How Government Inaction Ended The Depression Of 1921

Authored by Lew Rockwell via Mises Canada,

As the financial crisis of 2008 took shape, the policy recommendations were not slow in coming: why, economic stability and American prosperity demand fiscal and monetary stimulus to jump-start the sick economy back to life. And so we got fiscal stimulus, as well as a program of monetary expansion without precedent in US history.

David Stockman recently noted that we have in effect had fifteen solid years of stimulus — not just the high-profile programs like the $700 billion TARP and the $800 billion in fiscal stimulus, but also $4 trillion of money printing and 165 out of 180 months in which interest rates were either falling or held at rock-bottom levels.

The results have been underwhelming: the number of breadwinner jobs in the US is still two million lower than it was under Bill Clinton.

Economists of the Austrian school warned that this would happen. While other economists disagreed about whether fiscal or monetary stimulus would do the trick, the Austrians looked past this superficial debate and rejected intervention in all its forms.

The Austrians have very good theoretical reasons for opposing government stimulus programs, but those reasons are liable to remain unknown to the average person, who seldom studies economics and who even more seldom gives non-establishment opinion a fair hearing. That’s why it helps to be able to point to historical examples, which are more readily accessible to the non-specialist than is economic theory. If we can point to an economy correcting itself, this alone overturns the claim that government intervention is indispensable.

Possibly the most arresting (and overlooked) example of precisely this phenomenon is the case of the depression of 1920–21, which was characterized by a collapse in production and GDP and a spike in unemployment to double-digit levels. But by the time the federal government even began considering intervention, the crisis had ended. What Commerce Secretary Herbert Hoover deferentially called “The President’s Conference on Unemployment,” an idea he himself had cooked up to smooth out the business cycle, convened during what turned out to be the second month of the recovery, according to the National Bureau of Economic Research (NBER).

Indeed, according to the NBER, which announces the beginnings and ends of recessions, the depression began in January 1920 and ended in July 1921.

James Grant tells the story in his important and captivating new book The Forgotten Depression — 1921: The Crash That Cured Itself. A word about the author: Grant ranks among the most brilliant of financial experts. In addition to publishing his highly regarded newsletter, Grant’s Interest Rate Observer, for more than thirty years, Grant is a frequent (and anti-Fed) commentator on television and radio, the author of numerous other books, and a captivating speaker. We’ve been honored and delighted to feature him as a speaker at Mises Institute events.

What exactly were the Federal Reserve and the federal government doing during these eighteen months? The numbers don’t lie: monetary policy was contractionary during the period in question. Allan Meltzer, who is not an Austrian, wrote in A History of the Federal Reserve that “principal monetary aggregates fell throughout the recession.” He calculates a decline in M1 by 10.9 percent from March 1920 to January 1922, and in the monetary base by 6.4 percent from October 1920 to January 1922. “Quarterly average growth of the base,” he continues, “did not become positive until second quarter 1922, nine months after the NBER trough.”

The Fed raised its discount rate from 4 percent in 1919 to 7 percent in 1920 and 6 percent in 1921. By 1922, after the recovery was long since under way, it was reduced to 4 percent once again. Meanwhile, government spending also fell dramatically; as the economy emerged from the 1920–21 downturn, the budget was in the process of being reduced from $6.3 billion in 1920 to $3.2 billion in 1922. So the budget was being cut and the money supply was falling. “By the lights of Keynesian and monetarist doctrine alike,” writes Grant, “no more primitive or counterproductive policies could be imagined.” In addition, price deflation was more severe during 1920–21 than during any point in the Great Depression; from mid-1920 to mid-1921, the Consumer Price Index fell by 15.8 percent. We can only imagine the panic and the cries for intervention were we to observe such price movements today.

The episode fell down the proverbial memory hole, and Grant notes that he cannot find an example of a public figure ever having held up the 1920–21 example as a data point worth considering today. But although Keynesians today, now that the episode is being discussed once again, assure everyone that they are perfectly prepared to explain the episode away, in fact Keynesian economic historians in the past readily admitted that the swiftness of the recovery was something of a mystery to them, and that recovery had not been long in coming despite the absence of stimulus measures.

The policy of official inaction during the 1920–21 depression came about as a combination of circumstance and ideology. Woodrow Wilson had favored a more pronounced role for the federal government, but by the end of his term two factors made any such effort impossible. First, he was obsessed with the ratification of the Treaty of Versailles, and securing US membership in the League of Nations he had inspired. This concern eclipsed everything else. Second, a series of debilitating strokes left him unable to do much of anything by the fall of 1919, so any major domestic initiatives were out of the question. Because of the way fiscal years are dated, Wilson was in fact responsible for much of the postwar budget cutting, a substantial chunk of which occurred during the 1920–21 depression.

Warren Harding, meanwhile, was philosophically inclined to oppose government intervention and believed a downturn of this kind would work itself out if no obstacles were placed in its path. He declared in his acceptance speech at the 1920 Republican convention:

We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity. We promise that relief which will attend the halting of waste and extravagance, and the renewal of the practice of public economy, not alone because it will relieve tax burdens but because it will be an example to stimulate thrift and economy in private life.

 

Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic. There hasn’t been a recovery from the waste and abnormalities of war since the story of mankind was first written, except through work and saving, through industry and denial, while needless spending and heedless extravagance have marked every decay in the history of nations.

Harding, that least fashionable of American presidents, was likewise able to look at falling prices soberly and without today’s hysteria. He insisted that the commodity price deflation was unavoidable, and perhaps even salutary. “We hold that the shrinkage which has taken place is somewhat analogous to that which occurs when a balloon is punctured and the air escapes.” Moreover, said Harding, depressions followed inflation “just as surely as the tides ebb and flow,” but spending taxpayer money was no way to deal with the situation. “The excess of stimulation from that source is to be reckoned a cause of trouble rather than a source of cure.”

Even John Skelton Williams, comptroller of the currency under Woodrow Wilson and no friend of Harding, observed that the price deflation was “inevitable,” and that in any case “the country is now [1921] in many respects on a sounder basis, economically, than it has been for years.” And we should look forward to the day when “the private citizen is able to acquire, at the expenditure of $1 of his hard-earned money, something approximating the quantity and quality which that dollar commanded in prewar times.”

