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The Finance 202: CFPB further under fire with Kavanaugh pick for Supreme Court

with Bastien Inzaurralde


There’s a plausible scenario by which Brett Kavanaugh’s confirmation to the Supreme Court leads to the hobbling, if not wholesale dismantling, of the Consumer Financial Protection Bureau. 

Kavanaugh has made no secret of his view that the consumer watchdog — the brainchild of Sen. Elizabeth Warren (D-Mass.) and the most prized liberal achievement of the Dodd-Frank Act — is unconstitutional. He spelled out his thinking in a 101-page opinion he wrote in 2016. “Within his jurisdiction, the Director of the CFPB is even more powerful than the President,” Kavanaugh wrote in a finding for the Court of Appeals for the District of Columbia Circuit that was overturned in January by the full D.C. Circuit. 

Thanks to the agency’s structure, he argued, its director wields more relative authority than the Federal Reserve chairman, the Supreme Court’s chief justice, the defense secretary and the Senate majority leader. And that concentration of power “poses a far greater risk of arbitrary decision-making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency.”

Although Kavanaugh ended up on the losing side of that case, the question it turned on remains a live one before the courts. Both the 5th and 9th circuits have agreed to take up similar challenges to the CFPB’s structure, and yet another could be headed to the 2nd Circuit. Any ruling at odds with that of the D.C. Circuit increases the likelihood the Supreme Court decides to weigh in — and if Kavanaugh is on the bench by then, he’d probably join the other four conservative justices in ruling the agency’s structure illegal.

What happens next is already a matter of debate among those who obsessively track financial regulation. But Capital Alpha president Charles Gabriel, who has studied the space for more than three decades, argues it would spell doom for the CFPB. “If the [Dodd-Frank] title creating the Bureau is struck down, the Bureau itself will lose its legitimacy,” he writes in an email. He continues: 

“It would create an elegant solution, and perhaps fitting end, to the storied saga of the CFPB, which passed on a strictly partisan basis in Congress and was run arrogantly by its first permanent director … in defiance (after 2014) of the will of the Republican majority in Congress. Republicans, in particular, might love to see the death of this bureaucracy they so hate without their fingerprints on the political corpse. But of course to true believers in the bureau’s cause, and there are many, it will be a crushing defeat.”

Or not. Others argue that lawmakers would step in to forge a compromise that salvages the agency by rejiggering its leadership. Isaac Boltansky, director of policy research at Compass Point, says he doesn’t think a Supreme Court ruling against the CFPB’s leadership structure would represent a death blow to the agency. “The complaint from Republicans has been that there’s no oversight,” he says. So, assuming Republicans are still in control of at least one chamber of Congress by the time of the decision, he predicts GOP lawmakers would insist on tying new strings to the bureau’s leadership: “You either make it a commission, or you say the director can be fired by the president.”

Similarly, Ilya Shaprio, a senior fellow in constitutional studies at the CATO Institute, argued a Supreme Court ruling against the legality of the agency’s leadership structure would likely lead to “more political control over the CFPB director” — but it wouldn’t spell the end of the agency itself.

Kavanaugh could present a more sweeping threat to federal regulation of Wall Street and beyond. In his CFPB opinion, he argued independent agencies collectively constitute “a headless fourth branch” of the government that hold “enormous power over the economic and social life of the United States.” As such, he contended they pose “a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances.” Kavanaugh has put a finer point on that view elsewhere, criticizing what’s known as the Chevron doctrine, a Supreme Court precedent that gives agencies leeway to craft rules in the absence of clear directives from Congress. 

“Chevron deference has broadly enabled the agencies that are the front line protectors of the health, safety and welfare of Americans to give life to those statutes,” says Dennis Kelleher, president of Better Markets. “The alphabet soup of agencies touches every aspect of every American's life. His view is they’re unaccountable and in many respects a violation of the separation of powers.” Kelleher predicts Kavanaugh, if confirmed, would enable a majority on the Court to scrap the precedent. “The implications of that for the entire regulatory state are as broad and far-reaching as you can imagine.”

The Trump administration has already taken a big political swing at the CFPB, so officials would be unlikely to urge the courts to go easy if the legal rulings go against the agency. Mick Mulvaney, the president's Office of Management and Budget director, is also acting head of the CFPB and is on the end of criticism he's doing his best to gut it.

The White House and the Consumer Financial Protection Bureau are at odds over who should lead the watchdog agency, and what its role should be. (Video: Jenny Starrs/The Washington Post)

“Mick Mulvaney has no intention of putting consumers above financial firms that cheat them. This is what happens when you put someone in charge of an agency they think shouldn’t exist,” Warren said in a statement, according to a story by my colleague Renae Merle.

It's no secret that Warren is thinking about a 2020 run against Trump -- expect the legal and political fate of the CFPB to play a role in that race.


