Antitrust & Competition Laws

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The “Return to Prudent Banking Act” Will Help Protect Us From Another Financial Crash

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The “Return to Prudent Banking Act” Will Help Protect Us From Another Financial Crash

We need strong rules for Wall Street.

When we don’t have them, Americans suffer. It happened with savings and loan association deregulation, which led to a real estate collapse; it happened with the repeal of Glass-Steagall in 1999, which led to the 2008 financial crash.

Now, Rep. Marcy Kaptur (OH-9), has introduced the “Return to Prudent Banking Act.” The bill would restore the “wall” that previously existed under Glass-Steagall, preventing FDIC-insured commercial banks from participating in investment activity.

The Glass-Steagall Act of 1933 was designed to keep commercial banks, which traditionally make relatively safe decisions in pursuit of long-term profits, from taking on short-term speculative behavior that carries high risks. For decades, Glass-Steagall worked, and it worked well.

But then in 1999, the statute was repealed. During an era of aggressive deregulation, the commercial bank Citicorp and the insurance company Travelers Group had merged the year before, forming the first “megabank,” known as Citigroup. Since that merger was considered a violation of Glass-Steagall, the law was changed to effectively repeal Glass-Steagall and allow Citigroup’s merger to go through. Effectively, megabanks formed on Citigroup’s model, now able to become supersized through mergers, were also then able to gamble with taxpayer-backed deposits. The results were calamitous.

Within a decade, the 2008 financial crash brought our economy to shambles and cost Main Street heavily. Foreclosure rates skyrocketed and home values plummeted. Many prudent savers saw their long-term retirement savings vanish into thin air. Already marginalized communities like people of color and people with disabilities were hit particularly hard, and many communities have still not completely recovered from the Great Recession. And of course, taxpayers paid trillions to bail out the failed megabanks. Had Glass-Steagall not been repealed, perhaps the crash would not have happened at all, because banks would not have been allowed to take massive risks that inflated a housing bubble whose rupture collapsed the economy.

Even industry veterans, like John Reed and Sanford Weill, who founded Citigroup and in doing so effectively helped repeal Glass-Steagall, now recognize that doing away with Glass-Steagall’s protections was a mistake.

Reed has written about the “culture clash”  that developed at banks and how investment and traditional bankers tend not to mix well. In this clash of views that happened post-Glass-Steagall, investment bankers won out and steered the banking industry toward a riskier, short-term oriented culture.

Unfortunately, the Volcker Rule put in place through the Dodd-Frank Act didn’t solve this problem. That rule prohibited banks from doing proprietary investment trading—trading on their own behalf—but allowed banks to still do it on behalf of clients. The Volcker Rule didn’t solve this issue partly because of the loopholes in the law, but also because of its complexity and lack of transparency. Many financial industry professionals including Reed and Weill now call for a return to Glass-Steagall’s clear rules.

We cannot let a financial crash happen again. For the health of our economy and the security of our savings, we must prevent greedy investors from gambling with the fate of our financial system to make a quick buck. Without stronger rules on Wall Street like the Return to Prudent Banking Act, it could happen again.

Tell your members of Congress to cosponsor the Return to Prudent Banking Act and send a clear signal that if banks are “too big to fail,” then they’re too big to exist.

Photo Credit: David Shankbone [CC BY 3.0 (https://creativecommons.org/licenses/by/3.0)]
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The Growing Rise of Megacompanies Hurts Consumers and Damages Our Democracy

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This month, Apple became the first publicly-traded American company to reach $1 trillion in market value. It is now one of the most powerful companies in the world both in revenue and in the share of the market that it holds. In 2017, Apple took home 79% of the global profit share for smartphones. What does this milestone mean for American consumers?

Megacompany monopolization is not unique to Apple, or even the tech industry. Five banks control half of all assets in the American financial system. Thirty publicly traded companies collect half of the profits produced by all publicly traded companies in the market. According to Business Insider, the difference between how much it costs American companies to make products and how much they make selling products—a mechanism that experts use to measure how much power companies have in the marketplace—is at the highest level since 1950.

When companies consolidate, it makes it harder for plucky startups to gain a foothold as a competitor. As a result, consumers have fewer options, which can drive prices up and innovation down.

Apple has spent decades fostering a consumer-invested ecosystem where users become so familiar and comfortable with its products that it’s difficult to switch another company. This ecosystem is so strong that other companies struggle to create similar systems, effectively allowing Apple to monopolize the market. However, Apple is not the only tech titan set to monopolize the market. Only about 1% of smartphone consumers use an operating system that is not made by Apple or Google.

