How Wall Street Killed Financial Reform "with big assist from White House & Congress"

Mathloom · May 14, 2012

By Matt Taibbi

May 10, 2012 8:00 AM ET

Two years ago, when he signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, President Barack Obama bragged that he'd dealt a crushing blow to the extravagant financial corruption that had caused the global economic crash in 2008. "These reforms represent the strongest consumer financial protections in history," the president told an adoring crowd in downtown D.C. on July 21st, 2010. "In history."

This was supposed to be the big one. At 2,300 pages, the new law ostensibly rewrote the rules for Wall Street. It was going to put an end to predatory lending in the mortgage markets, crack down on hidden fees and penalties in credit contracts, and create a powerful new Consumer Financial Protection Bureau to safeguard ordinary consumers. Big banks would be banned from gambling with taxpayer money, and a new set of rules would limit speculators from making the kind of crazy-ass bets that cause wild spikes in the price of food and energy. There would be no more AIGs, and the world would never again face a financial apocalypse when a bank like Lehman Brothers went bankrupt.

Most importantly, even if any of that fiendish crap ever did happen again, Dodd-Frank guaranteed we wouldn't be expected to pay for it. "The American people will never again be asked to foot the bill for Wall Street's mistakes," Obama promised. "There will be no more taxpayer-funded bailouts. Period."

Two years later, Dodd-Frank is groaning on its deathbed. The giant reform bill turned out to be like the fish reeled in by Hemingway's Old Man – no sooner caught than set upon by sharks that strip it to nothing long before it ever reaches the shore. In a furious below-the-radar effort at gutting the law – roundly despised by Washington's Wall Street paymasters – a troop of water-carrying Eric Cantor Republicans are speeding nine separate bills through the House, all designed to roll back the few genuinely toothy portions left in Dodd-Frank. With the Quislingian covert assistance of Democrats, both in Congress and in the White House, those bills could pass through the House and the Senate with little or no debate, with simple floor votes – by a process usually reserved for things like the renaming of post offices or a nonbinding resolution celebrating Amelia Earhart's birthday.

........

On April 19th, the Federal Reserve announced that it won't implement the Volcker Rule until 2014 – an extra two years that will give Wall Street plenty of time to find a way to kill the thing for good.

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STEP 1: STRANGLE IT IN THE WOMB
STEP 2: SUE, SUE, SUE
STEP 3: IF YOU CAN'T WIN, STALL
STEP 4: BULLY THE REGULATORS
STEP 5: PASS A GAZILLION LOOPHOLES

........

Now, in the wake of the JOBS Act fiasco, many reform advocates expect the same scenario to repeat itself with the nine bills to roll back Dodd-Frank. In the House, a number of the most dangerous derivatives bills have been passed by "suspension," a simplified voice-voting process usually reserved for uncontroversial items. The truly sinister thing is that, in order for a bill to be put on the suspension calendar, the two parties must agree – meaning that Democrats signed off on this Trojan-horse method of treating complex, economy-altering bills as minor technical "fixes."

The truth is that Dodd-Frank is so huge, and contains so many complicated new rules, that there are, in fact, many areas where small technical fixes are needed. H.R. 4235, one of the nine bills brought before Congress, resolves a real problem with the way swaps data is collected, an issue that was preventing foreign swaps dealers from getting onboard with the reform. But when needed fixes like this are thrown in side by side with a mind-boggling exemption for swaps dealers like H.R. 3336, which hits the floor as the innocuously named "Small Business Credit Availability Act," all those members of Congress who don't sit on the Financial Services Committee will have no way of telling which bill is the minor technical fix and which is the sweeping repeal. Moreover, when those members see that some bills are co-sponsored by Democrats, and that the Democratic leadership agreed to put the bills on the suspension calendar for a simple voice vote, many will take it as a cue that it's OK to vote for the rollbacks.

.....

