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financial industry
In 'Enormous Loss for the American People,' Trump Fires CFPB Head Rohit Chopra
"For all the claims Trump and the GOP have made about being the voice of working-class voters, firing Chopra... only satisfies unscrupulous corporations and unelected billionaires like Elon Musk," one advocate said.
Feb 01, 2025
U.S. President Donald Trump moved Saturday morning to fire Consumer Financial Protection Bureau Director Rohit Chopra, who had earned the praise of consumer advocates and the ire of Wall Street for his efforts to return more than $6 billion to ordinary Americans.
Chopra announced his firing on social media, also sharing a letter to the president in which he touted the work of the CFPB and outlined possible priorities for his successor.
"Every day, Americans from across the country shared their ideas and experiences with us," Chopra wrote to his followers. "You helped us hold powerful companies and their executives accountable for breaking the law, and you made our work better. Thank you."
In his letter, Chopra mounted a full-throated defense of the CFPB, which has often been attacked by Republicans and pro-Trump figures, including billionaire Elon Musk. He wrote that the 2008 financial crisis "made Americans question whether regulators and law enforcement would hold companies and their executives accountable for their mismanagement or wrongdoing," especially since many of the companies responsible for the crash only got larger and more powerful following a taxpayer-funded bailout.
"That's what agencies like CFPB work to fix: to make sure that the laws of our land aren't just words on a page," he wrote, adding that "with so much power concentrated in the hands of a few, agencies like the CFPB have never been more critical."
Chopra, who was appointed by former President Joe Biden to head the CFPB in 2021, said that he was "proud the CFPB had done so much to restore the rule of law" during his tenure.
"Since 2021, we have returned billions of dollars from repeat offenders and other bad actors, implemented dormant legal authorities and long-overdue rules required by law, and given more freedom and bargaining leverage to families navigating a complex and confusing financial system," he wrote.
"If civil society does its job, every person unnecessarily taken advantage of by a financial institution will attribute the blame to the right person—Donald Trump."
Chopra also touted the CFPB's regulation of junk fees, inaccurate medical bills, and digital surveillance by Big Tech. Under Chopra, the CFPB sued major financial institutions such as Bank of America and JP Morgan Chase and finalized a rule to strike around $49 billion worth of medical debt from credit reports, according to CNN.
With Chopra in charge, the bureau "has fought against junk fees, repeat offenders, big tech evasions, and corporate deception. It has championed competition, transparency, accountability, and consumer financial health," Adam Rust, director of financial services for the Consumer Federation of America, said in a statement reported by NPR.
Despite the fact that Chopra was originally appointed by Trump in 2018 to serve on the Federal Trade Commission, Chopra's firing was expected as soon as Trump took office, with both major banks and tech companies urging the new president to oust him.
While anticipated, the move was criticized by progressive advocates and lawmakers.
"For all the claims Trump and the GOP have made about being the voice of working-class voters, firing Chopra and attacking the CFPB only satisfies unscrupulous corporations and unelected billionaires like Elon Musk," Revolving Door Project founder and executive director Jeff Hauser said in a statement. "If civil society does its job, every person unnecessarily taken advantage of by a financial institution will attribute the blame to the right person—Donald Trump."
Rep. Pramila Jayapal (D-Wash.) called his firing "an enormous loss for the American people."
"My friend Rohit Chopra has done an incredible job leading the CFPB—standing up to big corporations, protecting consumer data, and saving money for poor and working families," Jayapal said on social media.
Former Labor Secretary Robert Reich wrote on social media: "Under Rohit Chopra's tenure, the CFPB continued to serve as a shining example of government working on behalf of the people. Chopra took on corporate greed, unnecessary junk fees, predatory lending, and other financial shenanigans. It's telling that Trump just fired him."
According toThe New York Times, the CFPB under Trump is expected by financial industry officials to roll back some of Chopra's regulations and to issue fewer new rules and weaken enforcement.
However, Sen. Elizabeth Warren (D-Mass.) pointed out that this would run counter to Trump's own campaign rhetoric.
