Lawsuit challenges Consumer Financial Protection Bureau - Lawsuit challenges Consumer Financial Protection Bureau -

Friday, June 22, 2012

Lawsuit challenges Consumer Financial Protection Bureau -

Lawsuit challenges Consumer Financial Protection Bureau -

WASHINGTON -- A Texas bank and two free market advocacy groups have filed a lawsuit challenging the constitutionality of the Consumer Financial Protection Bureau.

The suit alleges that the agency, created as part of the 2010 Dodd-Frank financial reform law, was given too much power and that President Obama's recess appointment of Richard Cordray as its director was unconstitutional.

The suit also challenges the law's creation of a panel of regulators, the Financial Stability Oversight Council.

"The Consumer Financial Protection Bureau and the Financial Stability Oversight Council's constitutional violations are not merely the stuff of law-school debates. They pose a direct threat to economic recovery," two key figures behind the lawsuit, C. Boyden Gray and Jim R. Purcell, wrote in a Wall Street Journal opinion article Thursday night.

Purcell is chief executive of State National Bank of Big Spring, Texas, which filed the suit along with the 60 Plus Assn., a senior citizen advocacy group in Alexandria, Va., and the Competitive Enterprise Institute, a Washington, D.C., public policy group. Gray, who was White House counsel to former president George H.W. Bush, is the lead attorney for the groups.

The suit, filed in U.S. District Court in Washington, D.C., says Congress violated the Constitution in granting the CFPB broad powers over any financial products or services it deems to be "unfair, deceptive or abusive,"  a term undefined in the law.

In addition, Obama's January recess appointment of Cordray as director was unconstitutional because the Senate was not in a recess, the suit says. In appointing Cordray, Obama said that the Senate's short pro-forma sessions were masking a de facto recess.

The suit seeks to overturn the creation of the consumer bureau and the financial oversight panel, as well as to prevent Cordray from using any of his powers of his job.

The White House defended the creation of the CFPB and said it would fight the suit.

"The President fought to put into law the strongest consumer protections in history, and he will continue to fight any effort from our opponents to weaken the CFPB or water down its ability to protect middle class families," said White House spokeswoman Amy Brundage.

"Whether it be cracking down on misleading tactics from debt collectors and credit card companies or increasing resources for military families, the CFPB has already made great progress on increasing protections for American consumers, and we will oppose any efforts to stand in their way," she said.

Cordray's controversial appointment was expected to spark a lawsuit. Many financial and business groups, along with most congressional Republicans, opposed creation of the agency and were outraged by Obama's recess appointment.

The agency needed to have a Senate-confirmed director to exercise important new powers, and nearly all Senate Republicans had vowed to block any appointment unless Obama agreed to water down the agency's authority. The recess appointment allowed the agency to function fully.

Jen Howard, a spokeswoman for the CFPB, said lawsuit "appears to dredge up old arguments that have already been discredited."

"We're going to keep our focus on the important work Congress created us to do - making markets work for consumers and responsible providers," she said.

The suit's main focus is on the consumer bureau. But it also says that the Financial Stability Oversight Council violates the Constitution's separation of powers principle by giving the panel "sweeping and unprecedented discretion" to decide which financial firms are "systemically important."


Republicans say consumer chief controversy will hurt businesses

Obama bypassing Senate to appoint Richard Cordray consumer chief

Cordray sees a slim chance his CFPB appointment could be overturned



Morning business round-up: Markets rue banks downgrade - BBC News

What made the business news in Asia and Europe this morning? Here's our daily business round-up:

Stock markets have fallen in Europe following the news that credit ratings agency Moody's had downgraded 15 global banks and financial institutions.

UK, French and German stock markets were all down by 0.5% to 1% in morning trading.

The UK banks downgraded were Royal Bank of Scotland, Barclays and HSBC. Lloyds also had its rating cut by Moody's in a separate announcement.

In the US, Bank of America and Citigroup were among those marked down.

