Regulation

Pump and Slump: Will Citi Sleep with the Fishes?

A couple of years ago, the mighty Citigroup traded at around $50 a share. Today, March 5, the price hovered around $1 and for a while was below a buck. In other words, one of the largest financial institutions in the world is in effect a penny stock. At one time, a descent to that level would have been enough to get a company delisted from the New York Stock Exchange, but standards have been relaxed.

Penny stocks have traditionally been associated with unscrupulous brokerage practices, such as the “pump and dump” scheme graphically illustrated during some episodes of The Sopranos (photo). A look back at the record of Citi during the past decade does not suggest a moral compass much different from the wise guys of Northern New Jersey. As U.S. PIRG Education Fund notes in its recent report Failed Bailout, Citi helped crooked companies such as Enron carry out deceptive transactions and itself set up scores of entities in offshore tax havens such as the Cayman Islands in order to avoid both taxes and oversight.

Citi’s actions had an impact beyond its own unjust enrichment. As Multinational Monitor editor Rob Weissman and his colleagues show in their new report Sold Out, Citigroup played a key role—thanks to $19 million in campaign contributions and $88 million in lobbying expenditures—in bringing about the demise of the Glass-Steagall Act and other deregulatory moves that paved the way for the current meltdown of the financial system.

Yet Citi’s management is, to a great extent, no longer in control of the company’s fate. Today it is the federal government that is in effect trying to pump up the bank and its stock. The Obama Administration, regrettably, is perpetuating the idea that Citi is too big to fail and thus requires a seemingly unlimited commitment of public resources.

Unfortunately for U.S. taxpayers, the pumping will not be followed by a timely dumping of the federal holdings in Citi at a fat profit. In fact, the federal capital infusions, loss-sharing agreements and loan guarantees are not stabilizing the company and pushing up its stock price. The more the feds put into the bank, the less the market seems to think it is worth. This downward move is attributed in significant part to short-selling of Citi’s common stock by hedge funds. At one time, those funds were apparently in cahoots with Citi. Last fall the Senate Permanent Subcommittee on Investigations charged that Citi was one of the banks that had helped offshore hedge funds engage in tax avoidance. I guess there really is no honor among thieves.

The U.S. government is now in the ridiculous position of having made commitments potentially costing hundreds of billions of dollars to a bank that the stock market, as of today, thinks is worth a total of only about $5 billion. As long as the Administration avoids the seemingly inevitable need to nationalize and reorganize Citi and the other large zombie banks, its strategy amounts to little more than “pump and slump.” Despite the efforts of the feds, the bank whose motto is “the Citi never sleeps” may soon be sleeping with the fishes.

The Corporate Crime Fighting Budget

The call to boost taxes on the wealthy to start paying for healthcare reform is not the only refreshing thing about the budget outline just released by the Obama Administration. There is also a marked shift toward tighter regulation of business. Here are some features of what might be called the Corporate Crime Fighting Budget:

Cracking down on corporate polluters. The Environmental Protection Agency—a joke during the Bush Administration—is slated for a 34 percent increase in funding. This would result in a hike in the budget for core functions such as enforcement to $3.9 billion, an all-time high for the agency.

Cracking down on abusive employers. Obama wants the Department of Labor—another agency enervated by the Bush crowd—to get a smaller increase than EPA, but the additional funds are intended to rebuild DOL’s responsibilities in workplace monitoring. The budget document proposes to “increase funding for the Occupational Safety and Health Administration, enabling it to vigorously enforce workplace safety laws and whistleblower protections, and ensure the safety and health of American workers; increase enforcement resources for the Wage and Hour Division to ensure that workers are paid the wages that are due them; and boost funding for the Office of Federal Contract Compliance Programs, which is charged with pursuing equal employment opportunity and a fair and diverse Federal contract workforce.”

Prosecuting white-collar crooks. The section on the Justice Department in the budget document says that the Administration will seek [not yet quantified] “resources for additional FBI agents to investigate mortgage fraud and white collar crime and for additional Federal prosecutors, civil litigators and bankruptcy attorneys to protect investors, the market, the Federal Government’s investment of resources in the financial crisis, and the American public.”

Thwarting purveyors of tainted food. The Administration plans to “take steps to improve the safety of the Nation’s supply of meat, poultry and processed egg products and to ensure that these products are wholesome, and accurately labeled and packaged.” The proposed budget for the Agriculture Department “provides additional resources to improve food safety inspection and assessment and the ability to determine food safety risks. This will lead to a reduction in foodborne illness and improve public health and safety.” The Food and Drug Administration, which is under the auspices of the Department of Health and Human Services, would also get a hike in funding.

