CPD IN THE NEWS

BLOWBACK FOR SEC FROM WHISTLEBLOWER: A whistleblower is calling foul on the SEC. Our Patrick Temple-West writes: “A whistleblower who said he is due an $8.25 million reward from the Securities and Exchange Commission said he is refusing the cash because of concerns that the agency failed to prosecute top executives at Deutsche Bank. … Ben-Artzi said he was fired after raising concerns with the way Deutsche was valuing its derivatives. In its settlement with Deutsche, the SEC alleged the company overvalued its derivatives holdings during the worst days of the 2008 financial crisis. … ‘Although I need the money now more than ever, I will not join the looting of the very people I was hired to protect,’” Ben-Artzi wrote in The Financial Times. A Deutsche Bank spokesman declined to comment.

Andrew Ceresney, the SEC's current enforcement director: “We brought all of the charges supported by the evidence and the law, which were unanimously approved by the Commission.”

TGIF! — Happy Friday. You’ve almost made it through the week without the incomparable Morning Money Ben. The Pro Financial Services team will be filling in again for him next week, so please send tips to Financial Services editor Mark McQuillan: mmcquillan@politico.com. Follow me on Twitter @vtg2.

THIS MORNING ON POLITICO PRO FINANCIAL SERVICES – Patrick Temple-West on CFTC charges of swaps-reporting violations against Deutsche Bank -- and to get Morning Money every day before 6 a.m. -- please contact Pro Services at (703) 341-4600 or info@politicopro.com.

FED UP GOING TO JACKSON — The Fed Up coalition will hold a series of events in Jackson, Wyo., next week, including an on-the-record meeting with Kansas City Fed President Esther George on Aug. 25, the coalition announced. Other Fed presidents and governors will also be attending the discussion. The docket includes a press conference and a demonstration, where members of the coalition (a marriage between unions and other community organizations) will “share their personal experiences seeking good-paying jobs in this economy and discuss the importance of diversity in Fed leadership for promoting high-quality governance and public policy.”

Don’t miss: Fed Up will also unveil a report outlining one of its central ideas: how to make the Fed a fully public institution. Its authors are Andrew Levin of Dartmouth and Valerie Wilson of the Economic Policy Institute.

Speaking of the Fed conference, three Democratic lawmakers on Thursday wrote to Fed Chair Janet Yellen, thanking her for the central bank’s focus on inequality and the impact of the economic recovery on neglected communities. “We are concerned, however, that some of your work may be undercut by the failure of all Federal Reserve entities to follow your lead,” they wrote, expressing worries that workers of color might have a harder time being heard at the Jackson Hole conference. Read the letter from Reps. John Conyers, Frederica Wilson and Marcy Kaptur here.

AIR FORCE ONE SCHEDULED FOR ASIA PIVOT — President Barack Obama is heading off to China early next month where he will participate in the G20 Leaders’ Summit, the White House announced Thursday. Obama will discuss the full gamut of international economic issues and hold “in-depth,” one-on-one meetings with Chinese President Xi Jinping in Hangzhou.

MM prediction: Foreign exchange rate policies, the U.S.-China bilateral investment treaty, cyber issues and treatment of U.S. businesses abroad are just some of the hot financial topics that might be broached in those bilateral meetings.

The stop in China will be followed by a trip to Laos for the U.S.-ASEAN Summit and the East Asia Summit. The full trip, which comes amid efforts by the president to push the Trans-Pacific Partnership trade deal despite political headwinds from both sides of the aisle, will run from Sept. 2-9.

TRUMP A MERCER-NARY — From WSJ's Rebecca Ballhaus: "Republican presidential candidate Donald Trump’s latest staff shakeup reflects the growing behind-the-scenes influence of a wealthy backer relatively new in the nominee’s orbit: billionaire hedge-fund manager Robert Mercer. … He and his daughter, Rebekah, had recommended both Breitbart News chairman Steve Bannon and Republican pollster Kellyanne Conway, who already worked for the campaign, according to people familiar with the matter. The Mercers met privately with Mr. Trump at a fundraiser last weekend at the East Hampton, N.Y., home of New York Jets owner Woody Johnson, according to a person at the event. … Top Trump donors said the staff reshuffling showed the Mercers’ widening role in the campaign." The article is here.

END OF AN ERA — Citigroup will have no more dedicated proprietary traders once Anna Raytcheva leaves at the end of this month, the WSJ reports. Raytcheva and the rest of her kind have been rendered increasingly obsolete at Citi and other large banks because of the Volcker rule, which banned most types of trades made by banks on their own behalf. She will be opening her own hedge fund next year, the veteran trader told WSJ.

