Respectfully submitted by Lawrence E. Rafferty (rafflaw)-Guest Blogger
Recently I wrote an article that discussed how the FDIC and the Bank of England had written a joint paper agreeing on how to deal with failing large banks in the post Dodd-Frank world. Banksters In my research for a follow-up to that article, I discovered that Congress was busy at work trying to do everything in its power to water down or eviscerate Dodd-Frank. I guess I should not be surprised that Congress might be trying to defeat a law that was passed in an attempt to make sure that ordinary citizens would not be asked to bail out the large banks once again. While Dodd-Frank is far from perfect, it is a step in the right direction. At least for the taxpayers.
Congress has stepped in to and has attempted to allow the Banksters to continue on their wild gambling spree by exempting these huge financial organizations from the bailout prohibitions of Dodd-Frank if they are gambling with depositors funds. Under the joint FDIC/Bank of England plan discussed in my previous article, the depositors funds could be grabbed by a failing bank in lieu of a taxpayer bailout. Under the latest House proposals, the Congress just sweeps away the prohibition against tax payer bailouts if the subject bank is gambling in just the right kind of financial products.
“Almost all of these bills turned out to be aimed directly at Title VII of the Dodd-Frank Act, i.e. the derivatives portion. They included: H.R. 992 would “repeal most of Dodd-Frank Section 716” of the Dodd-Frank Act. This section, also known as the “Lincoln Rule,” was one of the hottest of hot potatoes during the negotiations for the Dodd-Frank bill (see here for more details).
That portion of Dodd-Frank began with a simple, bold statement:
“Notwithstanding any other provision of law,” it read, “no Federal assistance may be provided to any swaps entity with respect to any swap, security-based swap, or other activity of the swaps entity.”
In other words, no matter what other laws are written, the federal government doesn’t bail out any “swaps entities” or “activities of the swaps entities.” This sounds great, except Congress then decided on an exception or two to that law – among other things, federally-insured banks would be permitted to engage in swaps trading, so long as it was for “bona-fide hedging” and “risk-mitigation efforts.” Put another way, so long as the bank is merely guarding against loss, such behaviors are okay and bail-out-able.” Common Dreams
The Big Banks and Wall Street seem to have both side of the aisle in their pocket as there is bipartisan support for the bills designed to water down Dodd-Frank. “But apparently this wasn’t enough. This new bill in the House baldly expands the universe of trading activities that we may later have to bail out. It’s actually written that way – check out this summary of H.R. 992, the “Swaps Regulatory Improvement Act” (God, I love the names):
Declares the prohibition against federal government bailouts of swaps entities inapplicable to: (1) a foreign banking organization supervised by the Federal Reserve; and (2) an insured depository institution or a U.S. uninsured branch or agency of a foreign bank that limits its swap and security-based swap activities to hedging and similar risk mitigating activities (as under current law), non-structured finance swap activities, and certain structured finance swap activities.
In English, this just means that in addition to hedging, which we banks think is pretty much everything we do, we’d like to be eligible for bailouts when we engage in “non-structured finance swap activities and certain structured finance swap activities.” If you read the fine print, what they mean by “certain structured finance swap activities” are swaps of a type and quality “to which the prudential regulators have jointly adopted rules,” i.e. to be determined later during the rule-making process.
So to sum up, we banks would like to remain eligible for bailouts when we engage in hedging, which we think is everything we do, and also additionally when we engage in “certain structured finance swap activities,” which will mean whatever we tell the rule-makers it means after the bill is passed. This bill passed by a vote of 53-6 in the Financial Services Committee. Only six House members voted against expanding the types of financial behaviors that we may later have to bail out. Go figure.”Matt Taibbi
Some of these bills actually attempt to allow the Banksters to shop for the best regulator or laws that pertain to their particular trading activities.
“Then there was H.R. 1256, the “Swap Jurisdiction Certainty Act,” which:
. . . exempt[s] a non-U.S. person in compliance with the swaps regulatory requirements of a G20 member nation from U.S. swaps requirements unless the SEC and CFTC jointly determine that the regulatory requirements are not “broadly equivalent” to U.S. swaps requirements.
This is yet another leprechaun trick. What it basically means is that if you’re Goldman or Chase and you have an office in some place like Mexico or Turkey or Russia or Saudi Arabia, you can do all the swaps business you want from there, undet whatever film of derivatives regulation exists in that country, without having to comply with U.S. swaps rules. That is, unless the SEC and the CFTC make a joint determination that country’s laws are not “broadly equivalent” to our own.
This really just gives banks permission to go around the world regulator shopping. “It just makes it harder for the SEC to prevent regulatory arbitrage,” is how one analyst put it to me. “That’s all it does.” That one passed 48-11″ Matt Taibbi
It seems obvious to this writer that Congress is firmly in the pocket of Wall Street and the Big Banks. It is not just a Republican problem or a Democratic problem. It is a money problem. That is a too much money in the political system kind of problem. Without the removal of money in our political system, we will never be able to get beyond this kind of one-sided legislation that attempts to put the Banksters first, and you and I second.
Citizens United accelerated the problem and the 501c4 politically motivated “social welfare” organizations that were spawned by Citizens United are bringing huge amounts of secret money into the political system and the legislators who receive those tax-deductible donations or receive the benefit of those donations, must do their bosses bidding. Isn’t it far past the time that we allow Banks and Wall Street to decide what laws they will or will not be subject to?
As Professor Turley suggests in his article The Rise of the Fourth Branch of Government the Federal Agencies are beginning to take on a role that was not imagined by our Founders. I submit that what makes the rise of these agencies even more damaging to our Democracy is who is really writing these new regulations. Or maybe I should say, who is really “paying” for these regulations. What do you think?