ESG for You and Me

When a worker sets aside part of their paycheck toward their pension, it’s lumped into a much larger sum of other retirement savers’ dollars. An asset manager decides what to do with that money, hoping to get a good return on investment for the workers collectively. They might invest it in a company with ESG commitments – that’s Environmental, Social and Governance. 

It’s Investing for the Future, as a new microsite from Americans for Financial Reform Education Fund and Take On Wall Street puts it. The website delves into the whats, hows and whys of ESG investing, and how it can “help protect workers, communities, and the planet as everyday people save for retirement.” The bottom line: Don’t be afraid of ESG, since it helps chart the course for a safer, more sustainable future for everyone, since it allows investors to invest responsibly and with a full understanding of a broad range of risks. Some of the parts of the website this writer especially liked:

ESG Basics. This’ll help you get familiar with ESG, and why it matters: Companies with strong ESG practices may be more resilient in the long-term, since they take into account a wide array of risks and opportunities. 

ESG Myths. There’s a lot of anti-ESG chatter founded on trumped-up premises. No, you won’t save on taxes if you boycott ESG. Yes, ESG investing is actually good for your retirement. 

Anti-ESG Efforts. Helpful to remind yourself that the ones behind the anti-ESG push are right-wing groups like the American Legislative Exchange Council and finance lobbyists like from the State Financial Officers Foundation. No surprise considering the E: they might often be backed by fossil fuel interests. 

Here’s a direct link so you can explore for yourself: https://esgexplainer.org/

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FINANCIAL STABILITY: Scaremongering over Capital Rules – Antidote to Scaremongering – Shadow Banks – AI and Stability – Troubled by Treasurys – Fourth Wells Fargo Union Election Count – Who Chooses Fed Presidents? – Further to the Banking Crisis
CONSUMER: Predatory Lending – Public Banking Act – Redlining – Mortgage Discrimination – CARS and Cars – Big Banks and Servicemembers – Student Loans
CAPITAL MARKETS: Retirement Security – An SEC Short-Selling Suit – GM Buybacks
PRIVATE MARKETS: Private Equity vs. Wet’suwet’en Land Defenders – PE & Teachers – Bigger and Bigger – Other Private Markets News
CRYPTO: No New Crypto Rules – Crypto’s Power Vacuum – Bitnomial – Crypto Attacks Brown
CLIMATE AND FINANCE: Climate Risk Planning – Climate’s Heat on BIPOC Household Finance
POLITICS AND MONEY: Billionaires Want to Control Universities

Feedback? Reach us at afrnews@ourfinancialsecurity.org

FINANCIAL STABILITY

Scaremongering over Capital Rules.

Wall Street on Parade lowlights the megabank CEOs – many of the usual suspects from JPMorgan, Wells Fargo, Bank of America, Citi and others – who’ve launched a “deceptive, scare-mongering” TV ad campaign railing against incoming capital rules. The ads are paid for by the Financial Services Forum, an organization whose membership consists of the CEOs of the eight largest banks on Wall Street. They’re the ones that stand to receive the brunt of the updated Basel III “endgame” rules, despite their ads’ use of emotionally charged language over images of small-town farmers and business-owners. 

As ever, AFR reminds readers that big banks often engage in doomsaying when it comes time to raise capital standards and buffer the financial system, but their portents don’t usually come to pass. 

Antidote to Scaremongering.

Bloomberg offers a very nice antidote to ridiculous notions from the big-bank lobby that the new capital rules would reduce access to mortgage credit, especially in communities of color. And their savvy reporters also remind us how little Wall Street talks about how the rules would curb risking-taking by their hotshot investment bankers:

[T]he titans of Wall Street rarely make the kind of low down-payment loans that would be affected. And in recent years, they’ve largely been edged out of the US home loan business, with no bank holding more than 3% of the market for originating mortgages, according to industry publication Inside Mortgage Finance. They’ve been unseated by nonbank lenders such as United Wholesale Mortgage LLC and Rocket Cos., which aren’t subject to the same capital requirements as banks. Bank executives have been less vocal about how the rules will affect their vast trading and investment banking operations—which is where they’ll likely feel a far greater impact, according to the regulators’ proposal.

Shadow Banks.