WSJ’s Christina Rexrode writes: “The firm’s trading roots go back to Salomon Brothers, whose 1980s trading exploits were featured in the book ‘Liar’s Poker.’ That firm was ultimately folded into Citigroup, whose billions of dollars in trading losses during the financial crisis prompted repeated taxpayer-led bailouts. … Citigroup and other large banks including Goldman Sachs Group Inc. and Morgan Stanley had multiple desks dedicated to the lucrative but risky practice before the financial crisis. But … to comply with the [Volcker] rule, Citigroup sold or spun off businesses, including an emerging-markets hedge fund and a private-equity unit. It also closed down Citi Principal Strategies, its dedicated proprietary trading desk, in January 2012.” Check out the story here.

FANNIE AND FREDDIE ALL DRESSED UP WITH NOWHERE TO GO — Per Bloomberg’s Joe Light: “Earth-movers are laying the foundations of a shiny new headquarters for Fannie Mae, the bailed-out giant of American mortgages. But the sleek design, replete with glass sky bridges, belies a sober reality: Fannie Mae and its cousin, Freddie Mac, are once again headed for trouble. … On Jan. 1, 2018, the two government-sponsored enterprises will officially run out of capital under the current terms of their bailout. After that, any losses would be shouldered by taxpayers. Granted, few people are predicting a disaster like the one in 2008, when the GSEs had to be thrown a $187.5 billion federal lifeline. But eight years later, people still don’t agree on what to do with these wards of the state.” Click here to read more.

ITALIAN BANKERS FACING SCRUTINY — Italian bank Monte dei Paschi di Siena is in the news once again, this time because its CEO Fabrizio Viola and former Chairman Alessandro Profumo are being investigated for alleged false accounting and market manipulation, Reuters reports. The investigation comes just a couple of weeks after MPS announced that, with the help of JPMorgan Chase and Mediobanca, it will repackage 27-billion-Euros-worth of bad debt into securities worth a total net amount of 9.2 billion Euros.

From Reuters’ Silvia Ognibene: “The investigation, which started in 2015 following complaints filed by small shareholders and consumer associations, comes as the Tuscan bank prepares to launch a 5 billion Euro ($6 billion) stock sale after emerging as the weakest bank in Europe in industry stress tests in July. A spokesman for Monte dei Paschi said the decision to investigate Viola and Profumo followed a proposal by two shareholders to seek damages from the two executives which was rejected by other shareholders at an April meeting. … Being placed under investigation in Italy does not imply guilt and does not automatically lead to charges being laid.” More here.

A CLOSER LOOK AT LENDING CLUB — Bloomberg’s Max Chafkin on shady loans facilitated by Lending Club: “[Bryan] Sims decided to take a look at the hundreds of loans he’d invested in, arranging them in a spreadsheet … Two loans caught his eye. Both had been issued to individuals with the same employer in the same small town. So far, so coincidental. But looking deeper, Sims found that the salaries were nearly identical. Both borrowers had opened their first line of credit in the same month. This, Sims realized, is the same dude. It wasn’t a borrower who’d paid off one loan and happily returned for a second. It was one person with two active loans, and Lending Club was treating them as completely unrelated, charging wildly different interest rates. The borrower was paying about 15 percent interest on one loan of about $15,000; on the other, he was paying 9 percent on twice the principal. That meant the investors who held only the second loan were leaving money on the table. And Lending Club didn’t seem to be doing anything to help them.” Read the rest here.

‘LIKE’ IT OR NOT, FED’S ON FACEBOOK — Rounding out its social media presence, the Fed Board of Governors launched a Facebook page on Thursday. The central bank is already on Twitter, YouTube, LinkedIn, and — who knew — Flickr. Find its page here.

By VICTORIA GUIDA

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This day last year we woke up to a national nightmare –one that has now evolved into a full-blown social, not to mention constitutional, crisis.

Even as we remember November 8, 2016, we must acknowledge that today, many of us are waking up to the first clear sign that the wave of progressive activism that has successfully thwarted some the worst parts of this administration’s agenda, is also poised to have a real impact on electoral outcomes.

Democrats in Congress are pushing the Federal Reserve to emphasize diversity when filling top policymaking roles.

In a new letter sent to Fed Chairwoman Janet Yellen, the lawmakers noted that the overwhelming majority of top central bank positions are filled by white men, and they urged a rapid change.

“The importance of ensuring that such positions are filled by persons that reflect and represent the interests of our diverse country cannot be overstated,” they wrote. “When the voices of women, African-Americans, Latinos, Asian Pacific Americans, and representatives of consumers and labor are excluded from key discussions, their interests are too often neglected.”