Of the big-ticket items that were actually passed two years ago, the derivatives reforms have been completely gutted by loopholes, the Volcker Rule has been delayed for two years, and the Consumer Financial Protection Bureau may be thrust under the budgetary control of Congress, which is determined to destroy it.

More at link

Read more: http://www.rollingstone.com/politic...illed-financial-reform-20120510#ixzz1uongwNZG
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I guess the American people didn't really like the whole regulatory reform thing and are exercising control by taking aim at them.

rhadamanthus · May 14, 2012

I thought this was a good point made by the guys at Xfactor.

There were two interesting events last week that really solidified that nothing has changed since the end of the last financial crisis other than the location of where it will occur next. The first event we have discussed many times on the show, particularly recently, which is the continuing crisis in the Eurozone. I will discuss this topic more in a moment.

The second, and possibly the most important in the short term, was the admission by JP Morgan to the initial $2 Billion in losses by its proprietary trading desk. The event itself is important, however, what is more important to understand is that the systemic risk and investment activities that led to the last financial crisis are still well entrenched today. There is a very good article in the NY Times today that is well worth the time to read. The first paragraph really tells the story about how cronyism in Washington has crippled the regulatory oversight on big institutions.

“Soon after lawmakers finished work on the nation’s new financial regulatory law, a team of JPMorgan Chase lobbyists descended on Washington. Their goal was to obtain special breaks that would allow banks to make big bets in their portfolios, including some of the types of trading that led to the $2 billion loss now rocking the bank.”
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Multiple visits, and millions of dollars in contributions, led to the creation of a look hole in the Volcker Rule which was originally intended to limit the very kind of proprietary trading which led to JP Morgan’s losses. “Mr. Volcker, the former Federal Reserve chairman whose advocacy for the proprietary trading ban was so fierce that his name was attached to it, told a Congressional hearing this year that with hundreds of trillions of dollars of derivatives being traded, ‘you have to wonder whether they’re all directed toward some explicit protection against some explicit risk.’”

The answer to Mr. Volker’s query is “No”.
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rhadamanthus · May 18, 2012

This looks to be a good read:

Corporate criminals gone wild
The maker of the documentary film "Inside Job" has a new book excoriating Wall Street -- and President Obama
BY ANDREW LEONARD

“Inside Job,” Charles Ferguson’s Oscar-winning documentary film on how government, Wall Street and academia colluded to deliver us the worst financial crisis since the Great Depression, made a powerful case that something was very very rotten at the heart of the American political/economic nexus. His follow-up book, “Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America,” can be considered the legal brief that dots every “i” and crosses every “t” in his argument. A tightly argued, profusely footnoted and deeply enraged castigation of everyone involved, “Predator Nation” isn’t just a factually unchallengeable account of how Wall Street blew up the global economy. It’s a denunciation, a call for justice and a warning: After getting away with the crime of the century, Wall Street still isn’t satisfied.

“If you have already got 96 percent of what you want,” Ferguson told Salon, “why not take the remaining 4? That’s where the culture of American finance is right now, and I think it’s really dangerous for the country.”

For at least 30 years the United States has been headed on the wrong track, handing over more power and wealth to a tiny percent of the American population at the expense of everyone else. But Ferguson’s story isn’t just focused on the greed and recklessness of the elite. It’s also about their criminality. The bankers who wrecked the financial system broke the law. And yet, amazingly, not only have the vast majority of responsible parties not been convicted of any crime — they haven’t even been charged. There have been a few settlements of fraud allegations with the Securities and Exchange Commission and other regulatory bodies and a smattering of slap-on-the-wrist fines, but nothing that comes close to a proper reckoning for the massive hardship and economic destruction that they caused.

Ferguson’s glowering rage spares neither political party. Clinton gets the blame for completing the process of financial sector deregulation, and George W. Bush is lacerated for his general incompetence. But Barack Obama is showered with a particularly aggrieved contempt. Obama, writes Ferguson, came into office with more hope invested in him than in any recent leader, and then proceeded to “betray” and “screw” his supporters by declining to bring Wall Street to account for its misdeeds.