Sens. Brown and Kennedy, along with Sens. Braun, Casey, Van Hollen, Wicker introduced the bipartisan Close the Shadow Banking Loophole Act, a bill that would require companies that own an industrial loan company (ILC) – state-chartered nonbank institutions that are often owned by Big Tech companies – to be subject to the same regulations and consumer protections as traditional banks. Says AFR’s Renita Marcellin:

“ILCs are a part of that history, as seen during the 2008 financial crisis. AFR applauds this meaningful step to close this loophole that allows tech conglomerates and other commercial companies to skirt our banking laws.”

AI and Stability.

For the first time, a report from the Financial Stability Oversight Council flagged artificial intelligence as a risk to the financial system, FT reports. AI may “introduce certain risks, including safety-and-soundness risks like cyber and model risks,” even as financial institutions increasingly use AT to streamline operations. 

Troubled by Treasurys.

This year, Treasury bond markets are on track to offload more than 2020’s record of $21trn. WSJ reports that’s causing some unease in Wall Street, as traders wonder “whether the market can absorb the rolling waves of debt without disruption.” After the Treasury holds an auction, investors might use the word “tail” to describe how the yield is higher than expected, meaning the government accepted bids that would cost them more. Last month’s auction of 30-years had a “massive tail by historical standards.” For now, short-term Treasurys are on offer as long-term demand tapers off, but more short-term Treasuries can “promote risk-taking.”

Related: Traders will have to start moving their Treasury trades through clearinghouses “in a push to shore up a critical $26trn corner of finance,” Politico reports. They’ll have to start clearing certain Treasury securities trades by the end of 2025 and repos by mid-2026. 

Fourth Wells Fargo Union Election.

Following their sister branches in Alaska, New Mexico and Florida, a fourth group of Wells Fargo employees in Des Moines, Iowa, has announced intent to hold union elections. Since 2009, the megabank has laid off over 1,200 employees in the state, raising concerns about understaffing and job security. “Our priority for unionizing is to increase pay and working conditions…The current climate is ripe for unionizing,” said one employee. And another: “I believe Wells Fargo wants to divide and conquer. They don’t want us to be acting collectively and that’s where our power lies.”

Who Chooses Fed Presidents?

The Revolving Door Project argues that it shouldn’t be “corporate headhunters,” who have outsized power to identify candidates in the current system. Regional Fed boards are made up of Class A directors elected by the banks, Class B directors elected by those Class A directors, and then just three Class C directors are appointed by the Fed Board of Governors. When they’re on the lookout for a new president, Class B and C directors hire a corporate search firm to narrow the pool. “Executive headhunters, therefore, are helping to determine which individuals are allowed to even be considered for jobs that entail setting interest rates and enacting other world-shaping financial policies, as well as more mundane but still important bank supervision responsibilities.”

Further to the Banking Crisis.

First Republic. Sens. Warren and Vance requested information from FDIC Chair Gruenberg regarding the agency’s sale of First Republic to the megabank JPMorgan. Their letter alleged a lack of transparency on the part of the FDIC in its communication about the terms of the bids they received, the spread between competing bids, and how those bids would impact the Deposit Insurance Fund. 

In addition, the senators flag that regulators used loopholes to ignore some bids; in particular, a provision in Riegle-Neal that prevents the approval of bank mergers resulting in the acquirer controlling 10% or more of nationwide deposits. The letter highlighted the RECOUP Act, the banking bill that, among other measures to curb executive risk-taking, would close the loophole that allowed the FDIC to overlook that 10% cap. 

Signature Bank Loans. Brookfield heard that a firm that offered less than they did has been tapped to win the FDIC’s auction of Signature Bank’s loan portfolio. If that’s true, they plan to launch a formal protest. 

The Doomsday Book. Nova Southeastern University’s Prof. Emre Kuvvet got his hands on the NY Fed’s “Doomsday Book,” an internal doc that the central bank uses to guide its actions during emergencies. “Largely a compilation of legal opinions, the book has been a key resource for the Federal Reserve Bank of New York for decades, allowing it to play a unique and oversized role during financial crises. No other regional Federal Reserve bank has such a resource.” Instead of “legislative boundaries,” the NY Fed generally defers to discretionary authority and precedent. 

CONSUMER 

Predatory Lending.

Sens. Reed, Brown and Merkeley introduced the Predatory Lending Elimination Act, a bill to extend the Military Lending Act to cap the effective APR on consumer loans – which can currently climb as high as 664 – to not only cover current servicemembers, but all consumers. “Frankly, no American should be subject to such exorbitant interest rates.  As such, our legislation would extend the MLA’s protections to veterans and Gold Star families as well as ensure that all Americans are shielded from predatory loans,” Reed said. 