Thankfully for the reader, not only is Grant right on the history and the economics, but he also writes with a literary flair one scarcely expects from the world of financial commentary. And although he has all the facts and figures a reader could ask for, Grant is also a storyteller. This is no dry sheaf of statistics. It is full of personalities — businessmen, union bosses, presidents, economists — and relates so much more than the bare outline of the depression. Grant gives us an expert’s insight into the stock market’s fortunes, and those of American agriculture, industry, and more. He writes so engagingly that the reader almost doesn’t realize how difficult it is to make a book about a single economic episode utterly absorbing.

The example of 1920–21 was largely overlooked, except in specialized treatments of American economic history, for many decades. The cynic may be forgiven for suspecting that its incompatibility with today’s conventional wisdom, which urges demand management by experts and an ever-expanding mandate for the Fed, might have had something to do with that. Whatever the reason, it’s back now, as a rebuke to the planners with their equations and the cronies with their bailouts.

The Forgotten Depression has taken its rightful place within the corpus of Austro-libertarian revisionist history, that library of works that will lead you from the dead end of conventional opinion to the fresh air of economic and historical truth.

Trump Will Own The Next Fed But "All Their Models Are In Ruins"

Authored by James Rickards via The Daily Reckoning,

President Trump is expected to nominate the next Federal Reserve chair within a matter of days.

As I’ve explained before, Donald Trump has the opportunity to appoint a higher percentage of the Board of Governors of the Federal Reserve system at one time than any president since Woodrow Wilson.

President Wilson signed the Federal Reserve Act during the creation of the Fed in 1913 when they had a vacant board. At that time, the law said the secretary of the Treasury and the comptroller of the currency were automatically on the Fed’s board of governors. But besides that, President Wilson selected all of the other participating members.

Due to vacancies he inherited and key resignations, Trump now has the opportunity to fill more seats on the Fed’s Board of Governors than any president since then.

That’s pretty amazing when you think about it.

To review, the Federal Reserve’s Board of Governors is made up of seven appointees. That means that they can make a majority decision with four votes. If you’re reading about the Fed, you might also see reference to “regional reserve bank presidents.” These are roles within the Federal Reserve System, but the real power is found on seven-member Board of Governors.

Trump will own the Fed.

Meaning, whatever the president wants monetary policy to be, he’ll get. In other words, Donald Trump will be able to shape the Fed’s majority. But the tricky part is figuring out how he plans to shape it...

During the campaign season, Trump called China and other nations currency manipulators. That signaled he believed the dollar was too strong and wanted it to weaken. But then the North Korean nuclear crisis rose to the fore.

Trump backed off his threats against China because China has the most economic influence over North Korea, and Trump wanted China to use that leverage to convince the North to back off its nuclear program.

But China didn’t deliver as Trump had hoped, and a trade war with China is now likely. That’s especially true now. Chinese president Xi Jinping has solidified his hold on power after the Chinese Politburo re-appointed him yesterday. Xi had avoided rocking the boat in recent months while his position was uncertain. But now that his lock on power is secure, Xi can afford to be much more confrontational with Trump.

Trump’s trade policy has led many to believe that Trump will appoint a lot of “doves” to the Board. But don’t be surprised if Trump goes with a hard-money board. In fact, that’s what I expect. These will be hard-money, strong-dollar people, contrary to a lot of expectations.

Trump advisers include hard-money advocates like Dr. Judy Shelton, David Malpass, Steve Moore and Larry Kudlow. I expect Trump to heed their advice.

Which brings us to Janet Yellen and the next Federal Reserve Chair…

Janet Yellen’s term as chair is up at the end of January - just over three months from now. Whoever President Trump appoints to replace her will be subject to Senate confirmation.

Because that process takes time, that means the president has to name Yellen’s successor around November or December.

And again, he’s expected to make that announcement by Nov. 3, before he heads to China.

The market is tightly focused on President Trump’s pick. As of now, betting markets had the approximate probabilities as follows:

Powell’s main qualification seems to be that he’s just like Yellen except he’s a Republican. So, if we combine their votes, that a 68% chance that policy will continue unchanged, which means more rate hikes ahead.

The next in line is John Taylor, who is considered the most hawkish of the group. If we add his votes to the Powell + Yellen pool, that an 85% probability that policy will either be the same or tighter.

No relief for gold in the Fed sweepstakes.

Now, as I’ve been saying for months, my money’s on Kevin Warsh. Warsh is the likely next chair of the Fed.

Warsh has previously served on the board. After being nominated by President George W. Bush he was a Fed governor where he served from 2006 until he resigned early in 2011.

Kevin Warsh is a pragmatist, not an ideologue like Yellen. He’s not beholden to obsolete Fed models like Phillips curve that says low unemployment means higher inflation. Warsh understands that disinflation is a serious problem for a country with a 105% debt-to-GDP ratio, like the U.S.

Warsh and the pragmatists understand that inflation is needed for the U.S. to have any hope of getting the debt problem under control.

Warsh believed that the Federal Reserve should have raised interest rates a long time ago. But with disinflation a much more pressing concern than inflation right now, being a pragmatist means he won’t commit to tightening if conditions don’t warrant it.

We’ll see how this all plays out probably late this week or early next before Trump leaves for China.

But it’s important to realize that institutions boil down to people. And there’s going to be a lot of turnover at the Fed under Trump. It’s not just limited to his choice of Fed chair.

Yes, Yellen will likely be out. But so are Fed officials that align with her, like Vice President Stanley Fischer, who announced his resignation in September.

As I indicated, the new, emerging Fed will have less faith in traditional models. For example, in September, Fed governor Lael Brainard delivered one of the most significant Fed speeches ever. Translating from Fed-speak to plain English, she more or less admitted the Fed has no idea how inflation works.

Brainard pointed out that the Fed began its current monetary policy tightening cycle in the belief that tight labor markets implied inflation was coming with a lag. The Fed raised rates in December 2015, December 2016, March 2017 and June 2017 in part to get out ahead of this coming inflation.

Instead the opposite happened.

The Fed’s favorite measure of inflation plunged from 1.9% to 1.3% between January and August 2017 even as job creation continued and the unemployment rate fell. In other words, the relationship between tight labor markets and inflation turned out to be the exact opposite of what the Fed believed.

Their models are in ruins.

Of course, this is what I’ve been telling my readers to expect all year. The Fed was tightening into weakness, not strength, and would soon have to flip back to ease in order to avoid an outright U.S. recession. And ease is exactly what Brainard called for in her speech.

In the meantime, a lot of uncertainty over the Fed’s direction will hover over the market, as if there wasn’t enough uncertainty in the market already.

But one thing is certain:

The next Fed head will have a lot on his (or her) plate.