“Predator Nation” hits bookstores on Monday, just in time to cash in on the headlines generated by the latest banking atrocity — JPMorgan Chase’s massively failed derivatives bet.

“Predator Nation” is an angry book. Were you this angry before you started making the film “Inside Job”?

No, I absolutely was not. I remember the first time I got any kind of inkling of what was to come was in August or September 2007, when Charley Morris sent me a copy of a galley proof of his book, “The Trillion Dollar Meltdown.” It was scary and powerful, but I couldn’t bring myself to believe it. I remember calling Charley and saying, “You lay out a very convincing case but really, these people aren’t that crazy, they aren’t that stupid. They are regulated. Can it really be this bad?”

And he said: “You just wait.” And boy, he was right.

It’s not that I thought that investment bankers were like Mother Teresa. I knew that they weren’t. But the degree of nakedness and extremity of the dishonesty and its pervasiveness was a huge shock to me. It turned out that many banks, on a very large scale, and without any disclosure, had created and sold securities with the intent of betting on their failure. And this was done with the knowledge and approval of senior management of all these banks, including the oldest and most traditional.

How do you explain this behavior? How did we get to a point where it was routine for Wall Street bankers to behave in ways that most Americans would consider frankly immoral?

I think this has its roots all the way back in the 1970s and the beginning of the era of deregulation. But there was a kind of inflection point during the five-year period between 1997 and 2003 — the late Clinton and/or early Bush administration — when all the rules just went away. You went from a period, a regime, where people did have at least some concern about going to jail, to a point where everything is legal, and derivatives couldn’t be regulated at all and nobody went to jail for anything. And looking back I would say that this period definitely started under Clinton. You absolutely cannot blame this on George W. Bush.

You say that everything is now legal, but in your book you dismiss Obama’s argument that he could not prosecute Wall Street bankers for criminal behavior because what they did was technically not illegal as “complete horse****.”

I should be more precise. I should have said, “where everything was perceived as being legal.” There was no perception that, even when you were in fact violating the law, that there would be any legal jeopardy or legal consequence to what you were doing. And that was part of my surprise when I was making “Inside Job.” I really was surprised that people would so overtly and explicitly do things that 20 years previously probably would have gotten them landed in prison.

One can certainly argue that the penalties and prosecutions following the S&L [Savings and Loan] and insider scandals of the 1980s were vastly insufficient. No doubt about that. But there still were consequences. I don’t know whether [junk bond king] Michael Milken would have still done everything he did, if he knew that he was going to spend two years in prison and have about half of his wealth confiscated. Maybe he still would have made that bet, but still, clearly he had a few unpleasant days. And now, nothing, just nothing.

In your book, you have a laundry list of things you believe the bankers could be prosecuted for, everything from securities fraud to perjury to RICO Act violations. And then you point out, more than once, that during the Obama administration there have been no arrests or indictments of any firms or senior executives “related to causing the bubble or the crisis.” What’s your explanation for this? Is it as simple as the Obama administration being captured by the financial sector?

I’m not President Obama’s psychoanalyst, so I can’t speak to what goes on inside his head. But that is what I would say of the Obama administration generally. In the book I go through the list of his personnel appointments and it’s pretty clear.

But how do we square that with the negative Wall Street reaction to bank reform? You devote only one sentence in your entire book to Dodd-Frank, calling it “weak and ridiculously complicated.” But even so, House Republicans have introduced nine bills trying to repeal parts or all of it, Romney is campaigning on repealing the whole thing, and Wall Street hates it and has tried to kill every last part of it. There is clearly antipathy against Obama from the financial sector now, from Jamie Dimon on down, that wasn’t there when he got elected. If he was truly captured, why the antipathy?