Public Banking Act.

This week, Reps. Tlaib and Ocasio-Cortez reintroduced their Public Banking Act to create a “robust federal regulatory framework, grant programs, and financial infrastructure to promote public banks and ensure their success,” outlining baseline standards for such banks on the grounds of environmental justice, tenant protections, consumer data privacy and more. The Act would allow public banks – non-Wall Street lenders owned and operated by local and state governments that have to act in the public’s best interest – to acquire federal charters, gain membership at the Fed, create a liquidity facility for public banks and more. AFR endorsed this bill. 

Redlining.

Congress passed the Community Reinvestment Act of 1977 to address the systemic exclusion of vulnerable communities from the financial system. It wasn’t until 2023, forty-six years on, that the law specifically included Native Land Areas. A new report from the National Community Reinvestment Coalition scrutinizes the inaccessibility of financial services in Indigenous communities. Their major findings:

• Traditional mortgage lending “is failing Native American families so egregiously” that the NCLC recommends loans go through Native-led banks instead. None of the three largest home lenders in the country issue federally guaranteed loans to build new homes on Indigenous land. 

• Home purchase loans are used to buy manufactured mobile homes – which depreciate in value, unlike standard homes that appreciate over time – at a rate four times higher than anywhere else, preventing the accrual of generational wealth. 

• In terms of small business loans in Arizona and New Mexico, tribal lands received less than a cent on every dollar disbursed from 2018 to 2021. 

• Tribal areas experience considerably lower access to financial services and, consequently, considerably higher levels of financial need.

And: The Digital Scholarship Lab at the University of Richmond released an updated version of their “Mapping Inequality” website. It’s an interactive map that overlays New Deal-era redlining documents on modern street-grids for a dizzying number of U.S. cities. Pick the node for a city of your choice to bring up its redlining map and read the stomach-turning descriptions for areas deemed “undesirable” by racist companies. 

Mortgage Discrimination.

New reporting from CBNC reveals that, last year, regulators targeted Wells Fargo and other banks in a probe into how mortgage bankers used loan discounts, called “pricing exceptions.” Lenders typically use these exceptions to carve into competitive marketplaces. At Wells Fargo, that might mean lowering a customer’s prospective APR by 0.25 to 0.75 percentage points. A 2021 industry-wide report found that Black and female borrowers received fewer pricing exceptions than other customers at “statistically significant” rates, since banks generally fail to track their use and end up violating the Equal Credit Opportunity Act. A year later, the CFPB sent MRA letters to several banks, and at the start of this year, Wells Fargo started to require documentation of what CNBC calls “competitive bids.” 

Related: The NYC Comptroller condemned Wells Fargo CEO Charles Scharf for saying that his company wouldn’t stay neutral in union drives, and for the pricing exception disparities above. 

CARS and Cars.

The FTC finalized its Combating Auto Retail Scams (CARS) Rule, expected to save consumers $3.4bn in bait-and-switch schemes and junk fees and 72 million hours in auto shopping headaches a year. The rule bans misrepresentations about important information like cost, requires dealers to provide consumers the actual price while making clear add-ons are optional, prevents them from adding bogus add-ons like duplicate warranties or certain GAP agreements, and mandates they obtain “express, informed consent” for any charges paid during a purchase. CARS pays particular attention to servicemembers, who tend to have double the average auto debt as civilians. AFR supported the rule. 

Servicemember Support.

Sen. Brown demanded that the four largest consumer banks step up to protect servicemembers. The Servicemembers Civil Relief Act caps interest rates for active-duty troops at 6%, but most banks place the onus on the servicemembers to request the protection, costing them $100mn over ten years. 

Student Loans.

Last week, the House voted 210-189 to repeal the Department of Education’s SAVE plan, the updated version of its income-driven repayment program that caps payments to around 5% of discretionary income and brings many low-income borrowers’ monthly payments down to zero, among other provisions. It’s a move that the administration says would harm both borrowers and the trajectory of an economic recovery, due to higher payments putting a strain on consumer spending. Before Thanksgiving, however, the Senate rejected a companion bill. 

CAPITAL MARKETS

Retirement Security.