The biggest winner will be gold. The time to enter your gold position, if you don’t already have one, is now.

Krieger Rages ""America First" Is A Joke. Wall Street Wins Again"

Authored by Mike Krieger via Liberty Blitzkrieg blog,

I know I must sound like a broken record by now, but Wall Street owns the U.S. economy and until that’s dealt with, the American public will continue to be preyed upon voraciously and lawlessly by some of the most unethical parasites the world has ever seen. Obama was a historical disaster on this issue, coddling and protecting banker oligarchs every step of the way. Trump’s no different.

The latest evidence that things are getting even worse came last evening when the U.S. Senate voted to deliver Wall Street another gift on a silver platter.

Rather than summarize what happened, let’s turn to two of the best resources on such topics, journalist David Dayen and finance focused website Wall Street on Parade.

First, here are a few excerpts from David’s latest article published at The Intercept, After Day of Feuding, Jeff Flake and Bob Corker Join Trump to Upend a Major Consumer Protection:

With national attention focused Tuesday morning on a mushrooming feud between President Trump and Sen. Bob Corker, R-Tenn., followed by a feud in the afternoon between Trump and Sen. Jeff Flake, R-Ariz., the Senate gift-wrapped the biggest present Congress has so far bestowed upon Wall Street in the Trump era.

 

With a razor-thin margin, the Senate passed a resolution to nullify a signature regulation from the Consumer Financial Protection Bureau, which banned forced arbitration provisions. Such clauses, tucked into the fine print of contracts that nobody reads, deny consumers the ability to contest claims through a class-action lawsuit, and can allow banks and other financial institutions to rip off their customers with virtual impunity.

 

Both Sens. Corker and Flake, along with Sen. John McCain, R-Ariz., joined in the effort to give Trump a major win, even if it will hurt many of his own voters. Consumer advocates had hoped that moderate Republicans Lisa Murkowski of Alaska and Susan Collins of Maine would block the GOP effort. They did not.

 

The vote was split 50-50, which required Vice President Mike Pence to break the tie.

How’s all that MAGA working out for you?

To secure his victory, Trump enlisted an ex-Wells Fargo attorney, Acting Comptroller of the Currency Keith Noreika, and  a former bank CEO, Treasury Secretary Steve Mnuchin, to do the dirty work. The Senate vote came a day after Treasury entered the fray with its guns blazing.

Reminder, Mnuchin was a Goldman Sachs partner.

The House passed its version of the resolution within just a couple weeks of CFPB finalizing the rule in July. But continuing reports of petty consumer fraud at Wells Fargo, and a data breach of over 140 million customer accounts at the credit reporting bureau Equifax, made it difficult for the Senate to proceed. Both Wells Fargo and Equifax have attempted to use arbitration clauses in their financial contracts to force victims out of class-action litigation.

 

The scandals put a human face on the practice of companies forcing customer disputes through a secret, non-judicial process.

 

And consumers typically don’t fare well in arbitration. An Economic Policy Institute report showed that consumers only win 9 percent of arbitration cases, and banks almost always win when they issue counter-claims, with the consumer paying $7,725 on average.

 

This is why corporations like the arbitration process – it prevents those wronged from pursuing their legal rights and in practice alters the law by making small claims virtually unenforceable. In other words, arbitration clauses are a license to steal. And it contributes to a fundamental breakdown of the justice system, where complaints can only be heard in a privatized setting.

 

So in July, in a rare instance of government using an outright ban instead of requiring disclosure or some other half-measure, CFPB finished a rule preventing arbitration agreements in financial contracts from stopping consumers who band together with other victims in a class-action lawsuit. But Republicans managed to twist the issue into one where corporations needed to be protected from greedy trial lawyers.

 

First, Office of the Comptroller of the Currency head Keith Noreika, himself a former defense lawyer for Wells Fargo who tried to push class-action suits into arbitration, argued the rule posed “safety and soundness” concerns for banks and would raise the cost of credit. Then this week, the Treasury Department, relying heavily on a discredited claim that plaintiff attorneys routinely shake down corporations with meritless claims, published a 17-page report attacking the CFPB rule.

Yes, because clearly the big problem in American society is corporations being shaken down. Have you looked at corporate profit margins lately?

The attacks from Trump’s executive agencies on a fellow regulator gave Senators the cover they needed to side with Wells Fargo and Equifax over their customers. The Senate first tried to sneak in a vote on the resolution when the political world was distracted by the health care debate, but that didn’t work. It took shifting the framing of the rule from being about victims to  being about trial lawyers for Senate Republicans to succeed.

 

Supporters of the CFPB rule like Public Citizen’s Robert Weissman called the vote a choice “between corporate donors and constituents.” Amanda Werner, who gained notoriety for dressing as the Monopoly Man during Senate hearings on Wells Fargo and Equifax, notes that lawmakers opposing the arbitration rule received over $100 million in campaign contributions from the financial industry during their careers. “These contributions help explain why lawmakers are willing to aid and abet big banks in ripping off their own constituents despite overwhelming bipartisan support for the rule,” Werner said in a statement to The Intercept.

 

The Chamber of Commerce and other financial lobbyists had joined together to sue CFPB over the rule, but with the Senate’s successful vote, that will no longer be necessary. President Trump is expected to sign the resolution. Not only would that nullify the arbitration rule, but CFPB would be unable to work on any “substantially similar” regulation without express consent from Congress.

 

People say Congress does nothing. This is totally false.
When it comes to Wall Street interests, Congress always acts, and very quickly.

— Michael Krieger (@LibertyBlitz) October 25, 2017

 

 

Trump cheerleaders are making the same excuses Obama cheerleaders did for him.
This is why we can"t have nice things.

— Michael Krieger (@LibertyBlitz) October 25, 2017

As usual, there’s more. For that, let’s turn to Wall Street on Parade’s article, Mike Pence Secures the No Law Zone Around Wall Street:

Wall Street is the only industry in America that contractually bans both its customers and its employees from accessing the nation’s courts as a condition of opening an account or getting a job there. (That’s likely because it’s also the only industry that has the brazenness to let the top lawyers of the largest Wall Street banks meet in secret each year to plan their strategies for keeping their no law zone in force.)

 

Instead of being able to go to court with a claim of fraud (if you’re a customer), or a claim for labor law violations, like failure to pay overtime or sexual harassment (if you’re an employee), Wall Street makes its customers and employees sign an agreement to take all such claims into an industry-run or privately-run arbitration system.