Restricting plunderers of national resources. The section of the budget document on the Interior Department outlines the Administration’s intention to rein in the windfalls long enjoyed by extraction companies with leases to drill and mine on public lands. The plan includes “a new excise tax on offshore oil and gas production in the Gulf of Mexico to close loopholes that have given oil companies excessive royalty relief” as well as the imposition of user fees and more realistic royalties for oil and gas drilling on federal lands.

Controlling drug and healthcare price gouging. The general framework for healthcare reform released by the Administration as part of the budget document contains plans to slow down the growth in Medicare costs. This includes a proposal to force providers of privatized coverage under the name of Medicare Advantage to participate in competitive bidding. Medicare drug costs would be reined in by tightening oversight of Part D spending and by preventing brand-name pharmaceutical companies from paying generic drug producers to keep their low-cost products off the market.

To these should be added tax proposals that would put an end to various boondoggles that have enriched oil companies, hedge funds and other anti-social elements. Some of Obama’s proposals (especially regarding healthcare) do not go nearly far enough, but the budget as a whole represents a major break from the priorities of the Bush Administration. Though you would hardly know that from the geeky, matter-of-fact way it is being promoted by Budget Dirtector Peter Orszag (photo).

Budget documents are, of course, merely wish lists conveyed by the executive to the legislative branch. In the short term, the main impact of Obama’s blueprint will be to launch a massive wave of business lobbying. Now it is up to Congress to resist the entreaties of those paid persuaders and make it clear that the days of unchecked corporate giveaways have come to an end.

The Banality of Corporate Evil

Our culture worships spunky small businesses and entrepreneurship. Stewart Parnell epitomized that ideal and was living the good life in Lynchburg, Virginia until last month, when his Peanut Corporation of America (PCA) was linked to one of the biggest salmonella outbreaks—at least eight deaths and more than 500 illnesses—ever to occur in the United States.

According to federal officials, PCA knowingly shipped contaminated peanuts as well as peanut butter and paste on numerous occasions, including 32 truckloads meant for the school lunch program. PCA also provided tainted raw materials for many large food processors, which have issued a cascade of product recalls. PCA is now the subject of a criminal investigation, and this week Parnell (photo) was compelled to appear at a Congressional hearing, where he grim-facedly invoked the Fifth Amendment and declined to answer questions.

He had reason to look grim. The House Energy and Commerce Committee released several e-mail messages sent by Parnell, including one in which he told his plant manager to make shipments (his exact words were “let’s turn them loose”) despite some test results showing evidence of salmonella. In another he complained that those problematic results were “costing us huge $$$$$.”

This was also a week when the chief executives of the country’s largest financial institutions were called before Congress and pelted with questions about bonuses paid out amid the massive federal bailout of the industry. But these days everyone expects executives of large corporations to be reprobates.

The Parnell situation is more chilling. He is the head of a privately held company with annual revenues of only about $25 million, which makes it a small business by contemporary standards. PCA had almost no public profile until last month, and Parnell’s only previous time in the national spotlight (though a much dimmer one) was in 2005, when Bush Administration Agriculture Secretary Mike Johanns appointed him to the Peanut Standards Board. (Parnell was just ousted from the panel by the USDA, which also announced that it is seeking to debar PCA from doing business with the federal government.)

According to the Atlanta Journal-Constitution, PCA was built by Parnell’s father, Hugh Parnell, as an outgrowth of his ice cream sandwich business. The company later got caught up in the takeover wave that swept through the small world of peanut processing. The Journal-Constitution reports that PCA was sold in 1995 to Morven Partners, the vehicle set up by billionaire investor John Kluge to take over various nut companies such as Jimbo’s Jumbos.

Jimbo’s, by the way, was mentioned in one of the e-mails released this week by the House. In it Parnell said: “We need to find out somehow what our competition (JIMBOS) is doing [about salmonella] and at the very least mimic their policy.”

Stewart Parnell and his brother Hugh Brian Parnell, the Journal-Constitution goes on to report, became management consultants for Morven until the late 1990s, when Stewart repurchased PCA.

