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Yikes.

Begin at the Beginning

Richard Branson said a big business starts small and it’s the same thing with ideas. At some point somebody had an idea, shared it with another, maybe a hallway conversation, and then it grew. Sometimes that idea is for a new product and sometimes it is a policy, but it always starts small. It comes from somewhere. It has a seed.

I make this simple point because the policies that drive our lives don’t come out of nowhere. A person thought of it. So a policy like TruPS becoming Tier 1 capital came from someone, then more got on board, until it become policy. What I’m finding notable however, is that the origin story is hard to find. Obscured maybe, but rather a Tabula Rasa. This I didn’t expect. I mean, it was a major policy that was discussed by hundreds (thousands?) before becoming policy and affecting millions. Sure, it was back in 1996, but how come no one wants to talk about it? Why so secret squirrel and buried away?

“Big business can make laws as easily as it can break them– And with as little impunity.” Ralph Chaplin, American Labor Activist

Everyone acts like, well, we planted apple trees so wow, these oranges it’s sprouted (risky investments, lost monies and many, many, many, fallen banks) is shocking. So let’s get rid of it and keep moving. “Nothing to see here, folks.”

But that means many smart people shaping policy in these organizations didn’t see it coming, which is also head scratching. It doesn’t make sense.

Finance and banking is full of aggressive, risk-taking people.  That is not necessarily a bad but just requires watching and reigning in – especially when hundreds of millions of people’s financial health depends on it.  So how come it keeps not happening? How come big banking errors keep happening with impunity and no accountability?

Information is power, so what does that make obfuscating it for Monterey County Bank and others like it?

In a time when information can be readily easily accessible with the touch of a few keys, having government institutions with search engines that are less effective than askjeeves, and in the "most advanced” country in the world no less, is… notable. Because this too is the doings of people. This is intentional.

The Federal Reserve and FDIC tout transparency, on websites and in speeches, however a search of just press releases on trust preferreds at the FDIC brought up 15 documents and one was from 1994 titled the Rose Law Firm.

Really? Are people seriously going to keep bringing Hillary into everything?

How come finding basic information and analysis on major policies within the institutions tasked with approving and monitoring is so challenging?

The Federal Reserve has come under scrutiny in recent months for its aggressive interest rate hikes designed to, as Chair Jerome Powell said, “get wages down and then get inflation down.” The Fed’s own research has warned that its aggressive policy mirrors a similar one that caused a “severe recession” under Paul Volcker in the 1980s, as The Intercept recently reported. Even the United Nations, which recently warned that the Fed’s rate hikes risk “inflicting worse damage than the financial crisis in 2008 and the COVID-19 shock in 2020.”  The Intercept, October 2022

The above article titled ‘The Fed Likes to Tout Its Independence. So Why Are Big Banks Lobbying It?’ describes off-the-record meetings between banking officials and Federal banking employees. It details how lobbying groups employ people that previously worked in these very government agencies.

The same pool of people on both sides does muddy things…

but most obviously, it makes clear that risky - aggressive - behaviors are continuing.

“Powell will roll back critical rules that help guard against another financial crisis — and that is simply a risk we cannot afford,” Warren said in a floor speech.

The intense lobbying the Fed is subjected to is targeted at these banking regulations. To take just one example, the Chamber of Commerce, the main business lobby in the U.S., reported lobbying on Powell’s nomination along with “Federal Reserve regulatory reform” — i.e., deregulation Powell was known to favor — as part of its $15.39 million lobbying activities in the first quarter of 2018. The Fed under Powell would go on to water down key elements of the Dodd-Frank banking regulations passed in the wake of the 2008 financial crisis. The Intercept, October 2022

Dodd-Frank ushered in many regulatory changes after the 2008 financial crisis, including the end of TruPS as tier 1 capital. The document ended up being over thousand pages.

In working on the story it was pointed out to me that one of the changes the Federal Reserve made after the crisis was a new position on the board, the vice chair of supervision.  The current position is held by a Yale lawyer and academic who also has worked in the government, most notably in the Clinton administration at the Treasury Department. TruPS as tier 1 capital started in 1996.