House Democrats Warp Financial Oversight Board

[Better Believe It]

House Dems Warp Financial Oversight Board
Barney Frank’s committee gives away the store in two concessions to the banks
By Matthew Rothschil
October 23, 2009

I was reading the business pages of the New York Times today, and I caught an article at the bottom of Page B3 entitled “Vote Backs a Financial Oversight Body.”

And it turns out there’s less here than meets the eye.

And that’s because, as the article noted, “a group of Democrats with close ties to the banking industry” succeeded in diluting the bill in Barney Frank’s Financial Services Committee.

Originally, the bill would have granted wide authority to the states to regulate banks more vigorously than the federal government has been doing.

But the Democrats in the back pocket of the banks, along with Republicans in the front pocket, didn’t want those pesky states to be able to tell the banks what to do.

So they tried to outlaw entirely the rights of states to impose stiffer regulations.

The House ultimately compromised by allowing the Comptroller of the Currency to override the state regs if they are “significantly” at odds with the federal regs.

Well, what does “significantly” mean?

Michael Hirsh of Newsweek points out another warping of the bill by the House Democrats. Turns out that Wall Street will still be able to trade some derivatives in the dark.

“Thanks to weeks of intense pressure from Wall Street banks and their customers in corporate America, the bill that was approved on Thursday by Rep. Barney Frank's Financial Services Committee is riddled with exceptions and loopholes, many critics say,” Hirsh wrote. “If it becomes law, Wall Street's finest could be driving truckloads of new derivatives products through those loopholes for years to come.”

So, after Wall Street destroyed the U.S. economy by gambling on derivatives, the Democrats in Congress still are failing to muster the necessary backbone to thoroughly regulate them.

What Sen. Durbin said of Congress a few months ago is still true today: “The banks own this place.”

http://www.progressive.org/wx102309.html

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Too Hard to Understand
'Too Big to Fail' is one problem. But Barney Frank's loophole-filled derivatives bill has created another
By Michael Hirsh
Newsweek
October 16, 2009

Wall Street can't govern itself. We know that now. So you might think that the authorities in Washington would tell the Wall Street lobby where to stick it and insist on a lot more clarity when it comes to trading in derivatives, which until now has been almost entirely unencumbered by government. That appeared to be what the Obama administration was asking for last June when it demanded that all standardized over-the-counter derivatives be traded on an open and supervised exchange, with the Securities and Exchange Commission and the Commodity Futures Trading Commission as the sole judges of what is standardized. That way authorities would know most of what was being traded and could make sure the major players weren't getting in over their heads. But thanks to weeks of intense pressure from Wall Street banks and their customers in corporate America, the bill that was approved on Thursday by Rep. Barney Frank's Financial Services Committee is riddled with exceptions and loopholes, many critics say. If it becomes law, Wall Street's finest could be driving truckloads of new derivatives products through those loopholes for years to come.

Frank disputes that. "This isn't finished yet, so it's irresponsible to talk about loopholes," says his spokesman, Steve Adamske, who notes that the House Agriculture Committee will soon address some of these concerns with its own bill. But Frank is considered the key player, and it is significant that among the toughest critics of his committee's bill is Gary Gensler, the chairman of the Commodity Futures Trading Commission. Gensler was a pro-deregulation guy in the '90s who has gotten some serious religion this time around, and he's turned out to be a far more aggressive advocate of derivatives regulation than even the Obama administration. Gensler pushed Frank's committee to drop some exemptions that would have allowed pretty much anybody to avoid trading on exchanges if they could claim vaguely that they were hedging risk. "Gensler was very helpful," says Adamske.

Corporate customers of Wall Street have been, in large part, pushing for such exemptions. But they should think hard about this. Yes, they want to avoid the margin requirements for derivatives that mean they have to put up capital on an exchange. But one of the reasons Wall Street is back to making record profits—and awarding itself record bonuses—is because of all the proprietary trading it does in derivatives and structured products off exchange. Huge profits are why the banking industry resisted all efforts in the '90s to "standardize" derivatives and allow them to be traded on an exchange. For the banks, the more custom-made and out of sight the derivative, the harder it is for investors to figure out its fair value and real risk—and the easier for the banks to charge a large "spread" and make a profit. Guess who was coming out on the bad end of those deals? Their customers.

The failure to push standardized derivatives onto exchanges was also why the ratings agencies got away with such bad and fraudulent ratings of subprime-mortgage-backed securities products: there was no way to check what they were doing. "The spreads in exchange trading are a tiny fraction of what they are customized products," says Barbara Roper of the Consumer Federation of America. "The requirement for exchange trading has the potential to really lower costs." Gensler agrees.

The reason is simple capitalism. Open, competitive markets mean lower prices. Rigged markets—what we have now—means someone makes out like a bandit. That someone continues to be Wall Street, which came very close to blowing itself and the rest of us up late last year and is now settling back into its old comfy profit margins. And that, at least, should be fairly easy to understand.

Please read the complete article at:

http://www.newsweek.com/id/217999

[Laelth]

1. Vomit. n/t

:puke:

:dem:

-Laelth