Newsweek’s “Why is Barney Frank So Effing Mad?” is supposedly about the Congressman from Fidelity but is really about how the banksters are succeeding in neutering financial reform. One Congressional staffer has told me that everyone involved recognizes the measures don’t go far enough, but feel they can’t do much more (Congress can step out only so far ahead of the Executive, and this one clearly is in no mood to take a more aggressive stand).
The article does not come down on Frank; in fact, it repeats some of his PR uncritically:
Now, gazing from behind thick glasses, his mouth set in its trademark grimace, Frank fires back. “The big banks have no influence,” he says. “They couldn’t stop the credit-card [reform] bill. They get the full blast of the [new] Consumer Financial Protection Agency.”
Ahem, let’s turn the mike over to Dick Morris:
The widely heralded credit card reform legislation making its way through Congress is a sellout to the credit card companies. Obama has proposed and Congress has passed a series of minor reforms that deal with the fringes of the problem – late billings, retroactive interest rate hikes, misapplication of payments and such – but fail to reform the most basic offense of the companies: their usury.
Congress explicitly rejected any limitation on the interest rate credit card companies can charge. It remains perfectly legal for them to charge rates that would make a loan shark blush.
And let us not forget that the new rules phase in, with one set of changes already in force and more to come in February and August 2010. Issuers have been merrily jacking up interest rates in the meantime on wide swathes of customers, including those with pristine credit scores, even though the banks’ funding costs have plunged. The House, frustrated with their conduct, voted to accelerate the implementation.
And the consumer protection agency? Frank fails to mention that its most powerful provision, of requiring banks to offer plain vanilla products, was excised. WTF? Banks are not merely state-chartered franchises, they are state-backstopped franchises. They are utilities and should be treated as such. Requiring them to offer stripped down, simple products would send a powerful message: banks’ first duty is to provide essential services. But no, we can’t have anything that might interfere with their profits, now can we?
But the article does rebut Frank’s whopper, that the big bank have no influence:
Not even critics accuse Barney Frank of being in the pocket of Wall Street. The real question is whether he and -others are being swayed by the legislative legerdemain that Wall Street lobbyists have long practiced. The story of how those loopholes got into the derivatives bill, even with Frank at the helm and the wind of public outrage at his back, shows just how powerful the Wall Street banking lobby remains—and how complex Wall Street’s financial instruments have become. “I don’t think he ever fully understood the legislation” in its early stages, says Greenberger. Many of the key lobbyists now are the same gang that helped get us into this mess before, and they’re spending huge sums once again. In the first three quarters of 2009, financial-industry interests have spent $344 million on lobbying efforts, putting them on pace to break all records, according to the Center for Responsive Politics. That’s just for lobbyists’ and lawyers’ salaries, junkets, and dinners, and doesn’t include political donations and issue ads. Even more impressive is the lobbying strategy that money is buying. According to insiders and industry e-mails obtained by NEWSWEEK, the banks have sought to stay in the background and put their corporate customers—a who’s who of American business, including Apple, Whirlpool, and John Deere—out in front of the campaign. “This is an orchestrated, well-funded effort by the banks to manipulate our legislation and leave no fingerprints,” says a congressional staffer involved in drafting the legislation. The staffer, who would speak only on condition of anonymity, passed on to NEWSWEEK nine pages of proposed changes in the legislation intended to protect trading from open scrutiny—all of it on paper without a letterhead—that she says came from Goldman Sachs. Samuel Robinson, a spokesman for Goldman, says “it’s not our document” but adds that Goldman has “an active and appropriate involvement in the process of government” and supports “sensible reform.”
Actually, the person who sent me the article, who was once on a first name basis with Frank, would argue vociferously that Frank is doing Wall Street’s bidding. The idea that he didn’t understand the implications of the end-user loophole in the derivatives reform bill is a real stretch. And the bill has other serious flaws: the idea that only standardized derivatives are cleared centrally (ie, customize and you are scot free); that the clearing organization will be self-policing.
And of course, we have the allegation by the Congressional staffer of revisions to the derivatives bill coming from Goldman, but in a form where the firm has plausible deniability, and of course, it insists it had nothing to do with this missive. Guess they are being a bit more careful now that Matt Taibbi has been posting various Goldman lobbying documents.
But Frank insists he was acting in good faith:
Frank heatedly denies that he’s been fooled, though he concedes he is still catching up on some of the details of the bills he is pushing through. “I’ve become responsible for dealing with a lot of things that are new to me. I didn’t have a great deal of knowledge. I’ve been relying on a whole lot of people,” Frank says. In allowing some exemptions from exchange trading, Frank says he is merely accommodating the corporate end users—not Wall Street—who want to continue doing these private trades in derivatives. “The Wall Street lobbyists are not end users. Is Boeing a Wall Street lobbyist? Is John Deere a Wall Street lobbyist?” he asks, citing two big companies that have supported the “end-user exemption.” But critics like the CFTC’s Gensler have said that the exemption intended for nonfinancial companies might let many other players avoid regulation, including hedge funds, private-equity funds, and other financial firms. Other critics, such as Barbara Roper of the Consumer Federation of America, say some of the corporations themselves are being used by the banks.
Frank ultimately is resorting to “Gee this fancy finance stuff is SOOO complicated! How can you blame us for being had?” Funny, that’s the posture the Administration has more or less taken, in giving the banks unduly favorable terms for their various bailouts, adding hidden subsidies to the explicit subsidies (as one reader noted today, since the US paid well in excess of Citigroup’s market cap, why doesn’t it own it 100%?). I certainly don’t buy that excuse made on behalf of Team Obama, and I have trouble with it coming from Frank.