 

These private justice systems are not cheaper and fairer as Wall Street’s shills (like the U.S. Chamber of Commerce) insist. Fees can run into tens of thousands of dollars as opposed to a few hundred dollars to file in court; and study after study has found that arbitrators most often rule in favor of the corporate interest over the consumer.

 

What Wall Street and its army of lawyers like most about these private justice systems is that they are dark. Unlike a public courtroom, the press and the public are not allowed to attend the hearings. There are no publicly available transcripts of the hearings as there would be in court. Arbitrators are instructed that they do not have to follow legal precedent or case law but can rule from their gut; they are not required to write reasoned and detailed decisions so that an appeal of their findings can be made. In fact, it is next to impossible to bring a court appeal of an arbitration ruling because Wall Street’s biggest law firms have spent decades convincing the courts that these decisions must be permanently binding.

 

Another fatal flaw in these private justice systems is that there is no jury selection from a large public pool of random citizens but rather a repeat-player pool of highly compensated arbitrators.

 

Wall Street’s own industry-run arbitration system also makes good use of the repeat player advantage. On July 20, 2000 the Public Investors Arbitration Bar Association (PIABA) issued a press release accusing the National Association of Securities Dealers (NASD) of rigging its computerized system of selecting arbitrators.  The statement read: “In direct and flagrant violation of federal law, the NASD systematically evaded the Securities and Exchange Commission approved ‘Neutral List Selection System’ arbitration rule requiring arbitrators to be selected on a rotating basis.  Instead, the NASD secretly programmed its computers to select some arbitrators on a seniority basis – just what the rule was designed to prevent.”

 

PIABA discovered the manipulation when a team of its attorneys demanded a test of the selection system at an NASD/PIABA meeting in Chicago on June 27, 2000.  PIABA predicted that “this rule violation tainted hundreds or even thousands of compulsory securities arbitrations  –  many still ongoing.  In every such instance, the substantive rights of public investors to a neutral panel have been cynically violated.  Many public investors were thus twice cheated: first, by an NASD member firm that fraudulently conned them out of their life’s savings, and second by the NASD Arbitration Department’s rigged panels.”

I may not know much, but I know this won’t make America great.

*  *  *

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Why Is Amazon Meeting With Banking Regulators?

While the financial media has been preoccupied with the idea that the banking business is at risk of being “Amazon’d” by the blockchain, the banks themselves are worried about being “Amazon’d” by…well…Amazon…

Or at least they should be, as American Banker’s Lalita Clozel explains in a piece tracing large tech companies’ attempts to forge ties with banking regulators in anticipation of someday leveraging the vast quantities of customer data to outmuscle the banks in their own industry. Meanwhile, even the most optimistic cryptocurrency enthusiasts concede that blockchain technology continues to grapple with issues of scalability that, for now at least, will make it incredibly difficult to compete with banks.

A group of companies that includes Google, Facebook and Amazon recently formed a lobbying group to help them explore the feasibility of entering businesses like lending and loan-intermediation.

Technology giants like Google, Amazon, Facebook and Apple are showing an increasing interest in engaging with federal banking regulators, a move that underscores Silicon Valley’s growing involvement in the financial services arena. In recent years, such firms have formed a lobbying group, Financial Innovation Now, that is staking out their view on various hot-button topics. But some firms are also meeting individually with government agencies.

Furthermore, both Amazon and Square have taken meetings with the OCC.

For example, Amazon lobbyists met with the Office of the Comptroller of the Currency starting in the second quarter of 2016, and again this year to discuss “issues related to mobile payments and payment processing, financial innovation, and technology," according to publicly available lobbying disclosures.

PayPal, meanwhile, met with OCC officials in the second, third and fourth quarters of last year to discuss “mobile payment innovation” issues related to underserved customers and remittances and money transfers, according to its disclosures.

Even before this latest lobbying effort, both companies had already launched forays into small-business lending (Amazon’s SB lending businesses saw its revenue double over the past year). Apple, meanwhile, has for years been lending to customers hoping to purchase its products. But before deciding whether to expand their financial services offerings, tech companies must first understand what regulatory obstacles might exist.

“People are kicking the tires,” said Lawrence Kaplan, a bank lawyer of counsel at Paul Hastings. “People are asking questions: What does this entail? Can you get us up to speed if we want to pull the trigger?”

In the spirit of helping to shepard financial innovation, the OCC earlier this year created a national fintech charter that financial technology (and big tech) companies can use to circumvent certain restrictions, easing their transition into the financial-services business.

The charter, Clozel notes, was adopted after an aggressive lobbying campaign by large tech companies. One of the most logical applications for leveraging the vast troves of personal data routinely harvested by firms like Facebook and Amazon would be intermediation – or connecting customers with lenders for a small finder’s fee.

Large technology firms are “really interested in the intermediation piece, where you have access to all that data,” said Paul Nash, the former senior deputy comptroller and chief of staff under Comptroller Thomas Curry, who began discussing the possibility of a fintech charter early last year. “All of them are thinking about it.”

The next lobbying objective for big tech is to convince regulators to force banks to provide access to their financial data through an Application Programming Interface, or API, that would allow tech companies like Amazon to create almost instantaneous connections to banks’ transaction processing networks, allowing them to take over more consumer-facing businesses.

In summary, while many a think piece has been written about financial services companies and banks trying to become more like technology firms, the irony is that tech firms are also trying to be more like banks.

“There"s been lots of interest by financial services firms in technology companies and fintech companies,” said Kevin Petrasic, a partner at White & Case. “Some tech firms are now looking in the other direction.”

In other words, it’s only a matter of time before Amazon Prime customers will be able to make purchases on Amazon’s marketplace using an Amazon credit card.
 

CFPB Makes It Easier For Customers To Sue Banks

The Consumer Financial Protection Bureau just made it easier for ordinary citizens to sue banks by restricting how they can use mandatory arbitration to block class-action lawsuits, according to Bloomberg. But the decision – inspired by a 2015 investigative series in the New York Times about how US companies, particularly credit card companies and payday lenders, abuse the practice – likely won’t stay on the books for long. As the LA Times writes:

It"s all but certain that Republican lawmakers in control of the House and Senate will move quickly to overturn the rule as part of their ongoing efforts to cripple the consumer-watchdog agency and create a more business-friendly regulatory landscape.”

Clauses requiring arbitration to settle disputes are inserted routinely in contracts for credit cards, payday loans and other financial products. They typically prevent consumers from filing lawsuits or banding together in class actions.

"Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong," CFPB Director Richard Cordray said in a statement.

“These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together.”

From the time they formally receive the ruling, lawmakers have 60 legislative days to overturn the bureau’s decision. Republicans have been using the Congressional Review Act, a little-known provision, to undo more than a dozen Obama-era regulations during the closing days of his presidency, including the CFPB’s plans to implement tougher standards for prepaid debit cards.

“As a matter of principle, policy and process, this anti-consumer rule should be thoroughly rejected by Congress,” Representative Jeb Hensarling, the Texas Republican who leads the House Financial Services Committee, said in a statement.

Congress isn’t the only body that’s skeptical of the ruling: In an unusual move, the head of a key banking regulator wrote to Cordray to raise concerns about it. Keith Noreika, the acting Comptroller of the Currency, asked that the CFPB share data used to develop its arbitration rule, according to a letter dated Monday that was obtained by Bloomberg.

“We would like to work with you and your staff to address the potential safety and soundness implications of the CFPB’s arbitration proposal,” Noreika said in the letter. “That is why I am requesting the CFPB share its data.”

Noreika cited a section of the Dodd-Frank Act that gives the Financial Stability Oversight Council - a panel of regulators headed by the Treasury secretary - power to set aside any CFPB rule that can be shown to put the safety of the wider financial system at risk.

Our new rule ensures that groups of people harmed by the same financial products can take action together. pic.twitter.com/rXYzHz67ea

— consumerfinance.gov (@CFPB) July 10, 2017

However, studying the fairness of arbitration clauses appears to be well within the bureau’s remit: Dodd-Frank says the CFPB "may prohibit or impose conditions or limitations on the use" of arbitration clauses if it determines that restricting such provisions "is in the public interest and for the protection of consumers,” according to the LA Times.

During its study, the CFPB found that hundreds of millions of contracts include arbitration provisions and that companies have used the clauses to keep fights out of court almost two-thirds of the time. Very few consumers even consider bringing individual actions against financial-service providers in court or in arbitration.

Despite the rule’s near-certain erasure, Christine Hines, legislative director for the National Assn. of Consumer Advocates, told the LA Times that the CFPB isn’t thumbing its nose at Republican lawmakers who have insisted for years that the agency is a rabid regulatory pit bull in need of either a very short leash or a trip to a farm.

“The agency has to continue doing its job,” she said, “even though there are very anti-consumer people in power.”

Other consumer advocates echoed that sentiment.

“The rule will help to combat the culture of companies profiting from charging illegal fees and committing other crimes against their customers,” said Rohit Chopra, senior fellow at the Consumer Federation of America.

Said Lisa Donner, executive director of Americans for Financial Reform: “The consumer agency’s rule will stop Wall Street and predatory lenders from ripping people off with impunity, and make markets fairer and safer for ordinary Americans.”

The new rule will cover new agreements for products such as credit cards, auto loans, credit reports and even mobile phone services that provide third-party billing. Companies can still include arbitration clauses in contracts, but they must state that those can’t be used to stop individual consumers from joining class-action cases.

According to Bloomberg, it is also possible that industry groups will sue to overturn the CFPB rule. Groups including the US Chamber of Commerce have said arbitration is a valuable tool to prevent frivolous, expensive lawsuits that often don’t do much to benefit borrowers. Meanwhile, consumer advocates say restricting arbitration clauses will deter bad actors and force companies to reconsider certain activities because consumers will be more inclined to sue.

Krieger: Wall Street Completely Owns The Trump Administration

Authored by Mike Krieger via Liberty Blitzkrieg blog,

While America’s corporate press remains singularly obsessed with unproven and likely fabricated Russia-collusion conspiracy theories, Wall Street’s well on its way to getting away with financial murder thanks to an army of cronies embedded within the Trump administration. Indeed, Goldman Sachs running Donald Trump’s economic policy is perhaps the most concerning aspect of his Presidency when it comes to negative impacts on average citizens, yet it’s almost never placed at the forefront of the corporate press narrative.

Many of you probably recall headlines in recent weeks about how Trump might be in favor of “bringing back Glass-Steagall” as well as breaking up the big banks. These are two things I think are extraordinarily necessary and important, but it turns out Trump has no intention of actually doing any such thing.

As the title of Bloomberg’s recent article on the topic so perfectly sums up…

Here are a few excerpts from the extremely disturbing, yet entirely unsurprising piece:

On the first day of May, Donald Trump sat in the Oval Office and declared that his administration was taking a look at breaking up Wall Street’s biggest banks. If they ever took him seriously, it didn’t last.

Instead of cowering, Wall Street executives and lobbyists are crowing, getting more confident about ditching rules that have annoyed them for years. That’s because the Trump administration is appointing friendly regulators and signaling it will make life easier for bankers.

“Break up the banks? That ain’t going to happen,” said Rick Hohlt, who has advised and lobbied for lenders including Citigroup Inc. for three decades. “You need legislation to do that. And the chance of that is about zero.”

Two weeks after Trump’s threat, Wall Street’s hopes are high. The biggest U.S. banks want him to relax capital requirements that limit their leverage, lighten up on stress tests designed to help them survive another crisis and weaken the Volcker Rule that stops them from placing speculative bets — something the administration is already taking steps to do.

The above is sort of obvious and easily understandable. What follows is essentially Orwellian.

Their confidence doesn’t stop there. Some executives think that if the White House really does push for a sequel to Glass-Steagall — the 1933 law that separated commercial and investment banking and was partly repealed 66 years later — the new version would just scrap rules for smaller banks without breaking up large ones.

Huh?

Trump, Treasury Secretary Steven Mnuchin and economic adviser Gary Cohn have all endorsed a “21st century” version of Glass-Steagall without explaining what they mean. In the interview this month, Trump told Bloomberg News that bank breakups were under consideration. “I’m looking at that right now as we speak,” he said.

Tim Pawlenty, who runs the Financial Services Roundtable, a Wall Street lobbying group, doesn’t think the administration is really talking about Glass-Steagall when it refers to it.

“Following the president’s remarks on the topic, Gary Cohn clarified the administration’s view of a modern-day Glass-Steagall is a two-tiered approach to regulation in which smaller banks would receive some regulatory relief,” said the former Minnesota governor, whose group represents banks including Bank of America, Citigroup and JPMorgan, the firm that spun off Morgan Stanley because of the original law.

