Q. Why should I be concerned about the current state (failed/failing) of federal financial reform?


A. Neil Barofsky (former federal prosecutor and first special inspector general of the Troubled Asset Relief Program) warned us years ago (September, 2012) that, “The real issue is the potential for another financial crisis because we haven’t fixed the core problems of our financial system.  We still have banks that are ‘too big to fail…’  The whole point of Dodd-Frank was to end the era of TBTF banks.  It’s fairly obvious that it hasn’t done that.  In that sense, it [Dodd-Frank] has been a failure…  The same incentives that led to the 2008 crisis are still in place today and in many ways the situation is worse.  We have a financial system that concentrates risk in just a handful of large institutions, incentivizes them to take risks, guarantees that they will never be allowed to fail and ensures that the executives will never be held accountable for their actions.  We shouldn’t be surprised when there’s another massive financial crisis and another massive bailout.  It would be naïve to expect a different result.”  And Professor William Black (see bio in Answer #2, below) warned us years ago (September, 2013) that, “Dodd-Frank doesn’t address any of the three central elements that create the criminogenic environment that produce the recurrent, intensifying epidemics of control fraud that drive our ever-worsening [financial] crises.”  (Note: Per Black, those “three central elements” are: “the creation of the… ‘too-big-to-fail’ firms; modern executive compensation, which creates the perverse incentive structures and is the means of looting [accounting control fraud — the fraud, which was perpetrated from within Wall Street C-Suites, that caused the last crisis] that the CEOs use; [and] what we call the three D’s — deregulation (when [Washington] reduces, removes, or blocks rules or laws, or authorizes entities to engage in new, unregulated activities), de-supervision (the [regulatory] rules remain in place but they are not enforced, or are enforced [by regulatory agencies] more ineffectively) and de facto decriminalization (when enforcement of the criminal laws becomes uncommon in the relevant industries).”  And Professor Frank Partnoy (law and finance, University of San Diego) and Jesse Eisinger (senior reporter at ProPublica and a columnist for The New York TimesDealbook section) warned us (January, 2013) that, “Sophisticated investors describe big banks as ‘black boxes’ that may still be concealing enormous risks—the sort that could again take down the economy…  [And Partnoy and Eisinger included this quote in their article…] Paul Singer, who runs the influential investment fund Elliott Associates, wrote to his partners this summer, ‘There is no major financial institution today whose financial statements provide a meaningful clue’ about its risks…  [And they offered this example of the hidden risks of TBTF banks…] Only a few people have publicly expressed concerns about customer-accommodation trades. Yet some banking experts are skeptical of these trades, and suspect that they hide huge risks…  Bankers and regulators today might dismiss warnings that customer-accommodation derivatives could bring down the financial system as implausible. But a few years ago, they said the same thing about credit-default swaps and collateralized debt obligations [the derivatives that played a very significant role in the collapse of Lehman Brothers, Bear Sterns and AIG during the last crisis].”  And Phil Angelides (Chair, Financial Crisis Inquiry Commission, former California State Treasurer) has warned (January, 2013) that, “These [TBTF] banks need to be broken up for reasons beyond just market impacts. Simply stated, they have become a clear and present danger to our economy and democracy and must now go the way of the trusts that were dismantled at the turn of the last century…  [T]here’s something… even deeper that’s happening within the financial industry that I think comes from enormous power and hubris…  [T]here is a corruption, I think, that’s very damaging to the sense of integrity of our financial markets and very damaging ultimately to our economy that’s got to be rooted out. But it won’t be rooted out if our system of broken enforcement continues…  I think this is a battle for the future of the country’s economy that has to be won…  The financial services industry ought to be in place to serve the larger economy. It ought to be about providing lending capital for business expansion, for job creation. It’s become something very different… full of speculation, full of risk, full of contempt for the rules of American society and our economy... it needs to be corralled so it can go back to providing its real function, which is to support the American economy, be a lender and provider of capital to create wealth in this country.”

