommittee, addressing everything from offshore tax evasion to high-frequency trading. In fact, the committee released a much more extensive report on the London Whale mess in March of this year.
But the New York Fed's mishandling of the London Whale situation also raises questions about the central bank's dual structure as both a public and private sector entity. The Fed Board of Governors is a public institution that writes regulations, among other responsibilities, and the governors themselves are appointed by the president and confirmed by the Senate. But much of the Fed's actual regulatory enforcement is delegated to the 12 private sector Fed banks.
These branch banks are controlled by their own nine-member boards. Three of those directors are chosen by the banking industry, three are chosen to represent other industries, and three are selected to broadly represent public interests. The president of each branch is named by the corporate and public interest directors.
In practice, this has meant that banking and other corporate interests are really running the show at most Fed branches. A 2011 Government Accountability Office report found that regional Fed bank directors are disproportionally white men who overrepresent business management, while labor and consumer groups have few voices on those boards. The New York Fed presidency has been held since early 2009 by a former Goldman Sachs banker, William Dudley.
Moreover, not all Fed branches are equal. The New York Fed, cheek by jowl with Wall Street, is by far the most dominant, and its president exercises enormous power. During the financial calamities of 2008, then-New York Fed President Timothy Geithner served as one-third of a crisis team that included then-Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke. Since the New York Fed isn't subject to limits on government pay, Geithner was the best paid of the trio, and he would take a significant pay cut to become treasury secretary in January 2009.
While the Fed Board of Governors is a notoriously secretive institution, the New York Fed is even more protective of its internal operations, officially contending that it's exempt from the Freedom of Information Act because it is not a government agency.
The tension between the Fed's public service functions and its ties to private banks is highlighted by the Fed IG report itself. The central bank's independent watchdog is confining public disclosure of its report to a four-page summary, arguing that the full report has too much "privileged and confidential" information. The Office of Inspector General declined to comment on the decision to keep the full report a secret.
During the debate over Dodd-Frank, many reform advocates called for revamping the Fed's internal structure, but only modest changes were made, and some of those, like naming a vice chair of supervision, have not yet been implemented.
The middle-class share of American wealth has been shrinking for the better part of three decades and recently fell to its lowest level since 1940, according to a new study by economists Emmanuel Saez of the University of California, Berkeley, and Gabriel Zucman of the London School of Economics.
In other words, remember the surge of the great American middle class after World War II? That's all gone, at least by one measure.
In this case, "middle class" is defined rather expansively as the bottom 90 percent of all Americans. "Wealth" is the total of home equity, stock and bond holdings, pension plans and other assets, minus debt. As such assets are mostly owned by mid- to higher-income households -- and considering most Americans define themselves as "middle-class" -- it seems reasonable to use the bottom 90 percent as a proxy for the "middle class."
Saez and Zucman discussed their paper in a blog post for the Washington Center For Equitable Growth on Monday that included this stark chart:
Debt has been the big force driving net wealth lower for the middle class, according to Saez and Zucman. Brief bubbles in stock and home prices in the 1990s and 2000s only temporarily offset the steady, depressing rise in mortgage, student-loan, credit-card and other debts for the bottom 90 percent.
"Many middle class families own homes and have pensions, but too many of these families also have much higher mortgages to repay and much higher consumer credit and student loans to service than before," Saez and Zucman wrote.
Another important factor has been that incomes have stagnated for most Americans over the past few decades, once adjusted for inflation. Along with rising debt levels, stagnant wages have made it impossible for most families to save very much money.
And who has been the beneficiary of this middle-class misery? The top 0.1 percent of Americans, whose incomes have just kept rising, and whose share of wealth has soared to levels not seen since Jay Gatsby was still staring at the blinking green light at the end of Daisy Buchanan's dock:
In fact, the middle class is not alone in suffering from shrinking wealth. The rest of the top 10 percent of Americans below the 0.1 percent -- the "merely rich," Saez and Zucman call them -- have also suffered from falling household wealth over the past four decades.
This rising inequality of wealth can only lead to more inequality of income and wealth in the future, Saez and Zucman warned, echoing French economist Thomas Piketty. The very rich will just keep getting richer by living on the returns from their wealth, while the rest of us will keep falling behind.
The Freedom Socialist Party has right-wing bloggers seeing red over a job listing that paid less than the group advocates for a minimum wage.
Earlier this month, the nonprofit posted listings on Craigslist and Indeed to advertise an opening for a part-time web designer. It offered to pay $13 an hour or more, depending on the designer's experience. That's well below the $20 minimum wage the party pushes for in its platform, and lower than the $15 wage it helped pass this year in Seattle. Right-leaning sites promptly seized on what they saw as hypocrisy.
But Doug Barnes, the party's national secretary, told The Huffington Post on Saturday that the group relies heavily on donations from low-wage workers and could not afford to pay much to an inexperienced designer.
"We're practicing what we're preaching in terms of continuing to fight for the minimum wage," Barnes said, making his first public comment on the controversy. "But we can't pay a lot more than $13."
He said the party's revenues would increase if the minimum wage were raised to $20 -- and he'd even prefer $22, at least in Seattle. The city will begin phasing in a $15 minimum wage in April.
"Our donor base would all be affected, and the low-wage workers who support us with $5 to $6 a month would be able to give more," he said. "That would affect our ability to pay higher wages as well."
But Barnes said he removed the $13 starting wage from the Craigslist ad on Friday in response to the online criticism.
"The right-wing attack is very hypocritical," he said. "These are the same people who fought against the minimum wage and support companies like Walmart."
He said the Freedom Socialist Party, which was formed in 1966 as a revolutionary feminist breakaway group from the United States Socialist Workers Party, does not accept donations from corporations.