Hugh Brian Parnell told reporters that work and family occupy his brother Stewart’s time. “He doesn’t drink, smoke or socialize,” Huge was quoted as saying. “He’s a family man. You never see him without a grandchild around.” The Associated Press quotes a neighbor of Stewart’s as saying: “He’s always been an upstanding, generous person and a pillar of the community.” Parnell and PCA didn’t have a much of a presence in the business community in Lynchburg, where the company has its modest headquarters. “This episode is the first time I’ve heard of them,” the president of the city’s chamber of commerce was quoted as saying.

Even less is known about Parnell’s associate David Royster III, who reportedly financed the acquisitions that allowed PCA to reach its current size. Royster is one of the younger members of a family that operates a variety of apparently respectable businesses in Shelby, North Carolina.

The apparent fact that supposed pillars of the community can engage in outrageously reckless business practices shows that there is sometimes a fine line between the aggressive pursuit of profit and behavior that can legitimately be called evil. Those who would venerate entrepreneurship should keep in mind that it can also have a dark side.

Merger of Miscreants

Monday may be remembered as the day when American big business announced some 50,000 layoffs, but one large company seemed to take a step toward growth. Pharmaceutical giant Pfizer unveiled plans that day to acquire its smaller competitor Wyeth in a stock and cash deal estimated at $68 billion. Pfizer crowed that the merger would create “the world’s premier biopharmaceutical company.”

While the deal may grow Pfizer’s revenues, it’s unclear who will benefit. The combined workforce of the two companies will be slashed by nearly 20,000 jobs. This will continue a policy of downsizing pursued by Pfizer CEO Jeffrey Kindler (photo) since he came to the giant drug firm from McDonald’s, of all places, in 2006.

Although Pfizer claims that the merged company will be better positioned to “respond more quickly and effectively to meet changing health care needs,” it is doubtful that patients will gain much from the creation of the mega-corporation. Pfizer has been feasting on the profits generated by Lipitor, but the company’s patent rights to the cholesterol drug expire in 2011 and there is nothing major in its pipeline to replace it. Even the Wall Street Journal editorial page sees the Wyeth acquisition as a sign of the “decline of innovation” in the drug industry.

Rather than developing new breakthrough products, companies like Pfizer seem mostly preoccupied with their legal issues. Kindler’s background, after all, is in litigation rather than science or even finance. Apart from patent issues, he has had to contend with the company’s regulatory problems. In fact, while everyone was focused on the merger, Pfizer announced that it had agreed to pay $2.3 billion (a record amount) to settle federal charges in connection with its off-label marketing of the now-withdrawn painkiller Bextra. The revelation was buried in a long press release announcing the company’s fourth-quarter financial results.

Bextra is not Pfizer’s only controversy. In October, for example, the New York Times published a story alleging that the company had manipulated the publication of scientific research to bolster the use of its epilepsy treatment Neurtonin for other disorders while suppressing research that didn’t support those uses. In 2006 the company was accused of testing an unapproved drug on children in Nigeria.

Pfizer’s bride-to-be Wyeth (formerly known as American Home Products) also has a record that is far from unblemished. The summary of legal proceedings in the company’s last annual financial report goes on for 14 pages. Most of the lawsuits are product liability cases involving hormone therapy, childhood vaccines, the anti-depressant Effexor, the contraceptive Norplant and, most importantly, the combination diet drug known as fen-phen, which was withdrawn from the market more than a decade ago after reports that its use was linked to possibly fatal heart valve damage. The findings unleashed a wave of tens of thousands of lawsuits against the company, including a case in Texas in which a jury awarded a single plaintiff more than $1 billion in damages. The company set up a $3.75 billion fund as part of the attempted resolution of a national class action case. Another $1.3 billion was added to the fund in 2006. Many plaintiffs opted out of the class and negotiated individual settlements with the company.

Big mergers are often justified with the claim that the combination will enhance product innovation. The main synergy likely to emerge from the marriage of Pfizer and Wyeth will be in its litigation department.

Is Change Coming to the Big Bailout?

In his confirmation hearing for the post of Treasury Secretary this week, Timothy Geithner spent a lot of time apologizing for his personal income tax peccadilloes. Perhaps he should have also expressed some contrition for his role, as head of the Federal Reserve Bank of New York, in the failure of financial oversight that helped plunge the country into its current economic crisis. Geithner also played a part, albeit one subordinate to former Treasury Secretary Henry Paulson, in the disastrous bailout program that was supposed to clean up the mess created by Wall Street.