— More Americans are leaving their jobs in search of better ones. Bloomberg News's Sho Chandra: “Some 3.56 million workers left positions in May, the most in data back to 2000, and up from the prior month’s 3.35 million, Labor Department data showed Tuesday. That pushed up the quits rate, which measures quitters as a share of employed people, to a 17-year high of 2.4 percent from 2.3 percent. With more workers feeling assured of finding better employment, sustained wage gains may soon follow.”

— Trade disputes may ripple through emerging markets. The Wall Street Journal's Julie Wernau and Ira Iosebashvili: “Emerging markets could become collateral damage in an escalating trade conflict where the U.S. is squaring off against China and Europe. The first tariffs levied by the U.S. and China went into effect Friday, but worries over the trade spat have already rippled through a broad range of emerging markets, hurting prices for stocks, bonds and currencies from Indonesia to Brazil.”

— Debt rises globally. Reuters's Daniel Bases: “The amount of debt held by both mature and emerging markets tracked by the Institute of International Finance rose to a record $247 trillion in the first quarter of 2018, up 11.1 percent from the same period a year ago. The report released on Tuesday by the IIF, a global bank lobbying group, said the ratio of debt to gross domestic product of these nations, which include the Group of Seven industrialized nations and the majority of emerging market economies, increased to 318 percent. That is the first quarterly increase in the debt-to-GDP ratio since the third quarter of 2016.”



President Trump on July 10 spoke about the upcoming NATO summit in Brussels, his meeting with Putin and Boris Johnson's resignation. (Video: The Washington Post)

— Trump preps major escalation with China. The Post's David J. Lynch and Danielle Paquette: “Trump escalated his trade war with China Tuesday, identifying an additional $200 billion in Chinese products that he intends to hit with import tariffs. The move makes good on the president’s threat to respond to China’s retaliation for the initial U.S. tariffs on $34 billion in Chinese goods, which went into effect on Friday and would eventually place nearly half of all Chinese imports under tariffs. Administration officials said the tariff fight is aimed at forcing China to stop stealing American intellectual property and to abandon policies that effectively force U.S. companies to surrender their trade secrets in return for access to the Chinese market.”

And China responds. The Post's Paquette and Emily Rauhala: “Beijing punched back with a somberly-worded warning. 'The behavior of the U.S. is hurting China, hurting the world, and hurting itself,' the Ministry of Commerce said Wednesday in a statement. The Chinese government went on to paint itself a defender of free trade, urging the international community to 'work together' to protect a global commerce flow that has brought wealth to nations worldwide.”

The targeted goods. Bloomberg News's Matthew Townsend, Hema Parmar and Jonathan Roeder: “The Trump administration’s promise to keep consumer products out of the trade war — so shoppers wouldn’t take a hit — may be falling by the wayside. The U.S. Trade Representative released a new round of proposed tariffs on Chinese goods, listing 200 pages of items with a value of $200 billion. They target baseball gloves, handbags and digital cameras, among other goods . . . Regardless of the outcome, U.S. shoppers are poised to be losers, despite assurances from the administration that the new tariffs take into account the potential impact on consumers.”

See the USTR's full list here. And the New York Times has this cool infographic exploring how Trump's trade war expanded from 18 products to 10,000. 

Markets sag. News of Trump's escalation sparked a global sell-off. Bloomberg: "European stocks tumbled as much as 1.3 percent with commodity producers and automakers suffering the steepest drops. U.S. stock-index futures dropped more than 1 percent. Almost all emerging-market currencies slumped and the MSCI Emerging Markets Index of stocks sank 1 percent."

Car exports may suffer. WSJ's William Boston: “BMW and Daimler are particularly vulnerable to the tariff dispute. Both German auto makers have massive factories in the U.S. South that employ thousands of workers and build luxury sport-utility vehicles for export to China and Europe, as well as sale in the U.S. The tariffs will force the companies to either charge customers in China more or absorb the added costs. If trade barriers mount, it wouldn’t be easy for these car makers to simply shutdown a plant or shift production quickly to other markets. Often, it takes years for such plans to be made and approved, and car makers need time to prep their factories to build a new model. However, the tariffs could discourage these car makers from proceeding with planned expansions, analysts and executives said.”

BMW says it will build more SUVs overseas and raise the price in China of vehicles it builds in South Carolina.

— European businesses adjust. The Associated Press's Joe McDonald: “European companies that export from China are changing the global flow of their goods to avoid higher American tariffs, a business group said Tuesday, as the impact of the U.S.-Chinese trade war spreads. Tariff hikes are 'hitting immediately the bottom line' of companies that rely on the free flow of trade across countries, said Mats Harborn, president of the European Union Chamber of Commerce in China. Companies are 'scrambling to readjust supply chains' so U.S.-bound goods don’t pass through China, Harborn said at a news conference. He said one has shifted final assembly of goods to a newly created American unit.”

— Abbott to Trump: Back off. CNBC's Berkeley Lovelace Jr.: “Republican Texas Gov. Greg Abbott urged . . . Trump on Tuesday to implement a U.S. trade policy that won't hurt the Lone Star State's economic growth. 'If the president wants to have a good economy for the United States of America, he needs to have a reasonable trade policy that will be good for Texas,' Abbott told CNBC's Scott Cohn in an interview on 'Squawk on the Street.' 'What is good for the Texas economy is going to be essential for the American economy,' he added.”

