By George Washington of Washington’s Blog.
Everyone knows that the lobbyists for the financial giants are trying to kill any tough new regulations.
But they are also trying to weaken existing regulations.
Specifically, Robert Borosage notes:
The [derivatives] bill that the House will consider on Wednesday creates a clearinghouse, not a publicly managed exchange. It also allows banks to decide that a deal is so unique that it needn’t be posted on the clearinghouse. The best experts in the field — like Michael Greenberger of the University of Maryland — warn that the legislation might end up WEAKENING current law. That is no small achievement, because, as we saw in the collapse of AIG, current law is toothless…
As I have previously noted, Satyajit Das – a leading derivatives expert – also says that the new credit default swap regulations not only won’t help to stabilize the economy, they might actually help to destabilize it.
The banking lobby is nothing if not shameless. They hope to use the reforms to WEAKEN current law. They are pushing to make the federal standard the ceiling on reform, stripping the power of states to have higher standards. Basically, they are hoping to find a way to shut down the independent investigations of state attorneys general like New York’s Eliot Spitzer and Andrew Cuomo or Illinois’ Lisa Madigan. (for a good summary of this see Dave Johnson’s blog here)
And Ryan Grim writes:
Illinois Attorney General Lisa Madigan pushed back against her fellow Democrat, Rep. Melissa Bean (D-Ill.), on Wednesday, sending a letter (PDF) opposing her effort to block states from having the ability to write bank regulations that are tougher than those imposed by a federal Consumer Financial Protection Agency…
On Wednesday, the committee took up a proposal to create a Consumer Financial Protection Agency. As currently structured, it would set baseline requirements, but states would be able to toughen their own regulations. An amendment by Bean would prevent states from doing so and a vote could come as early as Thursday…
Bean is the co-chair of the pro-business New Democrat Coalition’s financial services task forced and vies for the title of Wall Street’s favorite Democrat. Bean and other New Dems are tussling with committee progressives over federal preemption. If Bean’s measure carries, states would not be allowed to enforce consumer protection laws on national banks that are stronger than those at the federal level. All banks would need to do, then, is water down regulation at the top, rather than in each state legislature…
Only in her third congressional term, Bean has already taken more than two million dollars from the finance, insurance and real estate industries…
My apologies! I posted this before reading Yves’ post.
I apologize for the duplication.
Never let a crisis go to waste! And when a cabal has the government in it’s wallet pocket, whey _not_ gut existing legislation?
It’s only logical, people normally behave logically, i.e. in their own interest. Now that the ‘too big to fail’ meme is the accepted wisdom, why shouldn’t they seek to maximize their opportunities? What has happened, and what is going on now, is not the fault of the banks, but those at Treasury and the Fed who have accepted ‘too big to fail’, and done things to make sure that’s the case — that they don’t fail. I don’t recall hearing any serious caveats to that — even extravagant bonuses at institutions that have gotten debt-financed taxpayer funds have not been seriously challenged. Not really.
Not to mention the politicians who have dutifully passed all the ‘necessary’ legislation.
It looks like the Obama administration has jumped on the band wagon to gut any substantive regulation of deriviatives:
The House Financial Services Committee, for instance, approved a provision on Wednesday that Mr. Frank said would exempt “the great majority” of businesses that use derivative instruments to hedge their business risks from trading such instruments through exchanges or clearinghouses. Senior officials at the Commodity Futures Trading Commission and the Securities and Exchange Commission have been critical of the exemptions, saying they would create too large a loophole for financial instruments that were unregulated and played a central role in the economic crisis.
On Wednesday, the administration announced its support for the exemptions. Mr. Barr, the assistant Treasury secretary, said in a telephone briefing with reporters that, while the administration did not propose the exemptions, they were “reasonable ones” that would still permit aggressive oversight because the legislation would impose supervision on the dealers of derivatives instruments.
Another telling bit of information from the NY Times story linked above:
The political obstacles to the creation of a consumer protection agency are formidable. In the last decade, banking and other interests that now oppose the agency’s creation contributed more than $77 million to the members of the House Financial Services Committee, according to the Center for Responsive Politics, a nonpartisan research organization that studies the influence of money on policy.
Two of the largest recipients of money from the financial sector over the period have been Mr. Frank, whose campaigns have received more than $3 million…
Just imagine! A female Democrat, a gay Democrat and a black Democrat are doing this to me.
My partisan meter doesn’t seem to be working, but the needle on my identity politics meter has completely flown off the dial.
I see no reason why lobbyists would not seek to gut the CFPA. The Obama Administration has already caved completely on any meaningful regulatory reform. The CFPA was at best a medium sized reform. By itself it didn’t even begin to correct the fundamental problems we face. But remember Frank had already stripped it of its power to require financial institutions to offer “plain vanilla” alternatives to instruments, like mortgages. Bean’s action was just the next logical step in eviscerating the CFPA.
The bottomline remained unchanged throughout, with or without an intact CFPA. Real financial reform was never on the table. From an industry point of view, doing in the CFPA was not an existential battle but a minor bit of housecleaning.