Did you catch that? They’re essentially talking about calling some bill that has nothing to do with the spirit of Glass-Steagall, a “21st century Glass-Steagall,” in order to achieve some unrelated objective while simply hoping nobody notices. Indeed, if the corporate press does what it normally does, nobody will notice. This is just such gigantic middle finger to the American public, it’s almost hard to wrap your head around it.

But it gets worse still.

Wall Street’s biggest firms also want Trump to roll back regulations that bother them. High up on their wish list is Volcker, the rule in the 2010 Dodd-Frank Act that limits how they trade with their own money and invest in private equity and hedge funds.

On May 8, at a meeting behind closed doors in Washington, Mnuchin told five regulatory agencies to reexamine what’s allowed under Volcker, according to two people familiar with the sit-down. It was a step that could give banks the flexibility to trade without getting into trouble. Banks also want the stress tests required by Dodd-Frank to be easier and less frequent. Trump said this year he expects “to be cutting a lot out of Dodd-Frank.”

This will basically allow another nuclear bomb to go off within our financial sector, you can guarantee it.

Now here’s how Wall Street will achieve it’s destructive ends.

Bankers know it won’t be easy to gut that law in Congress, where House Financial Services Committee Chairman Jeb Hensarling’s Financial Choice Act is facing resistance from some members of his own party. But they’re confident friendly appointees will relax rules even if Congress doesn’t change them. Mnuchin, his counselors Justin Muzinich and Craig Phillips, Securities and Exchange Commission Chairman Jay Clayton, acting Comptroller of the Currency Keith Noreika and Randy Quarles, said to be Trump’s pick for top regulator at the Federal Reserve, have all worked at big banks or for them.

The shift from clashing with regulators to working with them isn’t lost on lobbyist Sam Geduldig, a partner at CGCN Group in Washington, whose clients include Goldman Sachs Group Inc.

“This is night and day,” the former top aide on the House Financial Services Committee said. He added that the industry always takes a president’s words on big issues seriously but there’s been no appetite on the Hill for reviving Glass-Steagall.

There’s your firebrand populist.

In Ominous Sign For Banks, Equity Trading Revenues Continue To Drop

It"s not just the HFT industry that has cannibalized itself so much, while spooking regular traders out of the markets, there is hardly any revenue growth left (as the WSJ showed last week). After suffering a substantial drop in bank equity trading revenues over the past several years, there was hope that finally this key P&L items of sales and trading would post a modest pick up. Alas, whether due to lack of volatility, declining interest in equities, or simply because many no longer have faith in the market, this is not happening despite the S&P recently rising to an all time high of 2,400.

In 2016, the Office of the Comptroller of the Currency reported that equity trading revenues at U.S. banks fell 13% in 2016 from the previous year. The slide contrasts with a 9% rise in overall trading driven by interest-rate and currency products. Globally, the biggest dozen banks suffered a 13% drop in equity trading in 2016, the first meaningful annual decline since 2012, according to research firm Coalition.

And while there were some modest signs of a pick up in late 2016, this appears to have been a false dawn. According to the WSJ, as the first quarter wraps up this week bankers say the weakness experienced last year is continuing. That is prompting questions about whether banks should be preparing for a longer-lasting decline in the business, rather than a cyclical dip.

“Client volumes are down...that’s an industry issue,” said Morgan Stanley President Colm Kelleher at a conference in late March. When comparing Morgan’s first quarter of this year with the last quarter of 2016, he concluded that the equities business was “not doing as well.”

While equities trading isn’t as big at many Wall Street banks as bond and currency trading, it still accounted for $28 billion in revenue for the top five U.S. banks in 2016, or more than 10% of total revenue. Banks generate equities revenue in a variety of ways: from executing stock trades or buying and selling derivatives related to equities, to services like locating shares for clients to bet against.

The slow but steady decline in equity-trading-revenue is deepening despite higher volumes and big index price swings in the wake of the U.K.’s Brexit vote in June and November’s U.S. presidential election.

A key driver behind the revenue collapse is the direct influence of central banks, which have crushed volatility to near record low levels.

Overall subdued volatility in equities markets lead more trades to be executed via the cheapest electronic means, rather than by banks’ traders or through more expensive and complex derivatives. Equity-derivatives revenue fell 21% last year globally, according to Coalition, which works with banks to track industry trends.

Banks tend to earn more money when investors are willing to pay more to get trades done quickly, or at guaranteed prices due to worries over unpredictable price movements. Those fears have dropped. Expectations of stock volatility fell in both the U.S. and Europe overall last year, and has dropped further in 2017.

Morgan Stanley and Oliver Wyman estimated in a recent report that some $15 billion in expected equity revenue has vanished, due to “changes in client behavior and the growing role of electronic trading.” Additionally, about 15% of the fee pool in the biggest, most liquid markets, such as stocks, has moved to nonbank firms. Those firms can cheaply execute standard trades like moving in and out of exchange-traded funds.

Another driver: the transition away from human trading and toward passive, algo-intermediated markets.

Virtually all trading today involves electronic algorithms in some fashion, but some are more complex than others. Banks charge clients about four times the rate for the most complex individual “high touch” trades than ones that simply follow a pre-set portfolio strategy, according to Greenwich Associates.

Meanwhile, investment firms have balked at paying higher trading fees to banks due to a shift by their own clients to index funds, which command much lower fees. Those funds in turn put pressure on their bankers.

As discussed repeatedly on this website, the shift away from active trading and toward passive, has also slammed the buyside and hurt some of Wall Street’s best clients.

This means that some of the most iconic hedge funds, which typically generate big fees for banks, have been shutting down. Just this month, Eric Mindich’s Eton Park Capital Management LP said it would close, part of a trend that has left banks with fewer trading clients. Banks had already been responding to some of the changes. Over the past decade, banks shifted resources from human trading and research to high-speed electronic markets.

To be sure, banks tried to react to technological changes in the market, and over the past decade, banks shifted resources from human trading and research to high-speed electronic markets.

As the WSJ notes, for a while, that pivot paid off and from 2012 to 2015, equities trading revenue at banks either rose or stayed relatively stable, a contrast to fixed-income trading, which was hurt by regulatory changes and central banks’ low interest-rate policy.

However it did not last for equities. As revenues tumbled in 2016, operating margins in stock trading also dropped to 23% from 36% the prior year, according to Coalition. Banks often provide computerized trading algorithms to clients, but it is a competitive business with high development and regulatory costs.

The operating margins for completing stock trades fell to just 5% last year, according to Amrit Shahani, research director at Coalition. It was more than 7% in 2015, and more than 10% before the financial crisis.

