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kpete

(71,980 posts) Tue Dec 16, 2014, 11:44 PM Dec 2014

Inside Wall Street’s new heist: How big banks exploited a broken Democratic caucus

Inside Wall Street’s new heist: How big banks exploited a broken Democratic caucus
Want to really know how that provision watering down bank reform got in the CRomnibus? Here's the ugly truth

....this shows real dysfunction in how Democrats work. Giving Mikulski carte blanche led to an embarrassing deal that revealed real fissures within the party caucus. The leadership should have seen this coming, but either let it happen or actively participated in the rollback (a claim from the Wall Street Journal editorial board that Chuck Schumer “engineered” the swaps provision had to be retracted within hours).

More important, the leadership failed to listen to the liberal wing, who were loudly and publicly opposed to the swaps rider. This is a familiar refrain from liberal congressional aides; their side of the argument never gets represented at the negotiating table.

The hardening conventional wisdom is that Wall Street lost more than it won with its power play on the CRomnibus, because it revealed itself as a giant liberal target. Mainstream Democrats definitely underestimated the strength liberal reformers brought to the fight, so maybe future actions will be undertaken with that in mind.

But it’s just as likely that the establishment didn’t mind the outcome, letting them look like the sensible centrists “getting something done.” That was probably the motivation behind President Obama ultimately endorsing and even whipping for the bill.

Whatever the outcome, we know that Wall Street exploited a fractured Democratic caucus to restore a big subsidy to its profits. And if Democrats don’t contend with that – or worse, if they don’t want to – you can expect many more congressional victories for the financial sector.

the rest:
http://www.salon.com/2014/12/16/inside_wall_streets_new_heist_how_big_banks_exploited_a_broken_democratic_caucus/?utm_content=bufferff367&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

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Inside Wall Street’s new heist: How big banks exploited a broken Democratic caucus (Original Post) kpete Dec 2014 OP

"Even w/o the (Citi rider), this was loaded w/ favors to wealthy and well-connected special interest RiverLover Dec 2014 #1

RiverLover

(7,830 posts)

1. "Even w/o the (Citi rider), this was loaded w/ favors to wealthy and well-connected special interest

Reply to kpete (Original post)

Wed Dec 17, 2014, 08:01 AM

Dec 2014

and its very existence, as a must-pass, short-term budget bill larded up with unrelated policy riders that will last forever, sets a dangerous precedent for the future."

Thanks for posting this kpete. I found it sickening that it benefits more in the financial sector than just Citi. Thanks Paul Krugman for making it justifiable...

..."The so-called swaps push-out provision of Dodd-Frank, Section 716, forced commercial banks that trade certain risky types of derivatives to split them off into a separately capitalized subsidiary, uncovered by FDIC deposit insurance. Those attempting to downplay Section 716’s importance, like Paul Krugman, highlight the fact that uninsured institutions like Lehman Brothers played a critical role in the last crisis, and that risk can cascade through an interconnected financial system no matter where those risks are initially housed. This theory actually made it easier to get the rider through Congress, giving lawmakers a plausible story that the provision wasn’t central to reform.

But this overlooks how 716 didn’t just limit taxpayer bailouts, but removed a lucrative subsidy for the four major banks – Citigroup, JPMorgan Chase, Bank of America and Goldman Sachs – that control almost all of the derivatives market. By holding derivatives inside their depository units, these banks benefit from an implicit FDIC guarantee for its counter-parties should those units fail. Keeping them in separately capitalized entities costs the banks more in short-term borrowing. As the Wall Street Journal’s John Carney points out, the banks’ parent companies have lower credit ratings than the depository units, which affects the price banks can ask for derivatives.

So in the end, removing 716 just gives four banks a giant subsidy they would lose by splitting out the derivatives books, no different than the other CRomnibus riders that aid the bottom lines of wealthy benefactors. That has implications for safety as well – if risky derivatives are cheaper to fund and more profitable to trade, banks will increase their production. Furthermore, banks’ concerns about possible energy swap losses related to the crash in oil prices added a sense of urgency."

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