Corker gets a vote. Sen. Bob Corker (R-Tenn.) finally secured a vote today on his non-binding proposal to express displeasure about the president's tariff authority. The measure would require lawmakers to sign off on any levies applied in the name of national security, such as those Trump slapped on metals imports earlier this year and is eyeing for autos and auto parts. But again, it's non-binding, though a vote for the measure could mean it gets incorporated into something that is: 

From Fox News's Chad Pergram: 

From The Post's Erica Werner:

NATO summit opens ugly. The Post's Michael Birnbaum and Seung Min Kim: "Trump unleashed a blistering attack Wednesday on Germany and other NATO allies, wasting no time at the outset of a week of high-stakes diplomacy to hit at Washington’s closest partners for what he said were hypocritical demands for U.S. security protection. 'Germany, as far as I’m concerned, is captive to Russia because it’s getting so much of its energy from Russia,' Trump told NATO Secretary General Jens Stoltenberg, in a fiery on-camera exchange that was nearly without precedent in the history of the post-World War II alliance. 'We have to talk about the billions and billions of dollars that’s being paid to the country we’re supposed to be protecting you against,' Trump said, referring to European purchases of Russian natural gas. Trump has complained bitterly about Europe’s lagging defense spending, saying that NATO nations were taking advantage of U.S. military largesse at the same time they were offering unfair trade terms to U.S. businesses."

Trump tweeted video of his remarks:

— Trump's Mar-a-Lago Club seeks foreign workers. The Post's David A. Fahrenthold: “Trump’s Mar-a-Lago Club has asked permission to hire 78 foreign workers to serve as cooks, waiters and housekeepers during this winter’s social season in Palm Beach, Fla., according to Labor Department data. The club — a for-profit business, which also serves as Trump’s weekend home and 'Winter White House' — submitted applications to hire 21 cooks, 40 waiters and 17 housekeepers from overseas. After working from October to May, the workers would return home. ... Those applications signal a sharp difference between the president’s political rhetoric — which holds that low-skilled foreign workers drive down wages for native-born Americans — and the actions of Trump’s own businesses.”


— Pfizer backs down after being scolded by Trump. WSJ's Jonathan D. Rockoff: “Pfizer Inc. . . . said Tuesday that it would 'defer' some recent drug-price increases, reversing course after . . . Trump criticized the company. . . . 'The company will return these prices to their pre-July 1 levels as soon as technically possible,' Pfizer said. It added that the restored levels 'will remain in effect' until the president had a chance to put in his plan to curb high drug prices or the end of the year, whichever is earlier.”

— The Morgan Stanley leadership saga continues. WSJ's Liz Hoffman: “Morgan Stanley . . . offered more clues into its slow-burning succession race, elevating a top trading executive seen as a favorite to eventually replace Chief Executive James Gorman. Ted Pick, Morgan Stanley’s trading chief, will add oversight of investment banking, a move that puts him in charge of half of the firm’s revenue and cements his frontrunner status. Morgan Stanley is also promoting Franck Petitgas, a longtime investment banker, to run all of the firm’s international business. Both men will report to Morgan Stanley’s No. 2 executive, Colm Kelleher, according to a memo reviewed by The Wall Street Journal.”

— Boeing beats Airbus. Reuters's Ankit Ajmera, Eric M. Johnson: “Boeing Co’s... first-half aircraft orders were more than double those of Airbus SE... while its jetliner deliveries rose 7.4 percent from the year-ago period. Boeing, the world’s largest planemaker, recorded 460 net aircraft orders during the period, it said on Tuesday. Last week Airbus said it recorded 206 orders. Boeing’s new orders have rebounded after losing the race in that category to Airbus last year.”

— Tesla to expand in China. The New York Times's Neal E. Boudette: “Tesla has reached an agreement with the Chinese authorities to build a battery and automobile factory in Shanghai, its first plant outside of the United States, the company said on Tuesday. Tesla said it expected that the plant would eventually produce 500,000 electric vehicles a year, and that the effort would also include a research-and-development center and a sales operation. ... Tesla said in a statement that it expected to begin construction as soon as it had obtained the necessary approvals and permits. 'From there, it will take roughly two years until we start producing vehicles and then another two to three years before the factory is fully ramped up,' the company said.”

Tax Loophole From 1960s Could Let Wealthy Tap 21% Corporate Rate (Bloomberg)

BlackRock, Other Big Investors Have Misgivings About Dell Offer (The Wall Street Journal)


From The Post's Andrew Van Dam's piece about how what we buy can predict our politics, race, or education, sometimes with startling accuracy: 



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From the New Yorker's Maddie Dai:

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1,300-pound “monster” crocodile caught after eight-year hunt:

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President Trump nominated Brett Kavanaugh to the Supreme Court on July 9. Here’s how Stephen Colbert, Jimmy Kimmel and other comedians reacted. (Video: The Washington Post)