The other institutions that have been downgraded are Goldman Sachs, Morgan Stanley, JP Morgan Chase, Credit Suisse, UBS, BNP Paribas, Credit Agricole, Societe Generale, Deutsche Bank and Royal Bank of Canada.

As the crisis in the eurozone continues, Italy's prime minister has warned European leaders that failure to agree on joint action will encourage market attacks on their economies.

Mario Monti is due to meet the leaders of France, Germany and Spain in Rome ahead of an EU summit next week.

He predicted "progressively greater speculative attacks" without unified action from all the eurozone members.

In emerging market news, China and Brazil have agreed a currency swap deal in a bid to safeguard against any global financial crisis and strengthen their trade ties.

It will allow their respective central banks to exchange local currencies worth up to 60bn reais or 190bn yuan ($30bn).

The amount can be used to shore up reserves in times of crisis or put towards boosting bilateral trade.

Business headlines

At the same time, it has emerged that China's imports of crude oil from Iran rebounded in May after the two countries resolved a payment dispute.

Beijing imported almost 524,000 barrels per day, a 35% jump from the previous month.

The surge comes even as the US has asked countries to cut oil imports from Iran and threatened to impose sanctions against financial institutions doing business with Iran's energy sector.

And in another member nation of the Brics group, India, the competition watchdog has fined 11 cement companies, including ACC and Ambuja Cements, for price-fixing.

The Competition Commission of India (CCI) has imposed a collective fine of more than 60bn rupees ($1.1bn) on the firms.

It has accused them of "limiting" supplies and controlling prices through an "anti-competitive agreement".

Elsewhere in Asia, Japan's Nintendo will start selling a version of its 3DS handheld gaming console with bigger screens from July.

The 3DS LL, which will be known as the XL outside Japan, will have displays that are almost twice as big as those on the current version.

It will be priced at 18,900 yen in Japan and $199.99 in the US.

Finally, in corporate news, UK bookmaker William Hill has been given the green light to launch its first US operations after being granted a licence by the Nevada Gaming Commission.

Last year, the British bookmaker announced it was to buy three US companies, but the acquisitions were dependent on the awarding of a licence.

The deals are now expected to complete by the end of the month.

William Hill said it was the first British bookmaker to be licensed for sports wagering in the US.

Click through to our Business Daily podcast for an in-depth look at the business developments that matter.

Crisis "on doorstep" as German business morale hit - Reuters UK

BERLIN | Fri Jun 22, 2012 11:21am BST

BERLIN (Reuters) - German business sentiment fell for a second straight month in June to its lowest level in over two years, the latest sign Europe's largest economy is no longer immune to the sovereign debt crisis engulfing the euro zone.

Europe's economic powerhouse had so far avoided the fate of its euro zone peers thanks to strong exports away from the bloc and healthy domestic demand, but increasing uncertainty over the currency bloc's prospects is starting to hit home.

A significant weakening in the German economy, which saved the euro zone from recession in the first quarter, spells further gloom for the region but could also encourage Berlin to take bolder steps to resolve the crisis.

"The euro crisis is really hitting home," Klaus Wohlrabe, an Ifo economist, told Reuters. "It's right on the front doorstep."

"At the moment I don't see a recession, rather a dip in the second and third quarter," Wohlrabe said, adding that GDP would only just remain in positive territory.

The Munich-based Ifo think tank's business climate index, based on a monthly survey of some 7,000 companies and published on Friday, dropped to 105.3 in June from 106.9 in May.

This was the lowest level since March 2010 and slightly worse than expected, with a Reuters poll of 44 economists forecasting the index would fall to 105.9.

Other recent data has also suggested the economy is losing stamina and may have contracted in the second quarter growing 0.5 percent in the first three months of 2012.

Manufacturing activity is at its weakest level in three years, according a purchasing managers' survey published on Thursday. The sector, which has driven growth over the last year, was also the worst hit in the Ifo survey.

Imports tumbled at their fastest rate in two years in April, while exports have declined on weakening demand from within the euro zone, where Germany sends roughly 40 percent of its goods sold abroad.