The letter, spearheaded by Sen. Elizabeth Warren (Mass.) and Rep. John Conyers Jr. (Mich.), garnered signatures from 11 senators and 116 House Democrats. Sen. Bernie Sanders (I-Vt.), a Democratic presidential contender, signed the letter, as did every Democrat in the Congressional Black Caucus.

Hillary Clinton jumped into the fray as well, issuing a statement Thursday echoing that message and calling for reforms at the Fed to limit Wall Street input.

"Secretary Clinton believes that the Fed needs to be more representative of America as a whole as well as that commonsense reforms -- like getting bankers off the boards of regional Federal Reserve banks -- are long overdue," said a campaign spokesperson.

The members called for the Fed to consider a range of factors when filling upcoming vacancies, including a candidate's ethnicity, economic and professional background.

They note that while unemployment has fallen sharply over the last several months, minority groups still fall behind. White unemployment is 4.3 percent, Hispanic unemployment is 6.1 percent, and black unemployment is 8.8 percent.

The lawmakers noted that every member of the Federal Open Market Committee (FOMC), which sets the nation’s interest rate policy, is white.

In response to the lawmaker critique, the Fed said it was committing to boosting diversity, and touted its recent efforts along those lines.

"We have focused considerable attention in recent years on recruiting directors with diverse backgrounds and experiences," said a Fed spokesperson. "By law, we consider the interests of agriculture, commerce, industry, services, labor, and consumers. We also are aiming to increase ethnic and gender diversity. "

Thursday’s letter is the latest in a growing leftward push to influence the Fed, as liberals view the central bank as disproportionately influenced by input from Wall Street. With the economy on the mend and the Fed eyeing upcoming interest rate increases, they argue that too many Americans lower on the economic scale are not yet feeling those economic gains and need more support from the central bank.

Yellen was previously asked about diversity at the Fed at a congressional hearing earlier this year, and she committed to look into the matter.

Did you know 67% of all job growth comes from small businesses? Read More

A top priority for the lawmakers is ensuring increased diversity at the 12 regional Fed banks scattered across the country. Those banks occupy five rotating seats on the FOMC. But their boards are mostly filled by commercial banks, which directly back each institution.

Democrats have said for years that the arrangement ensures that the financial sector enjoys a prime seat in communicating with the Fed. Thursday’s letter noted that no regional bank head is black or Latino, and no African-American has ever helmed a regional Fed bank in the organization's 100-year history.

By Peter Schroeder

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Truthout - February 19, 2015, by Isaiah J. Poole - Progressives need to step up their opposition to any moves by the Federal Reserve to increase interest rates in the near future, economist Dean Baker of the Center for Economic and Policy Research told a group of progressive leaders convened by the Campaign for America’s Future.

That message comes amid a grassroots effort this week designed to line up organizations behind a call on the Fed to not increase interest rates before the economy reaches full employment.

There is a widespread expectation that the Fed will raise interest rates sometime in 2015, ostensibly to keep the economy from “overheating” and driving up the rate of inflation. The problem is, as Baker pointed out in his presentation, there is no inflation threat on the horizon, but there is a very real threat of choking the economic recovery and driving up unemployment if interest rates rise.

“This is a huge, huge issue and it is largely ignored by much of the progressive movement, largely because people don’t understand it,” Baker said. “And I would say to a large extent that’s how they” – the bankers and the corporate class that has the ear of the Federal Reserve’s members – “want it.”

Baker has been working closely with the Center for Popular Democracy’s “Fed Up” campaign, which has been pushing the Fed to focus on moving the economy toward full employment as a top priority.

The campaign has emphasized that after more than five years of supposed economic “recovery,” labor participation rates remain at historic lows, wages are only now beginning to increase slowly, and unemployment rates among African Americans and in a number of low-income communities remain well into double digits.

Citing the push in Congress to get the Keystone XL pipeline built, which some estimates say would produce about 36,000 jobs during its construction, Baker said, “if the Fed raises interest rates we’re talking about kicking millions of people out of jobs.” If instead the Fed worked to get the unemployment rate down to about 4 percent, “that’s about 4.5 million people … that’s more than 100 XL pipelines.”

The Fed Up Campaign is seeking organizations willing to sign a petition calling on the Federal Reserve to not increase interest rates while there are segments of the economy with high unemployment and stagnant wages. “Raising interest rates in 2015 would be a catastrophic mistake. The American economy needs to see significantly more wage growth, not less,” the petition says.

The full petition is posted on our website. Progressive organization leaders who want to sign the petition can do so via this link.

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