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January 16, 2015
New Congress Off to Expected Start
    by Robert Kropp

The Republican majority votes to roll back key elements of the Dodd-Frank bill, and Bernie Sanders introduces an amendment to force Senators to vote on whether or not they believe the science of climate change. First of a two-part series.

In December, 2013, more than three years after its inclusion in the Dodd-Frank financial reform legislation, the Volcker Rule was finally issued by five federal regulatory agencies. The purpose of the Rule was specific: to prevent big banks from repeating the proprietary trading that led to the financial crisis and a subsequent recession whose effects are still being felt, especially by the poor here in the US and across the globe.

Yet with so many large-scale ideological skirmishes lined up, Republicans in the new Congress, helped along by a small coterie of Democrats close to the outsized campaign contributions of the financial industry, have chosen the rolling back of key elements of the Volcker Rule as their first priority. This week, the US House of Representatives passed a version of an Omnibus Bill that delays by two years the requirement that banks dispose of their holdings in collateralized loan obligations; misuse of the financial instruments by the largest investment banks led directly to the 2008 financial crisis and the global economic depression that followed.

"Somehow, Wall Street bankers, the supposedly smartest people in the room, can't seem to comply with a law passed in 2010 by ... 2017," Rep. Maxine Waters said. "Seven long years isn't enough. The Republicans and the banks want nearly a decade."

The involvement in the legislation of the same too big to fail banks whose conduct caused the crisis—it has been reported that lobbyists for Citigroup originally authored the measure, and that JPMorgan Chase Chairman and CEO Jamie Dimon personally called legislators to persuade them to get on board—suggests an ongoing corporate governance crisis in Wall Street financial institutions, and it is to be hoped that sustainable investors act to address the crisis during the upcoming proxy season.

In the meantime, activist nongovernmental organizations (NGO) unencumbered by institutional conceptions of fiduciary duty have spoken out strongly against the legislation, which is expected to pass the Republican controlled Senate as well before heading to President Obama's desk for his signature or veto. “Section 630 of the Omnibus Bill...greatly expands the scope of permissible swaps dealings in which government backstopped institutions (domestic and foreign) can participate,” argued Occupy the SEC.

“The proponents’ argument boils down to the following tautology: markets will fall apart if banks cannot continue using the same derivatives that previously caused the markets to fall apart,” Occupy the SEC stated in an online petition calling on legislators to rejects the measure. “Section 630 of the Omnibus Bill...would impede efforts to improve financial stability and the functioning of the financial markets.”

Were the Omnibus Bill with the Volcker rollback to be passed into law, Americans for Financial Reform warned, “Banks would once again be allowed to use insured deposits and other taxpayer subsidies and guarantees to gamble in the derivatives markets – a form of activity that was one of the drivers of the 2008 financial crisis and of the economic devastation that followed.”

“The section of Dodd-Frank that Congress is proposing to repeal was put in place to help prevent future bailouts of too big to fail banks. It cordons off the kinds of extraordinarily risky transactions that were at the heart of the financial crisis,” Lisa Donner, executive director of Americans for Financial Reform, said. “Including this repeal in the budget is outrageous. It’s a giveaway to a tiny handful of the biggest Wall Street banks that puts the country’s financial and economic stability at risk.”

Next: Bernie Sanders to Republicans: State for the record whether or not you believe the science of climate change.


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