The Ifo data showed that firms were more optimistic about current business conditions but were worried about the outlook. A sub-index on business expectations fell to 97.3 from a revised 100.8 in May. Ifo's Wohlrabe said companies were adopting a wait-and-see attitude and were holding back on investments.


The Ifo figures were released hours before German Chancellor Angela Merkel was set to travel to Rome to meet with her Italian, Spanish and French counterparts to discuss solutions to the euro zone's sovereign debt crisis.

A significant weakening of the German economy could give Merkel more public backing to take bolder steps.

"The German ship is more solid than all other euro zone ships but latest indicators have been good reminders that even the most solid ship can capsize in a rough thunderstorm," said ING's Carsten Brzeski.

"Maybe there is one upside to the latest batch of disappointing data from the euro zone's biggest economy: it shows that a fundamental solution to the euro zone crisis is also in the interest of the German economy."

Ifo's Wohlrabe said 70 percent of the responses for Friday's survey were collected before the Greek election last weekend, when there were concerns that a radical leftist party would win and the crisis-stricken country would then leave the euro zone.

"Uncertainty was particularly prominent then," Wohlrabe said, adding that there were also concerns about Spain, which was a more important trade partner than Greece. Export expectations fell as a result.

Economists said it was not all gloom and doom for the German economy though, with domestic demand likely to hold up on the back of a solid labour market and wage rises and support growth.

The more domestic-oriented retailing sector improved in June, according to the Ifo data. German retail companies have been fairly upbeat recently after a soggy April hit sales, with Adidas this week raising its forecast for 2012 sales of football equipment to a new record high.

"Investment and exports are likely to be the main channels of transmission of financial market turbulences to Germany's real economy, as the crisis hits again and is likely to trigger a significant slowdown over the summer, said Berenberg's Christian Schulz.

"Domestic private and public consumption, on the other hand are likely to have a stabilising effect," he said.

(Additional reporting by Christian Kraemer in Munich and Berlin Bureau,; Editing by Noah Barkin and Gareth Jones/Jeremy Gaunt)

Your Money Market Fund May Not Survive The Next Wall Street Panic - Forbes
WASHINGTON - MAY 11:  Mary Schapiro, chairman ...

Mary Schapiro, chairman of the Securities and Exchange Commission, testifies during a House Financial Services Committee hearing on Capitol Hill on May 11, 2010 in Washington, DC. concerning the prior week's stock market plunge. (Image credit: Getty Images North America via @daylife)

On June 21, 2012, Securities And Exchange Commission Chair Mary Schapiro testified about “Perspectives on Money Market Mutual Fund Reforms” before the Committee on Banking, Housing, and Urban Affairs of the United States Senate. In somewhat chilling remarks about today’s roughly $2.5 trillion money market funds, Schapiro dragged out the bloody corpse of the Reserve Primary Fund, which in September 2008 “broke the buck” and set off a cascade of panic that swept through other money market funds and flooded the short-term credit markets.

SIDE BAR: If money market funds comply with the Investment Company Act Rule 2a-7 (which basically limits money market funds’ investments to short-term, high-quality securities on the assumption that such instruments are relatively stable), they are able to avail themselves of exemptions from a number of Investment Company Act provisions that generally pertain to mutual funds.  Among the more notable benefits of such compliance is permission to maintain the stable $1.00 net asset value per share (“NAV”), for which such funds are best known and by which they are frequently marketed to the public.  In accordance with this valuation leeway, money market funds are able to use rounding to maintain that $1 NAV – however, if the mark-to-market per-share value falls over 1/2% (below $0.9950), that convention goes by the wayside and results in what has become known as “breaking the buck.”

Breakin’ the Buck

Schapiro noted that on more than 300 occasions since the launch of money market funds in the 1970s, fund sponsors have had to step in with their own funds to shore up the one-dollar valuation. Although such sponsor efforts were generally effective over the years, the breadth, depth and celerity of the 2008 market break tested the industry’s resolve.