In his opening statement to the Senate committee, Geithner declared that the Obama Administration intends to “fundamentally reform” the bailout scheme, still known as the Troubled Assets Relief Program (or TARP) even though the original plan for the federal government to buy up those assets was abandoned in favor of capital infusions. Since it now appears Geithner will be confirmed by the Senate next week, he will have to make good on that commitment to reform. And not a moment too soon. A string of recent revelations shows that the system is more flawed than we realized.

There’s growing evidence that Treasury may not have been as diligent and impartial as it claimed when deciding which banks would get TARP money and which would be denied. Earlier this month, Fortune wrote about the case of OneUnited, a small Boston bank that received $12 million in TARP funds even though its regulator, the Federal Deposit Insurance Corporation, had alleged it was operating without effective underwriting standards and practices. The bank was also making suspicious payments for a beachfront house and a Porsche SUV apparently used by its top executives. This week the Wall Street Journal reports that OneUnited’s TARP infusion came after Rep. Barney Frank (D-Mass.), chair of the House Financial Services Committee, made a plea on behalf of the bank.

While some financial institutions may have used political connections to get on the TARP gravy train, others tried to game the system. For example, Financial Week recently reported that a number of large insurance companies have acquired tiny banks and converted themselves into bank holding companies, potentially making them eligible for big capital infusions from the Treasury Department.

One bright spot is the position being taken by the TARP special inspector general, Neil Barofsky (photo), whose confirmation moved slowly through Congress but who is now cranking up his operation. Barofsky has just indicated that he intends to ask every TARP recipient how the funds are being used.

What a novel idea. After hundreds of billions of taxpayer dollars have been shoveled into the private, someone in the federal government is finally asking what’s being done with the money. It remains to be seen whether Geithner, once in office, makes a clean break with the Paulson debacle and follows Barofsky in demanding real accountability.

Clinging to a Defunct Ideology

Keynes famously wrote that “Practical men, who believe themselves to be exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” The Bush Administration today is in the awkward position of continuing to espouse the laissez-faire rhetoric of Milton Friedman and Friedrich Hayek while spending hundreds of billions of dollars of public money to bail out the financial sector.

Last week, President Bush gave a speech to the rightwing Manhattan Institute in which he asserted with a straight face that “free market principles offer the surest path to lasting prosperity.” He went on to insist “I’m a market-oriented guy, but not when I’m faced with the prospect of a global meltdown.” The idea that the market itself brought on this state of affairs was conveniently not emphasized.

Today, Treasury Secretary Henry Paulson delivered a speech of his own at the Ronald Reagan Presidential Library, a monument to the man who, in his first inaugural address, declared: “In this present crisis, government is not the solution to our problem; government is the problem.” While the current economic mess prevented Paulson from saying anything quite so categorical, he did try to salvage a bit of Reaganism by warning against “implement[ing] more rather than better regulations.”

While Bush and Paulson are trying to preserve some semblance of their failed ideology, corporate executives are doing what they do best: lining their pockets. Back in 2002, in the wake of the scandals involving companies such as Enron, Tom Toles published a cartoon headlined: “The preceding 22 years. A Synopsis.” It showed Regan in the foreground making his statement about government being the problem, while in the background CEOs are seen looting a safe filled with cash.

That image is even more appropriate today. The latest indication of corporate cupidity comes in today’s Wall Street Journal, which reports that in the run-up to the current crisis, top executives in the housing and financial sectors cashed out more than $21 billion in stock and thus avoided the subsequent collapse in the value of those holdings.

At the same time, automakers, who for years resisted significant fuel-economy regulation, are clamoring for a place at the public trough alongside the bankers who managed to abolish many of the rules that governed their industry. For all of them, government is now seen as the solution—to their financial woes.

It remains to be seen how long the likes of Paulson will go on clinging to some vestige of market fundamentalism. For the rest of us, the question is whether a decent economy can somehow be built amid the ruins of deregulated capitalism.

This is not Corporate America’s Moment

The votes are still being counted in some places, but the battle for the soul of the new Administration and Congress has begun. Corporate America wasted no time in launching an effort to warn against any initiatives that would be seen as unfriendly to business. The Wall Street Journal is already predicting that Democrats will give in to the pressure and “go slow on controversial labor and regulatory issues.”

The National Association of Manufacturers (NAM) issued an open letter to Obama pledging to work with the new administration, but that pledge was followed by a dozen pages in which the group outlined its usual agenda of reduced corporate taxes, tort reform, easing of the regulatory “burden,” and so forth . The U.S. Chamber of Commerce was a bit more tactful. Its CEO Thomas Donahue put out a statement vowing to work with Obama and the new Congress “to help quickly restore economic growth,” avoiding for now the more contentious issues.