"President Trump campaigned on capping credit card interest rates at 10% and lowering costs for Americans. He needs a strong CFPB and a strong CFPB director to do that," she said in a statement. "But if President Trump and Republicans decide to cower to Wall Street billionaires and destroy the agency, they will have a fight on their hands."
Chopra himself, in his farewell letter to Trump, suggested steps the CFPB could take under new leadership. These included:
- Following up on proposals to stop countries like Russia and China from spying on Americans using commercial data;
- Following up on proposals to stop large tech and financial platforms from censoring users based on religious beliefs or opinions; and
- Acting on evidence uncovered during earlier investigations of Big Tech and Wall Street.
"We have also analyzed your promising proposal on capping credit card interest rates, and we see a path for enacting meaningful reform," he wrote to Trump. "I hope that the CFPB will continue to be a pillar of restoring and advancing economic liberty in America."
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Could the Traditional Pension Plan Make a Comeback?
The great 401(k) experiment of do-it-yourself retirement plans was always a better deal for the financial services industry that profited handsomely from managing them than for employers and workers.
Mar 02, 2024
Pension plans never really went away—despite beliefs to the contrary that they are fatally flawed, with 401(k)s being the only sustainable retirement plans. The reality is that there are still 50,000 financially healthy pension plans in the United States. Most public sector workers, for sure a minority of all workers, still have pension plans. The other reality, though, is that progressively fewer workers since the early 1980s have had access to traditional pensions plans.
The general experience in American workplaces has been that once gone, pension plans do not come back. Here and there the trend has been bucked with pension plans returning to replace 401(k)s. In 2008, West Virgina public teachers voted to return their pension plan that had been taken away by the state legislature in 1991. The 401(k)-like plan that replaced it had produced such poor returns that participants were facing poverty in retirement. In 2012, after a long campaign, Connecticut state employees were allowed on a voluntary basis to switch out of a 401(k)-like plan into the state’s traditional pension plan.
More recently, there have been developments of potential large-scale replacements of 401(k)s with pension plans that may portend the beginnings of a significant pension comeback.
There is plenty of evidence that a dollar invested in a traditional pension plan delivers far more retirement income than one invested in a 401(k).
In 2006 the Alaska state legislature took away the pension plan for schoolteachers and replaced it with a 401(k). School teachers and their union never accepted the change and continually fought to reverse it. This year they may succeed. The Alaska Senate has voted to reinstate the pension plan. If the House of Representatives, where the fight will be tougher, follows suit, the plan will be reinstated.
Proponents of the reinstatement argued that Alaska was having a hard time keeping teachers who were quitting and leaving for teaching positions in states that had pension plans, which most do. Opponents of the change have argued, as they usually do, that it would be too expensive. But there is plenty of evidence that a dollar invested in a traditional pension plan delivers far more retirement income than one invested in a 401(k). Further, consulting New School economist Teresa Ghilarducci showed that Alaska would actually save $76 million annually by making the change.
If that can occur in Republican-dominated Alaska, union-strong Michigan, where state employees lost their pension plan in 1997, would seem to be a candidate for a similar development.
Meanwhile, in corporate America where pension plans have dwindled to near extinction, IBM has announced that it may develop a cash balance plan, a kind of quasi-pension plan, to replace its 401(k). Cash balance plans do not deliver as much retirement income as traditional defined-benefit pension plans, but they do have three advantages for workers over 401(k)s. Collective plan contributions are professionally invested, producing higher returns than the often-amateur investments of 401(k) participants. Once credited to participant accounts, contributions remain regardless of future market activity unlike with 401(k)s. And, by law, cash balance plans are required to offer life pensions from their funds that deliver significantly more retirement income than life annuities that life insurance companies sell to 401(k) participants.
IBM’s accountants are exploring the cash balance model mainly because it offers tax advantages over 401(k)s. At the same time investment risks, as with 401(k)s, are shouldered by participants, unlike with traditional pension plans.
The great 401(k) experiment of do-it-yourself retirement plans was always a better deal for the financial services industry that profited handsomely from managing them. For employers it was less of a good deal. Some are now beginning to do until recently the unthinkable and explore readopting the P word.