Pointedly, the losses sustained by the Reserve Primary Fund as a result of its ownership of $785 million in Lehman Brothers debt overwhelmed the sponsor’s ability to maintain the buck – all the more exacerbated when the once $62 billion fund was swamped with nearly $40 billion in redemption demands during a two-day period.

Having breached the walls at Reserve, the money market panic spread to the withdrawal of some $300 billion during the wek of September 15, 2008, or nearly 14% of the market’s assets.  As a result of defensive measures taken to preserve assets and cull out threatened performers, by the last two weeks of September 2008, money market funds had reduced their holdings of commercial paper by $200.3 billion, or 29% — which then presented the credit markets with additional pressure, and some would say effectively froze them and shut them down.

Last Ditch

Schapiro asserted that during the financial crisis of September 2008, over 100 funds were bailed out by their sponsors.  This investor run was only calmed when the Treasury Department and the Federal Reserve stepped in to offer temporary guarantees of $1.00 NAV for $3 trillion in money market fund shares, and supported the short-term credit markets. Schapiro ominously warns that because “the federal government was forced to intervene we do not know what the full consequences of an unchecked run on money market funds would have been.”

I thank the SEC Chair for that candid and frank assessment.  Too often what comes to us from those in regulation is spin and false assurances.  Schapiro is absolutely correct to warn that just because we survived the 2008 market break does not mean that we will do so under similar situations in the future.  Moreover, she is spot on when she admonishes us that we should not take false comfort at having repelled the money market run because that was achieved through extraordinary government intervention, which may not be available the next time around. There are only so many Persian attacks that Leonidas and his Spartans can repel.  At some point, it’s game over.

Consider these jarring candor in Schapiro’s remarks to the Senate committee:

The experience of shareholders of the Reserve Primary Fund, however, is instructive about the impact of an unchecked run on investors. While some observe that shareholders in the Reserve Primary Fund ultimately “lost” only one penny per share, this ignores the very real harm that resulted from shareholders losing access to the liquidity that money market funds promise. They were left waiting for a court proceeding to resolve a host of legal issues before they could regain access to their funds. In the meantime, their ability to make mortgage payments, pay employees’ salaries and fund their businesses was substantially impaired, and Reserve Fund investors were left in a sea of uncertainty and confusion. Some of their money is still waiting to be distributed.

The next run might be even more difficult to stop, however, and the harm will not be limited to a discrete group of investors. The tools that were used to stop the run on money market funds in 2008 are either no longer available or unlikely to be effective in preventing a similar run today . . .

Some Lessons Learned

On a modestly positive note, Schapiro allows that during the Summer of 2011 market stress, various money market reforms instituted in 2010 seemed to have held up in the face of another spate of heavy redemptions, which were, thankfully, substantially less severe than those of 2008.  For example, during the three-week period beginning June 14, 2011, investors withdrew approximately $100 billion from prime money market funds versus the two-day panic in 2008 in which over $300 billion was redeemed.

From her perspective, Schapiro seems to have concluded that money market funds remain vulnerable to investor psychology that prompts redemption runs.  In explaining some of the elements that have fueled such panics, she cites the “Misplaced Expectation” of a stable $1.00 NAV, which, when broken or fears arise of that event, fuels the investors’ rush to the doors. Pointedly, Schapiro observes that a domino effect is likely to occur when one fund’s NAV comes into questions, leading investors at other funds to assume the worst and try to get out before it’s too late.

In tandem with this expectational issue is what Schapiro sees as the perception by investors that there is a benefit to be among the first to redeem – the expectation that you will at least get the buck rather than something less if you wait too long. Unfortunately, the understandable human response to smell smoke and not wait for signs of fire, may cripple otherwise stable funds caught up in the whirlwind. In an interesting aside, the SEC Chair notes that since institutions tend to have access to more timely market news than the average retail investor, the advantage of getting out first would likely go to the big boys, putting the small fry at a disadvantage during such a critical time.