Not surprisingly, the sharpest battle lines are being drawn on labor law reform. Business has already been mobilizing to fight against proposed legislation—the Employee Free Choice Act (EFCA)—that would make it easier for workers to organize unions free of employer intimidation. Corporate interests targeted various members of Congress over the EFCA issue during the electoral campaign, to little effect, and undoubtedly intend to keep up the effort. Today NAM President John Engler told the Journal: “This is not the time and this is certainly not the issue with which to build a relationship.”

Someone needs to remind the business lobbies that elections have consequences. When George Bush won reelection four years ago, that same John Engler, speaking for the corporate class, declared: “This will be our moment.” Business Week added: “business groups are already busy claiming considerable credit for Bush’s win. Their wish lists are extensive.” Many of those wishes were granted by Bush and Cheney.

Despite the overblown McCain/Palin rhetoric, Obama did not run as a socialist, but he expressed clear disapproval of the deregulatory agenda. And he accepted extensive help from labor union members, many of whom were motivated by his criticism of corporate excesses and his support (albeit muted) for EFCA.

There may be reasons why the Obama Administration and Congressional Democrats have to proceed carefully on regulatory and labor issues, not the least of which is the apparent absence of a filibuster-proof majority in the Senate. Anti-union executives may not soon find themselves bodily removed from office, as Montgomery Ward President Sewell Avery was in 1944 (photo). Yet neither should business interests expect their wish list to be the current center of attention. This is not their moment.

“Ethical Failure” and Offshore Oil Drilling

The phrase repeatedly chanted at the recent Republican convention — “Drill, Baby, Drill” — now sounds pornographic in the wake of the new sex and money scandal involving oil drilling companies and the federal agency that is supposed to oversee them. The Interior Department’s Inspector General has just come out with allegations that more than a dozen current and former staffers at Interior’s Minerals Management Service received improper gifts from industry representatives, who also put on wild parties for MMS employees. Gregory Smith, former director of the royalty-in-kind program at MMS, was also accused of having an illicit sexual relationship with an subordinate and paying her to buy cocaine.

The three reports just submitted by Interior IG Earl E. Devaney (photo) may be the most salacious government documents since the 1998 Starr Report on President Bill Clinton’s sexual peccadilloes.

Although the Interior Department website prominently features Secretary Dirk Kempthorne’s outraged response to the revelations, it does not see fit to provide the reports themselves. Fortunately, ProPublica, the online investigative reporting site, has posted the reports for all to view. Here are some highlights:

First there is a cover memo from Devaney decrying what he calls “a culture of ethical failure” in which some MMS employees adopted a “private sector approach to essentially everything they did. This included effectively opting themselves out of the Ethics in Government Act.” The private sector itself also comes in for criticism. Devaney suggests that the oil companies overseen by MMS were not especially helpful in an investigation that took more than two years and cost nearly $5.3 million. Chevron, Devaney states, refused to cooperate with the probe.

The first of the three reports focuses on Smith, who seems to have been confused about who was actually employing him. The report says he spent a substantial amount of his paid time doing work not for the federal government but for a private firm called Geomatrix Consultants that worked for oil industry clients. Smith also is said to have received improper gifts from employees of Chevron, Shell and a small operator called Gary Williams Energy Company.

The second report focuses on the people who worked under Smith. Apparently following his lead, many of them, according to Devaney, “developed inappropriate relationships with representatives of oil companies doing business with” MMS. Some of these relationships were pecuniary: two staffers were said to have received prohibited gifts from major oil companies on at least 135 occasions. Here, too, the gifts came from Chevron, Shell and Gary Williams as well as Hess. The report also reports on some brief “intimate” relationships a couple of MMS employees had with oil industry people. The sexual misconduct seems to have been a lot more limited than the other hanky panky, but it is irresistible to talk about regulatory agency employees’ being literally in bed with the industry at a time when some major oil companies are involved in a multi-billion-dollar dispute with MMS.

The final report focuses on Lucy Denett, the former associate director of minerals revenue management and the highest-ranking MMS staffer to have been caught up in the scandal. Denett is mainly accused of being overly generous to her Special Assistant Jimmy Mayberry as he was getting ready for retirement. According to the report, she improperly arranged a lucrative consulting contract for the firm Mayberry was going to set up after he left the agency.