Next, European rules set to kick in next year will bar investment firms from buying research from banks in exchange for directing trades to those banks. Analysts expect that investment firms will stop trading with some of the affected banks, or will demand lower rates because they are no longer getting bundled research.

Some banks, such as Barclays, realize what is coming, and have closed their “high touch” equity sales-and-trading desks in Asia, while Japan’s Nomura Holdings cut its research and derivatives in European stocks, and CLSA, a unit of China’s Citic Securities, closed down its U.S. stock research team.

Meanwhile, in the latest attempt to offset declining revenues, the biggest banks in stock trading are trying to expand market share in the prime brokerage business; that gamble too however is doomed to fail as in 2016 the hedge fund industry shrank for the first time since the financial crisis, with more hedge fund closures than openings.

What can prompt the much-anticipated return of not only equity trading revenues, but trader participation? Some ideas include a renormalization of capital markets, where zombie companies aren"t rewarded with short squeezes or random Chinese takeovers, where a Shiller PE of 30x isn"t considered a "new normal", and where central banks don"t step in every time there is a 10% drop in stocks. Until that happens, Wall Street"s melting ice cube will continue to liquify, resulting in even more transformations, where once busy trading floors such as this one...

... ends up looking like this.

Billionaire Banker David Rockefeller, Former Head Of Chase Manhattan, Dies At 101

David Rockefeller, the famous banker and philanthropist with the family name that controlled Chase Manhattan bank for more than a decade and wielded vast influence around the world in the world of finance, has died on Monday morning at his home in Pocantico Hills, N.Y. He was 101.

A family spokesman, Fraser P. Seitel, confirmed the death.

Below is an exccerpt of his obituary from the NYT:

Chase Manhattan had long been known as the Rockefeller bank, though the family never owned more than 5 percent of its shares. But Mr. Rockefeller was more than a steward. As chairman and chief executive throughout the 1970s, he made it “David’s bank,” as many called it, expanding its operations internationally.

His stature was greater than any corporate title might convey, however. His influence was felt in Washington and foreign capitals, in the corridors of New York City government, art museums, great universities and public schools.

Mr. Rockefeller could well be the last of an increasingly less visible family to have cut so imposing a figure on the world stage. As a peripatetic advocate of the economic interests of the United States and of his own bank, he was a force in global financial affairs and in his country’s foreign policy. He was received in foreign capitals with the honors accorded a chief of state.

He was the last surviving grandson of John D. Rockefeller, the tycoon who founded the Standard Oil Company in the 19th century and built a fortune that made him America’s first billionaire and his family one of the richest and most powerful in the nation’s history.

As an heir to that legacy, Mr. Rockefeller lived all his life in baronial splendor and privilege, whether in Manhattan (as a boy he and his brothers would roller-skate along Fifth Avenue trailed by a limousine in case they grew tired) or at his magnificent country estates.

Imbued with the understated manners of the East Coast elite, he loomed large in the upper reaches of a New York social world of glittering black-tie galas. His philanthropy was monumental, and so was his art collection, a museumlike repository of some 15,000 pieces, many of them masterpieces, some lining the walls of his offices 56 floors above the streets at Rockefeller Center, to which he repaired, robust and active, well into his 90s.

In silent testimony to his power and reach was his Rolodex, a catalog of some 150,000 names of people he had met as a banker-statesman. It required a room of its own beside his office.

Spread out below that corporate aerie was a city he loved and influenced mightily. He was instrumental in rallying the private sector to help resolve New York City’s fiscal crisis in the mid-1970s. As chairman of the Museum of Modern Art for many years — his mother had helped found it in 1929 — he led an effort to encourage corporations to buy and display art in their office buildings and to subsidize local museums. And as chairman of the New York City Partnership, a coalition of business executives, he fostered innovation in public schools and the development of thousands of apartments for lower-income and middle-class families.
He was always aware of the mystique surrounding the Rockefeller name.

“I have never found it a hindrance,” he once said with typical reserve. “Obviously, there are times when I’m aware that I’m treated differently. There’s no question that having financial resources, which, thanks to my parents, I learned to use with some restraint and discretion, is a big advantage.”

Ambassador for Business

With his powerful name and his zeal for foreign travel — he was still traveling to Europe into his late 90s — Mr. Rockefeller was a formidable marketing force. In the 1970s his meetings with Anwar el-Sadat of Egypt, Leonid Brezhnev of the Soviet Union and Zhou Enlai of China helped Chase Manhattan become the first American bank with operations in those countries.

“Few people in this country have met as many leaders as I have,” he said.

Some faulted him for spending so much time abroad. He was accused of neglecting his responsibilities at Chase and failing to promote aggressive, visionary managers. Under his leadership Chase fell far behind its rival Citibank, then the nation’s largest bank, in assets and earnings. There were years when Chase had the most troubled loan portfolio among major American banks.

“In my judgment, he will not go down in history as a great banker,” John J. McCloy, a Rockefeller friend and himself a former Chase chairman, told The Associated Press in 1981. “He will go down as a real personality, as a distinguished and loyal member of the community.”

His forays into international politics also drew criticism, notably in 1979, when he and former Secretary of State Henry A. Kissinger persuaded President Jimmy Carter to admit the recently deposed shah of Iran into the United States for cancer treatment. The shah’s arrival in New York enraged revolutionary followers of the Ayatollah Ruhollah Khomeini, provoking them to seize the United States Embassy in Iran and hold American diplomats hostage for more than a year. Mr. Rockefeller was assailed as well for befriending autocratic foreign leaders in an effort to establish and extend his bank’s presence in their countries.

“He spent his life in the club of the ruling class and was loyal to members of the club, no matter what they did,” The New York Times columnist David Brooks wrote in 2002, citing the profitable deals Mr. Rockefeller had cut with “oil-rich dictators,” “Soviet party bosses” and “Chinese perpetrators of the Cultural Revolution.”

Still, presidents as ideologically different as Mr. Carter and Richard M. Nixon offered him the post of Treasury secretary. He turned them both down.

After the death in 1979 of his older brother Nelson A. Rockefeller, the former vice president and four-time governor of New York, David Rockefeller stood almost alone as the remaining family member with an outsize national profile. Only Jay Rockefeller, a great-grandson of John D. Rockefeller, had earned prominence as a governor and United States senator from West Virginia. No one from the family’s younger generations has attained or perhaps aspired to David Rockefeller’s stature.