Finally, Schapiro looks at bigger picture and warns that

[M]oney market funds offer shares that are redeemable upon demand, but invest in short-term securities that are less liquid. If all or many investors redeem at the same time, the fund will be forced to sell securities at fire sale prices, causing the fund to break a dollar, but also depressing prevailing market prices and thereby placing pressure on the ability of other funds to maintain a stable net asset value. A run on one fund can therefore create stresses on other funds’ ability to maintain a $1.00 stable net asset value, prompting shareholder redemptions from those funds and instigating a pernicious cycle building quickly towards a more generalized run on money market funds.

Given the role money market funds play in providing short-term funding to companies in the short-term markets, a run presents not simply an investment risk to the fund’s shareholders, but significant systemic risk. No one can predict what will cause the next crisis, or what will cause the next money market fund to break the buck. But we all know unexpected events will happen in the future. If that stress affects a money market fund whose sponsor is unable or unwilling to bail it out, it could lead to the next destabilizing run. To be clear, I am not suggesting that any fund breaking the buck will cause a destabilizing run on other money market funds—it is possible that an individual fund could have a credit event that is specific to it and not trigger a broad run—only that policymakers should recognize that the risk of a destabilizing run remains. Money market funds remain large, and continue to invest in securities subject to interest rate and credit risk. They continue, for example, to have considerable exposure to European banks, with, as of May 31, 2012, approximately 30% of prime fund assets invested in debt issued by banks based in Europe generally and approximately 14% of prime fund assets invested in debt issued by banks located in the Eurozone.

How networking locally could power your business globally - The Guardian

Starting out in business can feel like a lonely journey. Whether you're up at 2am writing the business plan, dealing with rules and regulations before you open for trading, or negotiating the tricky task of securing external finance, it can sometimes feel like you're an army of one facing competition that's better resourced, more experienced and already in the game.

Yet help, networking and sage advice are all closer than you might think. The internet is a treasure-trove of FAQs, and this new Guardian site provides many important resources if you're just starting out.

Think local, but act global

Linking up with other new starters and more experienced business people willing to lend a hand and offer advice is so important when sourcing new customers and opportunities. Chambers of commerce can help too, as they collectively hold more than 3,000 networking events nationally every year that allow members to make real business-to-business links – something that should never be underestimated by a new business seeking to sell into its immediate area, and especially if you're considering trading further afield.

Networking with other companies early on can increase your chances of developing contacts in markets from Barcelona to Bangkok and Beijing. Many newly-minted business people tell me that it's at networking events that they meet international business people who become informal mentors and guides; some also meet their first international customers, and even their first international suppliers. So linking up with your peers can help you learn the ropes of worldwide trading early on, and build a global perspective into your business plan.

By ensuring that your company is born global, considering overseas markets from your earliest days where that's appropriate, you can make a real difference to the success of your business, and to Britain as a whole. Businesses that are bold and break into new markets overseas will play a key role in sustaining an economic recovery in the UK.

Your global business might have already started

The beauty of international trade is that sometimes you don't know you're an exporter until you're actually doing it. Small, home-based companies have flatly denied being exporters to me, saying: "I only post a few packets off to the continent."

Yet from such humble beginnings come Britain's new global players. The Somerset company selling ice cream above the Arctic Circle; the Derby clockmakers selling timepieces to the Swiss; the London creative media business whose social media software has had over 1.4 billion users around the world; the Bradford textile manufacturer selling 90% of its products abroad; the Cumbria business selling top-quality food products from an idyllic Lake District setting into over two dozen countries.

None of these is a large conglomerate, but all are growing strongly because they are bold, hard working and not afraid of taking risks.

Technology can make global feel local

There's no doubt that technology has revolutionised the business startup industry, helping new companies find new markets, and providing a shop window for both goods and services. It's now easier and faster than ever before to register and get trading. But never forget that so much in business is still done face-to-face.

Networking is a critical part of your company's journey to success, as behind the core of every business is a real person. The same holds true for all your potential trading partners and collaborators, whether down the road or across the globe.

Whether it's a meet-the-buyer event (where companies, including potential international customers, meet with potential suppliers), a sector group (gathering together businesses operating in the same sector to discuss common local and global challenges), a gathering of companies in your local town, or a one-to-one relationship with a businessperson who's been through the same first steps when seeking to trade at home or abroad, networking brings real benefits.