AFR and allies applaud the Department of Labor for holding a public hearing on its proposed Retirement Security Rule. Said AFR’s Ivan Cazarin:

“As it stands, retirement savers are not fully protected from conflicts of interests when they receive investment advice from financial professionals. The Department of Labor’s proposed rule would fill a dangerous gap in standards and close regulatory loopholes so that all investment professionals are required to provide advice that is in the best interest of retirement savers and ensure that any conflicts of interest do not skew their advice towards their own financial gain while harming their clients financial health.”

An SEC Short-Selling Suit.

The Managed Funds Association, National Association of Private Fund Managers and Alternative Investment Management Association, a league of hedge fund lobby groups, have sued the SEC in an attempt to throw out rules pertaining to transparency in short-selling and in securities lending. The associations allege that the interaction between these two related rules will harm investors. The suit has landed in the Fifth Circuit Court of Appeals, the court whose Trump-appointed judges have a notorious penchant for undermining regulatory authority – the Fifth Circuit’s the one that suggested a vital consumer watchdog’s funding mechanism was unconstitutional. And it’s the one that recently heard another case involving the SEC, concerning its use of administrative law judges. 

GM Buybacks.

The Labor Institute’s Les Leopold details how General Motors, a “stock buyback recidivist,” routinely uses the tactic to fluff the “pockets of the ultra-rich stock-sellers and the executives who order the buybacks.” The company’s been working to regain Wall Street’s confidence, rather than the confidence of its workers and consumers, as it recently announced a $10bn buyback. This practice might endanger “tens of thousands of jobs and its future,” as the company fails to reinvest the wealth it creates back into its operations and workforce, they write. 

PRIVATE MARKETS

Private Equity vs. Wet’suwet’en Land Defenders.

This week, Amnesty International detailed how land defenders from the Wet'suwet'en First Nation, an indigenous nation on whose land the KKR-backed Coastal Gaslink Pipeline is being constructed in British Columbia, have been “intimidated, harassed, unlawfully surveilled and criminalized” for their efforts to stop the construction. In 2022, AFREF, the Global Energy Monitor and Private Equity Stakeholder Project, as part of the Private Equity Climate Risks (PECR) project, assigned KKR a “D” grade on PECR’s climate scorecard, owing to the megafirm’s heavy investment in fossil fuel companies. Amnesty calls for construction to cease, criminal charges to drop, and police to withdraw. 

PE & Teachers.

Members of the National Education Association (NEA), the nation’s largest teachers union, are “fuming” because of their organization’s commitment to a partner organization that offers “high-fee, poorly performing” retirement plans to union members. NEA Member Benefits, the group’s benefit branch, has given Security Benefits, backed by private equity firm Eldridge Industries, the power to manage $3bn in assets belonging to 71,000 teachers. Security is currently facing a lawsuit over allegations of racketeering and fraud, which alleges that its retirement products “would — by design — produce near-zero returns due to misrepresented and undisclosed features, risks, charges, and attributes.” Teachers advocate Scott Dauenbauer has argued that NEA Member Benefits isn’t operating in its members best interests, and that the retirement offers provided to educators are the ones “they can make money off.” 

Bigger and Bigger.

“The funds just keep getting larger,” reports Private Equity International, as a number of “global mega-funds” managed to secure record funding amid a strained year for private equity. The top 15 funds that had final closes in the first three quarters of the year raked in $227bn, about 40% of the total raised. 

BlackRock estimates that the industry’s “dry powder” – that’s on-hand capital that has yet to be invested – has reached $4trn this year, almost a third of its $13trn assets-under-management. FT notes that’d be enough to purchase every single listed company in the United Kingdom. 

Other Private Markets News.

Pension Buyouts. Private equity’s been breaking into the business of insuring corporate pensions. “There are long-term risks. The insurer is on the hook if life expectancy rises or the investments don’t perform,” writes Bloomberg’s Chris Hughes, who suggests there’s still a “large margin for error” built in. 

Songs for Sale. KKR is putting a collection of 62,000 songs, by the likes of Lorde and The Weeknd, and their royalties on the auction block. The private equity firm bought the catalog in 2021, during Wall Street’s splurge driven by near-zero interest rates. Now, it’s looking to sell as music publishing valuations have dropped. 

CRYPTO

No New Crypto Rules.

Coinbase, the country’s largest crypto exchange, previously suggested the SEC create “a new regulatory framework” that would tailor securities regulations for crypto assets. In a letter today, the Commission rejected the exchange’s request. 

Crypto’s Power Vacuum.