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How to Diffuse the Derivatives Time Bomb
Current laws allow the big international banks to run the largest derivatives casino that the world has ever seen.
Feb 18, 2024
This is a sequel to a Jan. 15 article titled “Casino Capitalism and the Derivatives Market: Time for Another ‘Lehman Moment’?”, discussing the threat of a 2024 “black swan” event that could pop the derivatives bubble. That bubble is now over 10 times the gross domestic product of the world and is so interconnected and fragile that an unanticipated crisis could trigger the collapse not just of the bubble but of the economy. To avoid that result, in the event of the bankruptcy of a major financial institution, derivative claimants are put first in line to grab the assets—not just the deposits of customers but their stocks and bonds. This is made possible by the Uniform Commercial Code, under which all assets held by brokers, banks, and “central clearing parties” have been “dematerialized” into fungible pools and are held in “street name.”
This article will consider several proposed alternatives for diffusing what Warren Buffett called a time bomb waiting to go off. That sort of bomb just detonated in the Chinese stock market, contributing to its fall; and the result could be much worse in the U.S., where the stock market plays a much larger role in the economy.
The Chinese Derivative Crisis
A January 30 article on Bloomberg News notes that “Chinese stocks’ brutal start to the year is being at least partly blamed on the impact of a relatively new financial derivative known as a snowball. The products are tied to indexes, and a key feature is that when the gauges fall below built-in levels, brokerages will sell their related futures positions.”
Further details are in a January 23 article titled “‘Snowball’ Derivatives Feed China’s Stock Market Avalanche.” It states, “China’s plunging stock market is leading to losses on billions of dollars worth of derivatives linked to the country’s equity indexes, fueling further selling as retail investors offload their positions… Snowball products are similar to the index-linked products sold in the 2008 financial crisis, with investors betting that U.S. equities would not fall more than 25% or 30%,” which they did.
Chinese shares rose on February 6, as officials took measures to prop up the ailing market, including imposing new “zero tolerance” curbs for malicious short selling.
The Greater U.S. Threat
The Chinese stock market is much younger and smaller than that in the U.S., with a much smaller role in the economy. Thus China’s economy remains relatively protected from disruptive ups and downs in the stock market. Not so in the U.S., where speculating in the derivatives casino brought down international insurer AIG and investment bank Lehman Brothers in 2008, triggering the global financial crisis of 2008-09. AIG had to be bailed out by the taxpayers to prevent collapse of the too-big-to-fail derivative banks, and Lehman Brothers went through a messy bankruptcy that took years to resolve.
In a December 2010 article on Seeking Alpha titled “Derivatives: The Big Banks’ Quadrillion-Dollar Financial Casino,” attorney Michael Snyder wrote, “Derivatives were at the heart of the financial crisis of 2007 and 2008, and whenever the next financial crisis happens, derivatives will undoubtedly play a huge role once again… Today, the world financial system has been turned into a giant casino where bets are made on just about anything you can possibly imagine, and the major Wall Street banks make a ton of money from it. The system… is totally dominated by the big international banks.”
The Speculators Dominate the Regulators
In a 2009 Cornell Law Faculty publication titled “How Deregulating Derivatives Led to Disaster, and Why Re-Regulating Them Can Prevent Another,” Prof. Lynn Stout proposed stabilizing the market by returning to 20th-century derivative rules. She noted that derivatives are basically wagers or bets, and that before 2000, the U.S. and U.K. regulated derivatives primarily by a common‐law rule known as the “rule against difference contracts.” She explained:
The rule against difference contracts did not stop you from wagering on anything you liked: sporting contests, wheat prices, interest rates. But if you wanted to go to a court to have your wager enforced, you had to demonstrate to a judge’s satisfaction that at least one of the parties to the wager had a real economic interest in the underlying and was using the derivative contract to hedge against a risk to that interest… Using derivatives this way is truly hedging, and it serves a useful social purpose by reducing risk.
…Under the rule against difference contracts and its sister doctrine in insurance law (the requirement of “insurable interest”), derivative contracts that couldn’t be proved to hedge an economic interest in the underlying were deemed nothing more than legally unenforceable wagers.
