Under the guise of reducing government spending and “onerous” regulatory burdens, the House of Representatives has introduced appropriations bills that would gut the necessary funding to carry out the Dodd-Frank financial reform act, including regulating the toxic derivatives, such as swaps and collateral debt obligations (CDOs), that blew a hole in financial markets and drove the economy into the severe recession that may or may not be now in a slow recovery. The bills will have to pass muster in the Senate to become law, but members of the House have a track record of unwillingness to negotiate in good faith and a willingness to shut down the government rather than compromise.
Putting aside questions regarding their zealousness and competence, the Securities and Exchange Commission and the Commodities Futures Trading Commission are being set up to fail. Wall Street needs policing. It is in the interest of the American public that regulators succeed in policing Wall Street. But Congress, by gutting the regulators, is putting the interests of financiers’ compensation schemes ahead of the public interest.
CFTC chairman Gary Gensler said, “The result of the House bill is to effectively put the interests of Wall Street ahead of those of the American public, by significantly underfunding the agency Congress tasked to oversee derivatives ? the same complex financial instruments that helped contribute to the most significant economic downturn since the Great Depression.”
Mr. Gensler pointed out that the $300 trillion swaps market is eight times larger than the futures market the CFTC was charged with regulating before Dodd-Frank, yet the House proposes to cut its budget significantly. House Appropriations Committee chairman Harold Rogers argued that the CFTC should return to its “core duties,” “a statement that brazenly ignores a new set of duties Congress put on the books” (“Lost the Vote? Deny the Money,” New York Times).
According to Matt Taibbi of Rolling Stone, nine bills have been introduced this year that would water down and delay provision of Dodd-Frank. One of them, H.R. 3336, named the Small Business Credit Availability Act, would restrict the definition of “swap dealer” so that there would be less oversight of credit default swaps, which led to the collapse of AIG and the credit crisis of 2008.
A co-sponsor of Dodd-Frank, Rep. Barney Frank was quoted as saying, “Unregulated, irresponsible derivative transactions are one of the major causes of the economic crisis. In the Financial Reform bill, we adopted provisions that allowed derivatives to perform their legitimate function for companies seeking to stabilize prices, while substantially reducing opportunities for abuse. Two bills reported out by the Republican majority on the Financial Services Committee in their current form would re-deregulate derivatives in ways that would again make them a threat to our economy.” (“Does Congress Want Another Economic Meltdown?,” William D. Cohan, Bloomberg).
Many Republicans and some Democrats have cooperated in Wall Street’s war against reforms. One of them, Jim Himes of Connecticut, formerly associated with Goldman Sachs, introduced H.R. 3283, which would exempt foreign affiliates of swaps dealers from Dodd-Frank reforms, thus allowing Wall Street banks to evade U.S. regulations by originating trillions of dollars of swaps in their foreign subsidiaries. This bill “would leave vast parts of the swaps market not coming under reform,” CFTC chairman Gensler was quoted as saying.
“The SEC and CFTC are being asked to fight Wall Street’s weapons of mass destruction with peashooters. If these irresponsible politicians want another economic meltdown, they are doing all the right things,” warned Atlanta investor attorney J. Boyd Page of Page Perry.
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.