Well, there is some antipathy. But he just held a very successful fundraiser at the home of the president of private equity group Blackstone. So the antipathy is not universal.

But you know, when I was in academia and also when I was running a software company I had a fair amount of contact with portions of the financial sector, investment banking industry, and the venture capital sector. And certainly they were already pretty rapacious and pretty politically conservative. But they would never then have said and done the things that they say and do now. I recently was at a dinner in New York City and one of the people there was a very, very successful man who is on the borderline between venture capital and private equity. And this guy went into an extended rant about how he was at a disadvantage because he had to pay 15 percent capital gains taxes. When I was first dealing with venture capitalists in a significant way, the capital gains tax rate was 28 percent, and nobody was complaining. Then they got them reduced to 20 under Clinton, and then later 15 under Bush. Plus, they got a rollover provision so if they took the proceeds of a venture capital investment and rolled it over into a new venture capital investment it was tax-free. At that point, we’ve reached nirvana, what more could there be?

But now we’re in this environment where this guy was loudly and aggressively complaining that he has to pay 15 percent to the government. And if that’s where you’re at, then of course you are going to complain about Dodd-Frank. You are going to complain about everything. If you have already got 96 percent of what you want, why not take the remaining 4? That’s where the culture of American finance is right now, and I think it’s really dangerous for the country.

Do you find it alarming that even after this huge crisis and even with a lot of populist anger on both the right and the left focused on Wall Street, Mitt Romney is running for president while promising to further deregulate Wall Street and repeal Dodd-Frank, and the polls show him neck and neck with Obama?

That is true, but I don’t think that Romney is going to get votes primarily or even secondarily for that. Most of the votes he is going to get will be because he’s religious, he’s against gay marriage, et cetera, all of these allegedly “values” issues — things like that and wanting to reduce taxes. That’s why he is going to get a substantial fraction of the popular vote. The reason he says he wants to roll back Dodd-Frank is not to get votes, it is to get money.

Ninety-nine percent of your book tells a story of how we’ve gotten ourselves into a bigger and bigger mess, and then you’ve got about a page and a half discussing what could be done to fix it. But your solutions — a legitimate third-party alternative, controlling the influence of money in politics, real tax reform, fixing education — it’s just really hard to see how we get from our current problems to those bullet points.

Yes. And we’re not. Not right now. I think it’s going to take things getting worse, either slowly or fast. Either we continue to melt away for another 25 years and then finally people wake up, or there might be another crisis. And maybe that will be sufficient. We’ll see. I don’t know. I’d be interested in your own view of this. I’ve had debates with several of my friends on this question. If Obama had really had the balls to try to do the various kind of things that he’d promised to do, or kinda sorta almost promised to do during his campaign, if he really made an effort, how far do you think he could have gotten in 2009?

At this point, I’m in the camp that believes that American government is completely broken. And we didn’t really find out how broken it was until Obama came in. In your book, you talk about Obama coming in withoverwhelming majorities, but he really only had 60 votes in the Senate from July 2009, when Al Franken was finally sworn in, to January 2010, when Scott Brown took over Ted Kennedy’s seat. And even the things that Obama did get through had to pass muster with a handful of very conservative Democrats. Nebraska’s Ben Nelson had control over the entire government. It’s a completely dysfunctional system. I think Obama severely underestimated what he was facing when he came in, and picked the wrong strategy of trying to go bipartisan, but it’s not as if he had the freedom to do what he wanted that Roosevelt enjoyed when he became president in 1932.

But there are an awful lot of things that the president can do even without the Congress. He didn’t have to choose the people he chose. He didn’t have to choose the attorney general he chose or the head of the criminal division of the Justice Department that he chose. I think that if he had said, I’m going to allocate $500 million to a special prosecutor’s office, and we’re going to find out what the **** happened here, he could have done that.

There’s some talk now that JPMorgan’s disastrous bet on credit default swaps might lead to tighter regulation. I have to say, it was bizarre to be speed-reading your book while the Morgan news was causing post-traumatic stress flashbacks to the worst days of the financial crisis. Does what happened there fit into the narrative of “Predator Nation”?