Last year, Sam Bankman-Fried (FTX) and Changpeng Zhao (Binance) lorded over two of the largest crypto exchanges in the world. Since then, FTX has fallen and Bankman-Fried could face as many as 110 years in prison for fraud and conspiracy, and Binance stares down a historic $4bn+ DOJ settlement as Zhao steps down as Binance.US’ chairman. That’s left a “Power Vacuum at the Top of the Crypto Industry,” NYT reports. Coinbase – that’s the one that’s operating as an unlicensed securities exchange, according to the SEC – seems poised to fill the space, already prepared to take on the Bitcoin that’ll form the foundation for a BlackRock Bitcoin ETF. 

Related: After the Department of Justice slammed Binance with the penalty last month, the Revolving Door Project warns that media outlets “overemphasizing” the amount undercuts the more important core of the penalty: reining the crypto industry back into regulatory compliance. RDP questions whether Binance’s crypto model could even be viable or exist at all under the new regulatory framework – which the founder of the Office of Internet Enforcement at the SEC has called a “24/7, 365-days-a-year financial colonoscopy” –  given the company’s history of criminality. That history, after all, is marked by “a fake bailout fund, scaring off auditors, issuing uncollateralized dupes of other cryptocurrencies, and commingling funds.” 

Bitnomial.

On Wednesday, the CFTC approved a plan by the crypto exchange Bitnomial to serve as its own registered clearinghouse, marking the first time that the Commission has allowed vertical integration. Critics have previously pointed to FTX’s vertical integration ambitions as proof of the risks inherent such a market structure in the under-regulated crypto space. 

Crypto Attacks Brown.

A pro-crypto nonprofit  called the Cedar Innovation Foundation will launch a six-figure ad spending spree targeting Senate Banking’s Brown, who has taken a hard line on crypto in order to protect investors, consumers and everyday Americans. It’s the first in a multimillion-dollar series of efforts by the group to convince the public that crypto’s somehow a “force for good.” More for Beltway consumption than anything else, the ads don’t even mention Brown.

CLIMATE and FINANCE

Climate Risk Planning.

The OCC performed its first climate risk assessment of over two dozen banks in the past few months. The “discovery review” was intended to determine how banks are “accounting for the impact of climate change on their loan books and business,” Reuters reports.

Climate’s Heat on BIPOC Household Finance.

In late September, the Treasury released an analysis dissecting how “climate hazards” put a strain on household finances, such as reduced earnings, lower access to financial products and higher utility costs. Just Solutions, a BIPOC-led, climate-focused advocacy collective, scrutinizes how the agency’s report “stops short in identifying why financial mechanisms, such as the credit system and insurance coverage, create inequalities and how we can address them through policy” and misses important context, despite its general acknowledgement that climate change harms low-income and communities of color the most. When the Treasury reports that access to cash may be disrupted due to infrastructural damage, for example, it doesn’t mention that communities of color are, from the outset, already more burdened. 

POLITICS and MONEY

Billionaires Want to Control Universities.

Marc Rowan (billionaire CEO of private equity megafirm Apollo) and Bill Ackman (billionaire hedge fund manager) put money into politics. But they also put money into universities (Penn and Harvard, respectively). They tend to be white, older and male. And the Wall Street barons want the same thing as they do in politics and business: influence and control. The NYT:

There is a new class of donors who are often in the prime of their career, having amassed fortunes in finance or tech, who are more outspoken about politics and willing to wage war on social media to effect change. Their pressure campaigns have resembled winner-take-all Wall Street investment strategies, threatening to pull their money from schools that have become increasingly beholden to their largest donors.

Rowan got his way when he worked to boot UPenn’s president and one of its board chairs and is “now attempting to set the agenda for the university,” the Philly Inquirer reports. The American Association of University Professors at Penn issued a statement on a series of questions Rowan sent to trustees, which they call an “assault on the principle of academic freedom” from “unelected trustees with no academic experience” who are attempting a “hostile takeover” of the university. Ackman has been vocal about his desire to see Harvard’s President Claudine Gay removed.

Wall Street money has tried other things:

• Sanford I. Weill, a Wall Street billionaire, and his wife, Joan, offered $20 million to Paul Smith College, as long as the college agreed to change its name to Joan Weill-Paul Smith’s College. The offer was declined.

• Charles T. Munger, the now-deceased billionaire business partner of Warren E. Buffett, offered $200 million to UC Santa Barbara for a new dorm if he could design it. “Dormzilla,” so dubbed for its lack of natural light, never got built.