All of these warnings by these experts (and this is just a sampling of all the warnings by experts) have led us to conclude the following:

  • The status quo of federal financial reform can only be described as failed and/or failing; and,
  • Our nation’s financial system is, essentially, the same house of cards that it was prior to the last financial crisis (2007-9) and, as a result, American citizens are being forced to live every day under the dark cloud of the next crisis and job-and-net-worth-destroying recession (or worse).


Q. Why do we need to reform our current financial reform (like the reform recommended in the Bank Whistleblower United’s (BWU) “60-Day Plan” that Republic Retooled is citing as an example of the reform that the nation requires to prevent another financial crisis)?  And, why will this reform succeed with ending too-big-to-fail and why did Dodd-Frank not succeed?


A. The BWU was organized in January, 2016, with the following members: Gary Aguirre, former SEC attorney and SEC whistleblower; Professor William Black, Associate Professor of Economics and Law at the University of Missouri (Kansas City) and the Distinguished Scholar in Residence for Financial Regulation at the University of Minnesota Law School; Richard Bowen, former Citigroup executive and Citigroup whistleblower; and Michael Winston, former Countrywide executive and Countrywide whistleblower.  The BWU’s 60-Day Plan (named this because it could be entirely implemented — with the exception of one component — by the White House in 60 days) includes components that would restore the ability of the finance-industry regulatory agencies and FBI to collaborate and effectively investigate and prosecute (and, thus, terminate) the white-collar crime being directed from Wall Street C-Suites (accounting control fraud — see Professor Black’s quote in Answer #1, above) that causes financial crises (i.e., “restore a superb criminal referral process, the criminal referral mandate, and criminal referral coordinators, at every federal financial agency,” per the BWU) and would also finally end too-big-to-fail via risk-weighted capital requirements (i.e., by “impos[ing] individual minimum capital requirements (IMCR) for all [too-big-to-fail (TBTF)] firms commensurate with the risk they pose because of their size and IMCRs for all TBTF firms commensurate with the risk they pose because of their non-commercial bank activities [e.g., the derivatives trading and other business that Partnoy and Eisinger wrote about (see first FAQ question, above) ] and IMCRs for all banks commensurate with the risk posed by their executive compensation systems and IMCRs for all banks commensurate with the risk posed by their hiring, retention, and compensation systems for purportedly independent professionals such as outside auditors, appraisers, and credit rating agencies,” per the BWU).  (If citizens want more information about why these capital requirements will be effective reform in ending TBTF, we recommend reading the fairly brief explanation on the BWU website — see: “Bank Whistleblowers United” in the right margin on the website and click on “The 60-Day Plan” and then scroll about 80% of the way down the page to: “Why We Propose Using Individual Minimum Capital Requirements.”  Here is the link: http://neweconomicperspectives.org/2016/01/announcing-bank-whistleblowers-groups-initial-proposals.html )  (Note: The BWU Plan also contains components that would: address the corrupting impact of the “revolving door” in federal agencies; “reassign 500 FBI agents to the white-collar crime section to investigate elite financial frauds [and would include the] request[ing of] authority from Congress to hire 3,000 new FBI agents… assigned to high priority white-collar crime investigations [and requesting] authority to hire 250 new DOJ attorneys to prosecute elite white-collar crimes;” require that the White House “appoint new federal financial agency, FBI, and DOJ leaders [who are] committed to making the prevention of financial fraud epidemics and the resultant crises a top priority [based on] their personal commitment to act vigorously to prevent, punish, and deter any violations [and based on their] distinguished track records as regulators, investigators, whistleblowers, and prosecutors in holding elite financial criminals personally accountable and countering attempted political or corporate interference on behalf of elite criminals;” and other reform.)

