The_Nation_October_9_2017

October 9, 2017 The Nation. 9

T

he financial sector is one of the

biggest enemies of reform and

accountability. Yet by consis-

tently screwing up, it has also

become the most influential

advocate for outside regulation. Consciously

through malice, or unconsciously through its

size and complexity, it has time and again

demonstrated the importance of the existing

rules and the need for additional oversight.

Take JPMorgan’s “London Whale” scandal

of 2012. At the time, the company bragged of

its “fortress balance sheet” and opposed many

of the rules being put in place on the arcane

financial instruments known as derivatives. The

general idea was that the housing crash and

subsequent panic was a one-off event, and the

banks would be just fine monitoring themselves.

Then, seemingly out of nowhere, a JPMorgan

derivatives trader in London lost $2 billion. That

instantly killed any efforts to roll back regula-

tions in Congress; instead, the worry became

whether the Dodd-Frank financial-reform act

went far enough to ensure that a bank couldn’t

suddenly collapse the economy. The incident

led to fresh demands for higher capital require-

ments, and derivatives regulators used their

new powers to impose a $100 million fine on

JPMorgan for manipulating the credit markets.

Or take criminal charges. As Jesse Eisinger

discusses in his new book, The Chickenshit Club,

the Obama administration decided not to ag-

gressively pursue criminal charges against the

banks for wrongdoing in the financial crisis. Yet

criminal conduct would go on to be rampant:

The banks knowingly manipulated key financial

markets such as the LIBOR interest-rate and

the foreign-exchange markets. HSBC laundered

money for Mexican drug cartels. Abuses in the

foreclosure chain resulted in people losing their

homes through the banks’ fraudulent paperwork

Accidental Advocates

THE SCORE/ BRYCE COVERT + MIKE KONCZAL

and improper processes. The subsequent crimes

showed, in retrospect, how wrong the Obama

administration was in not seeking prosecutions.

Wells Fargo also demonstrated the need for

an independent Consumer Financial Protection

Bureau, which was set up under Dodd-Frank.

Local newspapers and prosecutors discov-

ered that Wells Fargo was abusing clients by

opening fake accounts in their names, but

there was little they could do about it: City

prosecutors are under-resourced and lack

the regulatory authority necessary to chal-

lenge a national bank. The CFPB, however,

was designed to take on just such malfea-

sance. Wells Fargo is the poster child for how

broken the regulatory structure is without

a dedicated consumer cop on the beat.

Which brings us to the Equifax scandal.

Equifax, one of the three main consumer-credit

data companies, is paid to spy on and com-

pile all of your personal financial records. The

company holds sensitive data on almost every

aspect of our lives, yet

hackers were able to get

past their weak protection

systems. This is because

you aren’t a customer of

Equifax; you are the com-

pany’s product. As a result,

Equifax has no incentive to

provide you with good services. In the wake of

the hack, Equifax offered a credit-monitoring

tool, but to use it consumers needed to sign a

mandatory non-arbitration agreement that said

they wouldn’t sue the company. (Equifax has

since dropped this requirement after an outcry.)

These kinds of non-arbitration agreements

replace courts with a private judicial system of

company lawyers, and they have since metas-

tasized across the entire economy. The CFPB

recently finalized a rule that would outlaw these

mandatory agreements by financial companies

starting next year. Among other things, the rule

would prevent Equifax from forcing people into

arbitration after it goes into effect. Yet under an

obscure congressional procedure, Republicans

have the ability to repeal this rule with only 50

votes in the Senate. Though they might still do

it, they’re having a harder time now, since they

would be on the hook for any further abuses.

As reported by David Sirota, Equifax was

one of the lead companies lobbying against

the CFPB rule. But Equifax’s calamitous blun-

der, more than any white paper, demonstrates

the need for strong new regulations to protect

our personal data. If the rule survives, we can

thank the companies whose own horrible gaffes

demonstrated the need for it in the first place.

MIKE KONCZAL

2017 Infographic: Tracy Matsue Loeffelholz

Sources: Bloomberg, CNN

Equifax waited 6 weeks

to disclose the breach.

A software fix available 2 months

earlier was not installed.

3 executives sold stock

before the announcement.

209,

credit-card numbers

stolen

EVEN WORSE:

People were required to

sign away their

right to sue

before Equifax

would provide

any help.

143 million people at risk

Thanks, Equifax,

for Proving We Need

Tough Finance Reform

Identities worth

$30 each

on the black

market

Yes, the data hack means

your identity is now for sale.

But Equifax’s wrongdoing

went further than just

gross negligence.

Equifax’s calamitous blunder, more

than any white paper, demonstrates

the need for strong new regulations.

TRACY MATSUE LOEFELHOLZ