…Hedge funds, for example, should really call themselves “speculation funds,” as it is quite clear they are using derivatives to try to reap profits at the other traders’ expense.
The rule against difference contracts died in 2000, when the U.S. embraced wholesale deregulation with the passage of the Commodity Futures Modernization Act (CFMA):
The CFMA not only declared financial derivatives exempt from CFTC or SEC oversight, it also declared all financial derivatives legally enforceable. The CFMA thus eliminated, in one fell swoop, a legal constraint on derivatives speculation that dated back not just decades, but centuries. It was this change in the law—not some flash of genius on Wall Street—that created today’s $600 trillion financial derivatives market.
The Casino Gets Special Privileges
Not only are speculative derivatives now legally enforceable, but under the Bankruptcy Act of 2005, derivative securities enjoy special protections. Most creditors are “stayed” from enforcing their rights while a firm is in bankruptcy, but many derivative contracts are exempt from these stays. Similarly, under the Dodd Frank Act of 2010, derivative claimants have “superpriority” in the bankruptcy of a financial institution. They are privileged to claim collateral immediately without judicial review, before bankruptcy proceedings even begin. Depositors become “unsecured creditors” who can recover their funds only after derivative, repo, and other secured claims, assuming there is anything left to recover, which in the event of a major derivative crisis would be unlikely.
That’s true not only of the deposits in a bankrupt bank but of stocks, bonds, and money market funds held by a broke or dealer that goes bankrupt. Under the Bankruptcy Act of 2005 and Sections 8 and 9 of the Uniform Commercial Code (UCC), “safe harbor” is provided to entities described in court documents as “the protected class.” The customers who purchased the assets have only a “security entitlement,” a weak contractual claim to a pro rata share of a residual pool of fungible assets all held in the name of Cede & Co., the proxy of the Depository Trust and Clearing Corp. (DTCC). As Wall Street financial analyst John Rubino put it in a January 27 podcast:
What we used to think of as a bank bail-in where they take your deposit in order to support a failing bank, that is now spread across the entire financial economy where whatever you have in an account anywhere can just disappear, because they’re going to transfer ownership of it to these big dominant entities out there in the financial system that need those assets in order to keep from blowing up.
Derivative speculators are considered “secured” because they post a portion of what they could wind up owing as “margin,” but why that partial security is superior to the 100% security posted by the depositor or purchaser is not explained. The “protected class” is granted “safe harbor” only because their bets are so risky that to let them fail could crash the economy. But why let them bet at all?
The Solution of the Regulators
The fix of the G20 leaders following the global financial crisis, however, was to force banks to clear over-the-counter derivatives through central counterparties (CCPs), which stand between buyer and seller and protect either party if the other blows up. By March 2020, 60% of credit default swaps and 80% of interest rate swaps were centrally cleared. The problem, as noted in a December 2023 publication by the Bank for International Settlements, is that these measures taken to protect the system can actually amplify risk.
CCPs tend to ask for more collateral than banks did in the pre-crisis world; and when a CCP hikes its initial margin requirement to cover the risk of default, this applies to everyone in the market, meaning cash calls are synchronized. As explained in a May 2022 Reuters article:
It’s logical that CCPs ask for more collateral during a panic: That’s when defaults are most likely. The problem is that margin calls seem to have made things worse. In March 2020, for example, a so-called “dash for cash” saw investors liquidate even prime money-market funds and U.S. Treasury securities.
… [R]ampant margin calls have intensified a financial panic twice in as many years, with central banks effectively bailing out markets in 2020. That’s better than in 2008, when taxpayers had to step in. But the problem of margin calls remains unsolved.
… Central counterparty (CCP) clearing houses should consider asking clients for more collateral during good times to reduce the risk of destabilizing margin calls during a financial panic, a Bank of England official said on May 19.
Yet all this, as Michael Snyder observes, is to allow the big international banks to run the largest derivatives casino that the world has ever seen. Why not just shut down the casino? Prof. Stout’s suggested solution is for Congress to return to the pre-2000 rule under which speculative derivative bets were not enforceable in court. That would include reversing the “superpriority” privileges in the Bankruptcy Act of 2005 and the Dodd-Frank Act. But it won’t be a quick fix, as Wall Street and our divided Congress can be expected to put up a protracted fight.
