Posts Tagged ‘Dodd-Frank’

Failing to derail Obamacare before most of its benefits become abundantly clear– and dear– to Americans, Republicans have now intensified their attack of President Obama’s other landmark achievement, namely Wall Street reform.

Texas Republican Rep. Jeb Henserling’s WSJ column (July 25) is part of a sprawling GOP attack on the Dodd-Frank Wall Street Reform Act. In July alone, the assault included more than a dozen congressional hearings. The common theme of all: red tape wound around bankers from this law is stifling the economy.

For starters, Dodd-Frank remains largely unimplemented. Public Citizen documented that 80 percent of the rules stemming from Dodd-Frank aren’t in force.

Then there’s the issue of trusting bankers off the leash.  Rep. Henserling demonstrates impressive bravery in his defense of this industry. In the last few months, JP Morgan erased 20 percent of shareholder value with a $6 billion trading loss its CEO admitted was a “terrible mistake.” HSBC admitted to laundering money for Mexican drug lords and Middle East terrorists. Barclays admitted to fixing the world’s leading interest rate index. Peregrine Financial declared bankruptcy after stealing customer funds. Capital One snookered credit card customers.   Financial speculators drove up the cost of gasoline to $4/gallon. Standard Chartered did $250 billion in business with Iranian banks despite sanctions forbidding it to do so. The list goes on and on.

That’s quite a rogues gallery Rep. Henserling serves.  Wall Street campaign contributions may be the liquor behind his courage. Wall Street accounts for $831,000 in cash deposits into Henserling’s re-election efforts since the Wall St crash of ’08. That doesn’t include the hundreds of thousands of more dollars into his leadership PAC.

In his article, Rep. Henserling revises history by claiming misguided government policy promoted  the high risk lending that inflated the housing bubble, not rogue banking, which caused the 2008 financial crash.  His evidence: Government sponsored securitizers bought 70 percent of the high risk loans. He fails to note that these loans accounted for a small percentage of failed mortgages.  Private securitizers account for the lion’s share of the problem. Yes, reform of government securitizers deserves urgent reform. Republicans, including Rep. Henserling, control the House. Yet this body has yet to produce any reform legislation.  Rep. Henserling claims speciously they’re waiting for President Obama.  (Why would they do that, if they consider so ill of his Wall Street reform act? )

Henserling claims existing banking law, well enforced, might have prevented inflation of the housing bubble, and that regulators did enjoy “the authority to prevent Wall Street from taking outsize risks.”  Fair point. Indeed, the regulators appointed by Republican President George W. Bush let Wall Street run wild, and ignored their own tools to arrest recklessness.  Much of that recklessness derived from the measure championed by fellow Texan Sen. Phil Gramm to join commercial and investment banking.

In many ways, the new Dodd-Frank law restates and reauthorizes regulatory power to combat recklessness.

The Volcker Rule, which Henserling decries as complex, aims to prevent bankers gambling with taxpayer-insured money.  A strong Volcker rule would have saved JP Morgan shareholders  from the gambling loss.

Dodd-Frank introduces transparency and price competition in the derivatives trading arena. Such transparency will help ensure consumers have access to competitively-priced energy commodities,  which will come at the expensive of runaway profits that the banks have made in these “dark markets“. The LIBOR scandal demonstrates traders willing to lie (for the price of a bottle of Bollinger champagne). Each dollar of bank derivative trading profit is a dollar that doesn’t go to real businesses attempting to hedge their risk.  Real economy firms who use hedges support derivative reform, such as the gas station owners organized as the Commodity Markets Oversight Coalition.

The Consumer Financial Protection Bureau, which Henserling inexplicably claims would have prevented the creation of the ATM, just returned $140 million to snookered customers of Capital One.

Dodd-Frank isn’t perfect. That’s because bankers blocked key reforms or added rotten provisions when Congress made this sausage. Henserling claims it didn’t truly solve the too-big-to-fail problem.  Bankers successfully blocked a key provision to cap the size of banks.  Even mega-bank creator Sanford Weill, former CEO of Citigroup, now acknowledges the banks should be broken up.

Since Wall Street crashed the economy under a Republican president, Rep. Henserling apparently feels compelled to produce this hash of history and analysis  in service of his political party. But Americans reeling from past and present Wall Street problems deserve better.

Tyson Slocum directs Public Citizen’s Energy Program. Follow him on twitter @tysonslocum. Bart Naylor is Public Citizen’s Financial Policy Advocate. CongressWatch intern Camille Lacour also contributed.

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New rules by the Commodity Futures Trading Commission (CFTC) to curb excessive speculation in energy commodity markets do not go far enough to protect consumers, Public Citizen said in testimony today before a U.S. Senate subcommittee.

"Tyson Slocum" "Public Citizen" "Energy Director"

Tyson Slocum, director of Public Citizen's energy program

Excessive speculation by financial and energy corporation traders have pushed prices beyond the supply-demand fundamentals, sending costs for consumers through the roof, Tyson Slocum, director of Public Citizen’s Energy Program, told the U.S. Senate Committee on Homeland Security and Governmental Affairs’ Permanent Subcommittee on Investigations.

“Banks dominate energy trading markets through their role as swaps dealers and as managers of index funds, which facilitates successful proprietary trading operations,” Slocum said. “While the new CFTC rules help to rein in the Wild West feature of energy commodity markets, consumers still are plagued by unreasonably high prices.”

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A divided U.S. Commodity Futures Trading Commission (CFTC) delivered soft rules that won’t take effect until who-knows-when. But consumers aren’t divided that Wall Street-driven commodity speculation is killing our economy. It is now time for Congress and the president to step in and order the CFTC to deliver stronger position limits to protect our economy and hold Wall Street accountable.

As thousands of Americans occupy Wall Street, Wall Street banks occupy our government. Fresh evidence is the CFTC’s long-delayed rule that fails to effectively crack down on the excessive speculation that has defined energy trading markets.

Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which included mandatory position limits with the understanding that unregulated energy markets allow Wall Street banks to play a role in encouraging excessive speculation. Such speculation increases prices paid by households, and Benjamin Bernanke, chairman of the Federal Reserve, warned earlier this year that sustained high commodity prices pose a “threat” to America’s economic recovery.

Congress designed position limits as a central tool to eliminate excessive speculation and used the decades-old agricultural position limit rules as a model. Section 737 of Dodd-Frank orders that the CFTC “shall … establish limits on the amount of positions, as appropriate … [in order] to diminish, eliminate or prevent excessive speculation … [and] to deter and prevent market manipulation, squeezes and corners.”

The CFTC has been split for months, as frenzied lobbying by Wall Street banks denied Chairman Gary Gensler the majority votes needed to take strong action. With today’s so-called compromise, oil traders are limited to 25 percent of deliverable supply in the spot month and natural gas traders will be allowed to hold contracts equal to five times deliverable supply. For longer-term oil contracts, positions will be limited to 10 percent of the first 25,000 contracts of open interest and 2.5 percent after that.

These limits are simply too permissive to the big banks and allow them to hold positions that are too large. And with the rules’ implementation delayed until the commission defines the term “swap” (no timeframe on that), the banks’ status quo reigns supreme.

Public Citizen would prefer to see limits at 5 percent in the spot month and for the first 25,000 contracts.

In a development that shows just how much industry dominates the debate, Wall Street and its allies argue that these weak rules go too far and exceed the CFTC’s statutory authority.

Statement of Tyson Slocum, Director, Public Citizen’s Energy Program

 

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