In industries where corporate consolidation is rampant, such as the tech field, workers’ share of the overall pie is shrinking because these merged companies are focused on efficiency and need fewer workers to perform the necessary jobs, which means fewer people employed in quality, high paying jobs. This leads to an overall decline of the share of the nation’s wealth that goes to workers. In addition, while Apple’s valuation soared to new heights this week, it is aggressively outsourcing its workforce out of the country, taking advantage of poorly-paid workers in other countries and robbing Americans of good jobs.

U.S. Supreme Court Justice Louis Brandeis long ago warned against the “curse of bigness” in corporate power. During the Progressive Era of the 1910s and 1920s, American trustbusters sought to rein-in excessive corporate power by enacting bold laws such as the Clayton and Sherman Act, and the Federal Trade Commission Act, which created the Federal Trade Commission (FTC), to protect competition. However federal antitrust enforcement, the Department of Justice and the FTC, have not used their enforcement powers robustly to curb excessive concentration. Market commentators may argue that stopping companies like Apple, Google, and Amazon from driving out their competitors from the marketplace is impossible. But they are wrong. Congress can fix our antitrust laws to stop companies from growing so big that they stamp out all competition, and Public Citizen will continue to advocate for strong antitrust laws and enforcement that protects consumers against corporate monopolies.

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Turnabout Is Fair Play on the Net Neutrality CRA

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This Congress has embodied Mick Mulvaney’s frank admission to Wall Street lobbyists that “pay to play” still is the name of the game on Capitol Hill, and the Republicans’ use of the Congressional Review Act (CRA) has played a big role.

Republican use of this once obscure law has been unprecedented, reckless, irresponsible and deeply damaging to public health and safety protections, consumer protections and our environment. It also has illustrated in no uncertain terms that Congress is protecting the profits of big business instead of protecting hardworking families.

This week, Democrats in the U.S. Senate will turn the tables by forcing a CRA vote to bring back net neutrality, which was repealed by President Donald Trump’s Federal Communications Commission in December. Overturning the repeal of net neutrality is crucial to keeping the internet free and open, and preventing consumers and innovators from being at the mercy of the big Internet Service Providers (ISPs).

Some have opined that this vote represents a Democratic endorsement of the CRA, but this is wishful thinking. It’s far more likely Democrats will repeal the CRA if given the chance rather than use it with reckless abandon as Republicans have.

If there is one clear takeaway from this week’s CRA vote, it’s that there’s a big difference between using the CRA to protect consumers and hold big businesses accountable, versus using it to give corporate interests handouts and special favors by striking down popular public protections. What Democrats are doing amounts to re-regulation.

The CRA gives Congress the ability to overturn recently finalized regulations through a fast-track process that bypasses all normal deliberation, including committee hearings, committee reports, Congressional Budget Office analysis and, most crucially, the filibuster in the Senate. The CRA simply requires a bare majority for a resolution to pass, and if signed by the president, becomes law. It is a dangerous tool if used without caution.

Republicans in Congress have proved it. They used the CRA to attack more than a dozen commonsense safeguards that were finalized late in the Obama administration, including rules that safeguard privacy on the internet, protect waters from toxic waste runoff due to coal mining, prevent companies with unsafe workplaces or that pay their workers unequally from receiving government contracts, ensure women’s access to preventative health services and limit access to firearms for the severely mentally ill.

Public Citizen’s research found a common theme across these CRA attacks: Each can be tied to discrete corporate and ideological interests that benefitted from deregulation.

The CRA vote on net neutrality sharpens the point. The vote will be to restore a key protection that is overwhelmingly popular with the public because it protects consumers’ online freedom and gives small businesses and startups a level playing field against larger competitors. Those who vote against the net neutrality CRA will do so at the behest of the huge telecoms like Comcast, Verizon and AT&T that oppose any effort to limit their ability to selectively slow down internet traffic.

The CRA vote also will expose false claims that the CRA is a neutral accountability tool rather than a partisan one. If net neutrality were to pass in the Senate, it is not clear whether it will get a vote in the U.S. House of Representatives unless Speaker Paul Ryan (R-Wis.) allows it. If Ryan refuses to hold a vote, it makes clear that anti-regulatory zealots in Congress support the CRA only when it can be used to pay back corporate and ideological interests, not when protecting consumers, workers and our environment.

No matter what happens, it will not change the inescapable fact that the CRA is a poorly drafted, dangerous law that is prone to abuse. Given the increasing radical and ideological nature of the war on regulation that Trump and Republicans in Congress are waging, it’s likely that they will continue to use the CRA to strike down public protections, while Democrats will use it to try to save them.