What If the DTCC Goes Bankrupt?
In a 2015 law review article titled “Failure of the Clearinghouse: Dodd-Frank’s Fatal Flaw?,” Prof. Stephen Lubben points to a more ominous risk from pushing all derivatives onto exchanges; and that concern is shared by former hedge fund manager David Rogers Webb in his 2024 book The Great Taking. The exchanges are supposed to be safer than private over-the-counter trades because the exchange steps in as market maker, accepting the risk for both sides of the trade. But in a general economic depression, the exchanges themselves could go bankrupt. No provision for that is made in the Dodd-Frank Act, which purports to decree “no more bailouts.” Still, reasons Prof. Lubben, the government would undoubtedly step in to save the market from collapse.
His proposed solution is for Congress to make legislative provision for nationalizing any bankrupt exchange, brokerage, or Central Clearing Counterparty before it fails. This is something to which our gridlocked Congress might agree, since under current circumstances it would not involve any major changes, wealth confiscation, or new tax burdens; and it could protect their own fortunes from confiscation if the DTCC were to go bankrupt.
Other Possible Federal Solutions
Another alternative that not only could work but could fix Congress’s budget problems at the same time is to impose a 0.1% tax on all financial transactions. See Scott Smith, A Tale of Two Economies: A New Financial Operating System, showing that U.S. financial transactions (the financialized economy) are over $7.6 quadrillion, more than 350 times the U.S. national income (the productive economy). See my earlier article summarizing all that here. On a financial transaction tax curbing speculation in derivatives, see also here, here, and here.
There are other possible solutions to customer title concerns. There is no longer a need for the archaic practice of holding all securitized assets in the street name of Cede & Co. The digitization of stocks and bonds was a reasonable and efficient step in the 1970s, but today digital cryptography has gotten so sophisticated that “smart contracts” can be attached by blockchain-like distributed ledger technology (DLT) to digital assets, tracking participants, dates, terms, and other contractual details. The states of Delaware and Wyoming have explored maintaining corporate lists of stockholders on a state-run blockchain; but predictably, the measures were opposed. The practice of holding assets in street name has proven very lucrative for the DTCC’s member brokers and banks, as it facilitates short selling and the “rehypothecation” of collateral.
In October 2023, the DTCC reported that it has been exploring adopting DLT; but the goal seems only to be speedier and safer trades. No mention was made of returning registered title to the purchasers of the traded assets, which could be done with distributed ledger technology.
South Dakota’s Innovative Solution
The most readily achievable solution is probably that in a South Dakota bill filed on January 29. The bill is detailed in a February 2 article titled “You Could Lose Your Retirement Savings in the Next Financial Crash Unless Others Follow This State’s Lead,” which observes:
…[I]f your broker… were to go bankrupt, the broker’s secured creditors (the people to whom the broker owes money) would be empowered to take the investments that you paid for in order to settle outstanding debts….
To avoid a catastrophe in the future, a nationwide movement is desperately needed to alter the existing Uniform Commercial Code. Of course, that won’t be easy to accomplish, especially because bank lobbyists and other powerful financial interests will almost certainly fight kicking and screaming to stop policymakers from taking away their advantage over consumers.
The good news is, this “great taking” can be stopped at the state level. Americans don’t need to count on a divided Congress to get the job done. Because the UCC is state law, state lawmakers can take concrete steps to restore the property rights of their constituents and protect them in the event of a financial crisis.
On Monday, South Dakota legislators introduced a bill that would do just that. The legislation would ensure that individual investors have priority over securities held by brokerage firms and other intermediaries.
It would also alter jurisdictional provisions so that cases are determined in the state of the individual investor, rather than the state of the broker, custodian, or clearing corporation. This would ensure that individual investors are able to rely on the laws of their local state.
Hopefully, other states will follow South Dakota’s lead. Tennessee, for one, is reported to have such a bill in the works.
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