“No one can step into his shoes,” Warren T. Lindquist, a longtime friend, told The Times in 1995, “not because they aren’t good, smart, talented people, but because it’s just a different world.”

A Privileged Life

The youngest of six siblings, David Rockefeller was born in Manhattan on June 12, 1915. His father, John D. Rockefeller Jr., the only son of the oil titan, devoted his life to philanthropy. His mother, Abby Aldrich Rockefeller, was the daughter of Nelson Aldrich, a wealthy senator from Rhode Island.

Besides Nelson, born in 1908, the other children were Abby, who was born in 1903 and died in 1976 after leading a private life; John D. Rockefeller III, who was born in 1906 and immersed himself in philanthropy until his death in an automobile accident in 1978; Laurance, born in 1910, who was an environmentalist and died in 2004; and Winthrop, born in 1912, who was governor of Arkansas and died in 1973.

David, the youngest, grew up in a mansion at 10 West 54th Street, the largest private residence in the city at the time. It bustled with valets, parlor maids, nurses and chambermaids. For dinner every night his father dressed in black tie and his mother in a formal gown.

Summers were spent at the 107-room Rockefeller “cottage” in Seal Harbor, Me., weekends at Kykuit, the family’s country compound north of the city in Tarrytown, N.Y. The estate was likened to a feudal fief. As Mr. Rockefeller wrote in his autobiography, “Memoirs” (2002), “Eventually the family accumulated about 3,400 acres that surrounded and included almost all of the little village of Pocantico Hills, where most of the residents worked for the family and lived in houses owned by Grandfather.”

In that bucolic setting he developed a fascination for insects that would lead to his building one of the largest beetle collections in the world.

David was 21 when John D. Rockefeller died. “He told amusing stories and sang little ditties,” Mr. Rockefeller recalled in 2002. “He gave us dimes.”

His sense of noblesse oblige was heightened by his early education at the experimental Lincoln School in Manhattan, founded by the American philosopher John Dewey and financed by the Rockefeller Foundation to bring together children from varied social backgrounds. He went on to study at Harvard, receiving his B.S. in 1936, and then spent a year at the London School of Economics, a hotbed of socialist intellectuals. Mr. Rockefeller was awarded a Ph.D in economics from the University of Chicago in 1940.

Moved by the Great Depression at home and abroad, he stated in his doctoral thesis that he was “inclined to agree with the New Deal that deficit financing during depressions, other things being equal, is a help to recovery.” The notion that a Rockefeller would take such a liberal economic view was major news; the family, rock-ribbed Republican, was known for its fierce opposition to President Franklin D. Roosevelt, the New Deal’s author.

After receiving his doctorate, Mr. Rockefeller became a secretary to Fiorello H. La Guardia, New York’s pugnacious, liberal Republican mayor. In 1940, he married Margaret McGrath, known as Peggy, whom he had met at a dance seven years earlier, when he was a Harvard freshman and she was a student at the Chapin School in New York. His wife, a dedicated conservationist, died at 80 in 1996. They had six children: David Jr., Abby, Neva, Margaret, Richard and Eileen. A complete list of his survivors was not immediately available.

Mr. Rockefeller enlisted in the Army in 1942, attended officer training school and served in North Africa and France in World War II. He was discharged a captain in 1945.

He began his banking career in 1946 as an assistant manager with the Chase National Bank, which merged in 1955 with the Bank of Manhattan Company to become Chase Manhattan. Banking in the early postwar era was a gentleman’s profession. Top executives could attend to outside interests, using social contacts to cultivate clients, while leaving day-to-day management to junior officers. Mr. Rockefeller found plenty of time for such activities. In the late 1940s he replaced his mother on the Museum of Modern Art’s board and eventually became its chairman. He courted art collectors. In 1968, he put together a syndicate, including his brother Nelson and the CBS chairman, William S. Paley, to buy Gertrude Stein’s collection of modern art. David and Peggy Rockefeller’s own prized paintings — by Cézanne, Gauguin, Matisse, Picasso — were lent to the museum permanently.

Expanding a Bank Globally

Mr. Rockefeller’s rise in banking was swift. By 1961 he was president of Chase Manhattan and its co-chief executive with George Champion, the chairman. Promoting expansion overseas, Mr. Rockefeller clashed with Mr. Champion, who thought that the bank’s domestic business was more important. After Mr. Rockefeller replaced Mr. Champion as chairman and sole chief executive in 1969, he was able to enlarge the bank’s presence on almost every continent. He said his brand of personal diplomacy, meeting with heads of state, was crucial in furthering Chase’s interests.

“There were many who claimed these activities were inappropriate and interfered with my bank responsibilities,” Mr. Rockefeller wrote in his autobiography. “I couldn’t disagree more.” His “so-called outside activities,” he insisted, “were of considerable benefit to the bank both financially and in terms of its prestige around the world.”

By 1976, Chase Manhattan’s international arm was contributing 80 percent of the bank’s $105 million in operating profit. But instead of vindicating Mr. Rockefeller’s avidity for banking abroad, those figures underlined Chase’s lagging performance at home. From 1974 to 1976 its earnings fell 36 percent, while those of its biggest rivals — Bank of America, Citibank, Manufacturers Hanover and J..P. Morgan — rose 12 to 31 percent.

The 1974 recession hammered Chase, which had an unusually large portfolio of loans in the depressed real estate industry. It also owned more New York-related securities than any other bank in the mid-1970s, when the city was edging toward bankruptcy. And among major banks, Chase had the largest portfolio of nonperforming loans.

Chase also got caught up in a scandal in 1974. An internal audit discovered that its bond trading account was overvalued by $34 million and that losses had been understated. A resulting $15 million drain in net income tarnished the bank’s image. In 1975, the Federal Reserve and the comptroller of the currency branded Chase a “problem” bank.

Even as he struggled to reverse Chase Manhattan’s decline, Mr. Rockefeller found time to address New York City’s financial problems. His involvement in municipal affairs dated to the early 1960s, when, as founder and chairman of the Downtown-Lower Manhattan Association, he recommended that a World Trade Center be built.

In 1961, largely at his instigation, Chase opened its 64-story headquarters in the Wall Street area, a huge investment that helped revitalize the financial district and encouraged the World Trade Center project to proceed.

In the mid-1970s, with New York City facing a default on its debts because of sluggish economic growth and uncontrolled municipal spending, Mr. Rockefeller helped bring together federal, state and city officials with New York business leaders to work out an economic plan that eventually pulled New York out of its crisis.

Continued reading at the NYT