Mayberry is said to have pleaded guilty to a criminal charge. The cases against Smith and Denett were referred to the Justice Department. Devaney asks Interior Secretary Kempthorne to take disciplinary action against the remaining employees involved. It would be nice if someone thought to take some action against those drilling companies, which seemed to have had no hesitation in corrupting federal employees. But then again, “ethical failure” is nothing new in the oil industry.

Is the SEC Putting Itself Out of Business?

Where are the rightwing crackpots denouncing “world government” when you need them? The New York Times reported over the holiday weekend that the Securities and Exchange Commission (SEC) is preparing a series of proposals that would weaken its own control over U.S. financial markets by, among other things, allowing American companies to opt for oversight by foreign regulatory bodies. The step would reportedly be presented as way to enhance the competitiveness of U.S. companies abroad and encourage more foreign investment here.

Critics worry, with some justification, that the move amounts to a transnational form of deregulation, given that securities oversight overseas is generally much less stringent than in the United States. The change could effectively abolish the Sarbanes-Oxley controls that were put in place by Congress after the collapse of Enron and other corporate scandals earlier this decade. The Times quotes Duke Law School securities expert James D. Cox as warning that the shift to international rules amounts to “outsourcing safety standards.” Picking up on the story today, the Washington Post suggested that a vote on the use of international standards could come in a few weeks.

Ceding control to foreign regulators is just one of the ways in which the SEC seems to be chipping away at its own authority. Yesterday, the agency announced it had reached agreement with the Federal Reserve to share information and cooperate more closely. That sounds reasonable, but it comes after the Fed shunted the commission aside and took control of the Bear Stearns crisis back in March. Since then there have been prominent articles, such as one on the front page of the Wall Street Journal, playing up the criticism of SEC Chairman Christopher Cox.

And then there’s the fact that in March Treasury Secretary Henry Paulson proposed an overhaul of the financial regulatory system that gave a diminished role to the SEC. Paulson’s plan has gone nowhere, but it added to the impression that the SEC’s star is waning.

The SEC is hardly a flawless agency, but the alternatives would probably be significantly worse in terms of investor protection and corporate accountability. As much as some of us harp on the limitations of SEC disclosure rules, for instance, there is a lot less transparency abroad. The only other country, to my knowledge, that requires companies to reveal a significant amount about their operations and their finances, and then makes those filings available at no cost on the web is Canada, with its SEDAR system. Allowing U.S. companies to follow foreign rules may or may not help their competitiveness, but it will in all likelihood allow them to operate with a lot less scrutiny.

Would Paulson’s CBRA Have Fangs?

Although anything coming from the Bush Administration has to be regarded with suspicion, one aspect of the Treasury Secretary Henry Paulson’s plan to revamp the regulation of financial institutions is intriguing. As part of the replacement of the current alphabet soup of agencies with a new minestrone, Paulson called for the creation of a single entity to oversee consumer protection issues relating to all regulated financial institutions. Although the Paulson blueprint often refers to this as the “business conduct regulator,” the formal proposed name is the Conduct of Business Regulatory Agency, or CBRA for short.

The new agency would combine selected functions now handled (or neglected) by entities such as the Securities and Exchange Commission and the various bank regulators. Other SEC functions—presumably including oversight of the securities of non-financial companies—would apparently reside in a new agency formed by the merger of the SEC and the Commodity Futures Trading Commission.

CBRA’s proposed mission is described (p.19) as follows:

Business conduct regulation in this context includes key aspects of consumer protection such as disclosures, business practices, and chartering and licensing of certain types of financial firms. One agency responsible for all financial products should bring greater consistency to areas of business conduct regulation where overlapping requirements currently exist. The business conduct regulator’s chartering and licensing function should be different than the prudential regulator’s financial oversight responsibilities. More specifically, the focus of the business conduct regulator should be on providing appropriate standards for firms to be able to enter the financial services industry and sell their products and services to customers… CBRA’s main areas of authority would include disclosure issues related to policy forms, unfair trade practices, and claims handling procedures.

It’s difficult to know how seriously to take this. Is Paulson suggesting that CBRA would be able to establish strict consumer protection standards before a company is allowed to set up shop anywhere in the financial services marketplace? If so, then bring it on.

Also appealing (from a researcher’s perspective) is the emphasis on disclosure, especially relating to information apart from data that Paulson puts under the purview of the “corporate finance regulator.” Today, the disclosure needs of investors are too often put ahead of the disclosure needs of consumers, workers and the general public.

Paulson’s blueprint may go nowhere, but if it does, let’s hope that his CBRA would really have fangs.