I rather think so, yes. Mr. Dimon has long been largely correctly regarded as the best, most judicious, most careful steward of a major global bank. That he and his bank could make a mistake like this does not bode well. One thing that has actually not been widely discussed, somewhat to my surprise, in the commentary about all of this, is that this mistake — which it appears will cost them between $2 billion and $5 billion — this occurred in a very forgiving economic environment. If they made a mistake like this in September 2008, then things could look really quite different.

Does it qualify as criminal behavior?

There is some suggestion of criminality in the lack of honesty on disclosure of the positions and their potential implications. I can’t say; we don’t know enough yet. It certainly is the case that JPMorgan, although more prudent than many other banks over the last decade, has frequently been just as dishonest. It has done a number of extremely unethical things, some of which I mention in the book. So it wouldn’t be a surprise if they had not been forthcoming about this.

Do you think it will make any difference in how banks are regulated?

I fear not. Honestly. I’m sure that Mr. Dimon is momentarily chastised, and that JPMorgan will not be making any similar bets in the next couple of years. But is it going to change the overall posture of bankers and banking and is it going to change the regulatory environment in any significant way? I tend to doubt that. Unfortunately.

So where does this leave us? Your book is filled with a strong sense of personal outrage. How do you personally feel about the prospect that the only thing that could get us out of the mess we’re in is yet another crisis, perhaps even worse than the one we just lived through?

Personally, I am very fortunate. I have a very blessed life. I made some money earlier, I’m basically pretty financially secure. I can’t have private jets and private islands but I don’t have to worry about having a roof over my head or being able to eat well, unlike many people in this country going forward. And I do work that I love. I love making movies, I love writing books. Personally I’m fine.

But the country is not. But this happens to countries. This is not the first country it’s happened to. It’s not even the first time it happened to the United States. We’ll see whether we come out of it. Last time it happened we came out of it, eventually. It took a long time and it was very painful but eventually we came out of it. Will that happen again or not, I don’t know, I honestly don’t.
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rocketsjudoka · May 18, 2012

I'm getting the feeling we are going to see a repeat of Fall 2008 in the next few years. At this point it is likely going to take a complete collapse of our banking system to get Congress to make real reform.

Of course even then there might still be the people screaming about "Socialism" trying to gut it. I honestly don't understand the POV from some of these people. They are upset that banks got bailed out yet fight tooth and nail against regulations that might prevent that situation.

thadeus · May 18, 2012

Wall Street is bad for America.

Hightop · May 18, 2012

rocketsjudoka said: ↑

I'm getting the feeling we are going to see a repeat of Fall 2008 in the next few years. At this point it is likely going to take a complete collapse of our banking system to get Congress to make real reform.

Of course even then there might still be the people screaming about "Socialism" trying to gut it. I honestly don't understand the POV from some of these people. They are upset that banks got bailed out yet fight tooth and nail against regulations that might prevent that situation.
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There will be regulations against bailouts?

Rip Van Rocket · May 18, 2012

rocketsjudoka said: ↑

I'm getting the feeling we are going to see a repeat of Fall 2008 in the next few years. At this point it is likely going to take a complete collapse of our banking system to get Congress to make real reform.

Of course even then there might still be the people screaming about "Socialism" trying to gut it. I honestly don't understand the POV from some of these people. They are upset that banks got bailed out yet fight tooth and nail against regulations that might prevent that situation.
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It's all about being reelected and not what's best for the country for the politicians on both side of the aisle. Term limits would make a huge difference, but Congressmen have it so good, that will never happen. Very sad, and yes I think bad times are ahead.

rocketsjudoka · May 18, 2012

Hightop said: ↑

There will be regulations against bailouts?
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If I recall correctly Dodd-Frank did place restrictions on bailouts.

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