The BWU Plan is the only reform proposal, of which I am aware, that contains reform that fully addresses the threats to our nation’s financial system and economy that are posed by white-collar crimes being directed from Wall Street C-Suites (which is what caused the last crisis — see below).  This is why we are advocating the immediate implementation of reform that achieves the objectives of this proposal and why we describe it as urgently needed reform that citizens must support in order to ensure that the White House and Congress do not fail — the second time around (considering that their first attempt with financial reform has failed/is failing) — with implementing it ASAP.  BWU explains why this reform is so urgently needed: “The most recent U.S. bubble and resultant financial crisis and Great Recession were driven by three epidemics of fraud led by [bankers in Wall Street C-Suites]. The three epidemics that drove the crisis are appraisal fraud, ‘liar’s loans’ (collectively, these were the loan origination frauds), and the resale of those fraudulently originated mortgages through fraudulent ‘reps and warranties’ to the secondary market and the public.  We [BWU] cannot… fail to act now given the urgency of the problems caused by the collapse of personal accountability for Wall Street [bankers].  Our economy and our democracy are both imperiled by that collapse and require urgent redress.  [We, the BWU members, are] dedicated to… helping to implement the urgent changes necessary to prevent or at least reduce the frequency and harm of future crises.”  (Note: We also recommend, for anyone who is still not convinced of the need for the reform that the BWU is recommending because they are not familiar with just how impotent the FBI and our regulators were in even slowing down, let alone stopping, the “epidemic” of fraud that caused the last crisis, that citizens watch the Frontline (PBS) program “The Untouchables,” which documents just how frustrated officials in the FBI claimed to be with regard to prosecuting Wall Street executives and stopping the fraud epidemic.  As Professor Henry Pontell (criminology, law and society, School of Social Ecology at the University of California at Irvine) explains: “When regulators don’t believe in regulation and don’t get what is going on at the companies they oversee, there can be no major white-collar crime prosecutions [and] if they don’t understand what we call collective embezzlement [what Professor Black calls accounting control fraud], where people are literally looting their own firms, then it’s impossible to bring cases” [and, impossible, I would think, to stop an epidemic of fraud] — (see: “In Financial Crisis, No Prosecutions of Top Figures,” The New York Times (nytimes.com), April 14, 2011)



Q. How are we (We the People) going to achieve the ultimate goal of the STOP Financial Crisis II campaign (which is the implementation of the BWU 60-Day Plan by the White House and Congress)?


A. Right now, since we have just launched the campaign, we are focusing our efforts in California, with the immediate goal of achieving passage of a resolution in the California Legislature that compels the White House and Congress to implement the BWU Plan immediately.  We are building support for the BWU Plan and the campaign, community by community, by coordinating efforts across the state in which citizens work on passing similar resolutions in their local (city/county) governing bodies (see our resolution on our The Resolution page, under Home on the main menu).  Once we have achieved success with the campaign in California, our plan is to begin expanding the campaign out into other communities in other states and building support nationally for the BWU Plan and the campaign.  These efforts include winning the support of various organizations (e.g., we are attempting to build a quasi business-labor coalition by obtaining endorsements/statements of support from local/state/national small-business owners/organizations and labor organizations).  (Note: We believe that success with this campaign will only happen if this is organized as a non-partisan campaign that appeals to every citizen of every political stripe on Main Street.)




Q. I would like to support this campaign, but what can I do that will not require too much of a commitment of my time?


A. We ask citizens to please follow the campaign as much as you can (by signing up on this website to get occasional email updates) and take action as often as you can (see our Take Action section on our Home page and sign up for any political action that interests you).  We also ask citizens to please attend our occasional, educational events (typically town-hall-format webinars that will feature one or more expert guests and Q & A with the audience) and we ask that you please express your opinion about anything you see or hear on the website or in one of our events (e.g., send us an email with your questions or comments to: republicretooled(at)gmail(dot)com.  Or, if you want to participate in our discussion forum, we invite you to post your comments/questions in our public, open forum, located here: https://groups.google.com/forum/#!forum/republic-retooled ).

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