So as you prepare to do battle as an army of one, or even as a company that's starting out with several employees, remember that you're not alone. There are legions of reserves, stationed close by that can help make your battle for business success into the victory of a lifetime. And that victory could be local, it could be national – or it could even be global.

Dr Adam Marshall is director of policy and external affairs at the British Chambers of Commerce. He can be found on Twitter @BCCAdam.

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Profile: College of William and Mary, Mason School of Business - Financial Times

A visitor to Williamsburg in Virginia, home of the College of William and Mary, may be taken aback to spot the British monarchy’s coat of arms adorning the oldest buildings. While crown rule may have ended in 1776, it is clear that the College’s royal charter - dating back to 1693 - is a source of pride to the Mason School of Business.

The faculty and students of the business school, established in 1919, explicitly identify themselves within the distinguished history of the university, which educated three US presidents including Thomas Jefferson. As Jon Krapfl, associate dean of the Mason School, says: “In continuing the legacy of the College, we have a profound responsibility to shape meaningful change”.

Staunch pride is also grounded, more tangibly, in the school’s new home since 2009. The impressively-equipped $75m Miller Hall brings together business undergraduates and postgraduates, sharing many facilities and common spaces. “It has been designed for student functionality, and they are thriving from being together”, says Lawrence Pulley, the school’s dean. “The impact on the school since we moved in has been remarkable.”

Located at the western fringe of the William and Mary campus, the classically-proportioned Miller Hall has been designed to sit coherently among its surroundings. A diverse collection of commissioned and gifted paintings lines the corridors in all directions from the school’s centrepiece, a bronze sculpture of Pierre L’Enfant, architect of Washington D.C.

While aesthetically pleasing, the artwork holds much greater significance according to Bob Mooney - alumnus and chief financial officer of the Mason School - who himself has donated a number of paintings. Aside from reflecting and contributing to the school’s identity, “the presence of art can catalyse thinking about problems in different ways”, says Mr Mooney.

In step with the school’s professed objective to provoke ‘revolutionary thinking’, the first-year MBA curriculum includes two semester-long ‘global business juntos’ - not, the school emphasises, to be confused with military juntas. Launched in late 2011, these juntos - named after a clandestine academic society initiated by US founding father Benjamin Franklin - are student-led groups dedicated to abstract business-related global issues. Junto topics this year have included the currency of water and Occupy Wall Street.

Juntos are formed of 10 to 12 students who study one of the topics proposed by the class at the start of the semester. Each group agrees objectives and syllabus, and maintains a weekly blog detailing progress. Groups make a final presentation to the MBA student body and are graded on a pass-fail basis. The juntos enrich and enliven the whole MBA, says Deborah Hewitt, associate dean for MBA programmes. “They allow students to apply the tools they are learning in the broader curriculum”.

Such initiatives are part of the school’s emphasis on career preparation. From day one, each MBA student is assigned an executive mentor to work with during their two years at Mason. These executive partners, each with a successful business background, act as career advisors and help students with interview proficiency. Their professional connections have also helped many Mason graduates.

“Beyond improving employment rates, the executive partners help demonstrate to students how theory is translated into practice”, says Prof Pulley, who oversaw the establishment of the network in his first year as school dean.

The network is partly responsible for the school’s recent focus on the property market. Aside from bringing sector leaders to Williamsburg for an annual conference, the school has launched an elective MBA module in real estate management and entrepreneurship. “We want to teach students how to take appropriate risks”, says Prof Pulley. “Given the impact of the real estate sector on the [US] economy, responsible leadership is imperative.”

The real estate initiative is illustrative of the school’s conscious efforts to follow its ethos of developing responsible students. In recognition of the community service of current students, the school was winner of the annual GMAC TeamMBA All Service Award this month. “We teach business skills of course”, says Dr Hewitt, “but beyond and above this are the values and leadership traits that the Mason School inculcates in each future alumnus”.

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