Repealing the CRA is the best long-term solution, but until that happens, no one should be surprised to see consumer advocates urging its use to defend regulatory protections against Trump administration rollbacks.

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Sinclair is a Textbook Example of the Dangers of Corporate Power

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Last month, a video emerged that showed dozens of anchors from local news stations owned by Sinclair Broadcast Group delivering the exact same script about “the troubling trend of irresponsible, one sided news stories plaguing our country.” The video, edited by Deadspin, was shocking because it showed how Sinclair was forcing its journalists to become part of a pro-Trump propaganda machine. If Sinclair has it way, the spin factory they run could soon reach almost three-quarters of all American households.

Sinclair currently owns 193 TV stations in more than 80 media markets around the country, and they are asking the government to approve a merger with Tribune Media so they can become still bigger. If approved, this merger would give Sinclair access to more than 72% of households. This could have a dangerous impact—hindering our ability to keep local news in America independent and free from political bias.

Sinclair is a textbook example of the dangers of ever increasing corporate power, which is why Sinclair’s impending merger should be blocked by the federal government. Even if Sinclair’s merger fails, the company still wields enormous power over its employees. Upon learning about Sinclair’s massive influence over the nation’s local news media, many commentators wondered publicly why very few Sinclair employees refused to participate in the partisan broadcast segment (even though several journalists clearly appeared uncomfortable).

Scarily, the answer is that they had little choice but to participate, due to the predatory contract clauses that come with the Sinclair job. Vox recently published an essay by anonymous Sinclair employees who were incensed by Sinclair’s mandate to slant coverage of national issues with a clear right wing viewpoint. The authors note that they were particularly disturbed by the president’s tweet defending Sinclair in the midst of the uproar over the Deadspin video, but they could not fight back because of Sinclair’s pernicious employment contract provisions. The anonymous employees write:

Under a clause that appears in many contracts… if an employee quits, he or she could end up owing the company thousands of dollars. The penalty for breaking a contract is a payment to Sinclair of part of the employee’s annual salary, based on a complex formula. That’s money most employees simply don’t have. It’s a decision between possibly going bankrupt or sticking it out for another X number of years.

As reported by Bloomberg and the Southwest Times Record, Sinclair employees sign contracts that contain a morass of questionable and likely unenforceable provisions and potential penalties for violating the agreement. For example, employees must sign six-month noncompete agreements that make it difficult to work in journalism if they leave Sinclair. They are also subject to a forced arbitration clause that waives their right to access the courts if they are wronged by Sinclair, such as through discrimination. Even more ghoulishly, the contracts specify that employees could be subject to a financial penalty as large as 40 percent of their annual compensation upon quitting.

Even if these agreements were found by a court to be unenforceable, few employees are willing to risk their families’ financial well-being based on that promise. This means that, whether or not the contracts are legally sound, their intended chilling effect—to keep employees in line and afraid to leave—has been achieved.

Massive corporate power continues to corrode our democracy and make it harder for individuals to receive access to justice when they are wronged. We will continue to fight against massive corporate power, fight for worker protections against predatory contract provisions, and ensure that every person’s voice is heard.

What’s Next for the Exelon-Pepco Merger

On March 23, the D.C. Public Service Commission (PSC) approved Exelon’s takeover of Pepco in a contentious 2-1 vote. Within hours, Exelon dissolved Pepco by suspending the trading of Pepco stock. This move resulted in $1.6 billion windfall for shareholders – a nice chunk of which went to Pepco executives – and allowed Exelon to claim that the deal was done.

Pepco’s CEO Joe Rigby, cashed out nearly $25 million in Pepco stock before retiring and turning the Pepco (a company of Exelon) reigns over to David Velazquez (who made $5 million on the sale).

But in Exelon’s haste to make it rain for Pepco shareholders, it cast aside one important detail:

Exelon’s takeover of Pepco still has two hurdles to clear.  worse-than-pepco.2

Opponents of the takeover have 30 days to ask the PSC for reconsideration, meaning they can appeal to the commission to change its mind and undo the merger. If reconsideration fails, opponents can then appeal to the D.C. Court of Appeals.

Exelon’s move to consummate the takeover just hours after the PSC vote to approve is a deliberate move to abridge the rights of opponents of the deal. It runs afoul of Exelon’s own argument that an order is not final until the commission has ruled on a parties’ request for reconsideration and it reveals a core component of Exelon’s strategy to handicap legal challenges to the takeover. More

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