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Dayen writes: "Next week marks the 10th anniversary of the run on Bear Stearns, the investment bank that collapsed under the weight of toxic subprime mortgages."

Senator Joe Donnelly. (photo: ABC News)
Senator Joe Donnelly. (photo: ABC News)

One Thing Democrats and Republicans Apparently Agree On: Destabilizing the Banking Sector Again

By David Dayen, The Los Angeles Times

11 March 18


ext week marks the 10th anniversary of the run on Bear Stearns, the investment bank that collapsed under the weight of toxic subprime mortgages. Although JPMorgan Chase snapped up Bear Stearns for pennies on the dollar, this maneuver failed to stop the bleeding from the mortgage meltdown, leading to the biggest economic crisis in nearly a century.

That seems like a terrible political backdrop for the Senate to pass a bill that deregulates the banking sector. But that's exactly what's about to happen.

The Economic Growth, Regulatory Relief and Consumer Protection Act, which pro-regulation groups have called the "Bank Lobbyist Act," advanced in the Senate this week with the support of 50 Republicans, 16 Democrats, and one Democratic-leaning independent. Bipartisanship, it seems, isn't dead.

We're witnessing a familiar swing of the pendulum: toward regulation when banks crash the economy, away from regulation when memories fade. The next stop is often financial crisis, and the nonpartisan Congressional Budget Office stated this week that the bipartisan legislation would increase the risk of another one happening.

Pitched as a way to provide regulatory relief for community banks, the bill goes well beyond that; it rolls back key pieces of the Dodd-Frank Act and includes giveaways to large institutions of the same size and scope as the ones that crashed the economy in 2008.

The most important measure in the legislation raises the threshold for enhanced regulatory supervision by the Federal Reserve from $50 billion to $250 billion. The beneficiaries, 25 of the top 38 banks in America, could be called "stadium banks:" not big enough to count as Wall Street mega-banks, but big enough to have a sports stadium named after them.

A failure of one or more of these banks would likely be catastrophic — a fact made obvious by the recent past. For example, Calabasas-based Countrywide was America's biggest subprime lender, supplying one out of every five new mortgages, when it fell in 2008, deepening the financial crisis. It had assets of $200 billion.

Dodd-Frank targeted stadium banks for more rigorous monitoring and increased capital and liquidity requirements, so they — instead of taxpayers — could pay for their own losses. If the new legislation releases stadium banks from such rules, they could take on more risk, and they would lose a powerful disincentive to get even bigger by gobbling up smaller rivals. So although it is intended to enhance community bank competition, the deregulatory legislation will likely consolidate the industry.

Technically speaking, the Federal Reserve could still apply tighter rules on these banks. But a one-word change in the bill, from "may" to "shall," obligates the Fed to tailor any new rule it makes to a bank's size and risk profile. This language is an invitation to litigation, with banks claiming that the Fed didn't undertake the proper cost-benefit analysis. It actually would leave the Fed more constrained to act than before the financial crisis. And the Fed didn't exactly cover itself in glory during that episode.

Big banks shouldn't be jealous, as they get goodies as well. Nearly all giant foreign banks with operations in the U.S. could enjoy the same weaker rules as the stadium banks. Stress tests currently conducted semi-annually to measure how big banks would perform in a downturn will now occur on a "periodic" basis, with no definition of "periodic" given. Citigroup and JPMorgan could take advantage of a relaxation of leverage rules, enabling them to take on more debt and ramp up risk. And big banks would also be able to count municipal bonds as highly liquid assets, hooking an unrelated $3.8-trillion market into any financial catastrophe.

The list of problems with the legislation goes on. It rips consumer protections away from mortgage borrowers. It exempts 85% of banks and credit unions from supplying data used to detect discriminatory lending practices. There are a few crumbs for consumers, but nothing that justifies the widespread weakening of financial rules.

Banks, including the community banks that allegedly need relief, are enjoying record profits. And the Trump administration doesn't need any help deregulating the financial sector; they're busily doing that on their own. So why would more than one-third of the Senate Democratic caucus provide the margin of victory on a bill assisting Trump's aims?

The answer is simple: money. North Dakota, Indiana and Montana may not have any banking giants within their borders, but the top three recipients of campaign donations from commercial banks since 2017 are Democrats from those states who are up for reelection in November: Heidi Heitkamp, Joe Donnelly, and Jon Tester.

This whole process reveals that bipartisanship usually arrives in Washington at the barrel of a money cannon. There is no constituency for bank deregulation outside of executive boardrooms and K Street lobby shops. Nobody is begging Congress to call off financial regulators. In fact, they'll likely punish politicians who do. But when powerful interests need something done, suddenly Democrats and Republicans can put aside differences and work together. Another way of saying bipartisanship is "watch your wallet." your social media marketing partner


A note of caution regarding our comment sections:

For months a stream of media reports have warned of coordinated propaganda efforts targeting political websites based in the U.S., particularly in the run-up to the 2016 presidential election.

We too were alarmed at the patterns we were, and still are, seeing. It is clear that the provocateurs are far more savvy, disciplined, and purposeful than anything we have ever experienced before.

It is also clear that we still have elements of the same activity in our article discussion forums at this time.

We have hosted and encouraged reader expression since the turn of the century. The comments of our readers are the most vibrant, best-used interactive feature at Reader Supported News. Accordingly, we are strongly resistant to interrupting those services.

It is, however, important to note that in all likelihood hardened operatives are attempting to shape the dialog our community seeks to engage in.

Adapt and overcome.

Marc Ash
Founder, Reader Supported News

+30 # BetaTheta 2018-03-11 11:07
We can only hope that the next crash is finally a "Parkland moment" that finally rouses the slumbering beast that is public opinion.
0 # Robbee 2018-03-11 16:52
Quoting BetaTheta:
We can only hope that the next crash is finally a "Parkland moment" that finally rouses the slumbering beast that is public opinion.

- the silver lining to dickhead's proposed world trade war? - we may not have a world economy to worry about?

"Next time, we must resolve to MAKE OUR VOTE COUNT!" - (caps in original) - bernie
0 # Depressionborn 2018-03-13 14:23
sorry rob, Germans add 30% to our cars, we add nothing to theirs-hardly your "Trump proposed world trade war" when we want equal trade. Maybe you might do a little more homework?
0 # Depressionborn 2018-03-12 15:20
banks created a nice credit expansion to save their stupid selves. Nothing new-happened before: [not nice]
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Ludwig von Mises - Wikiquote
+20 # wantrealdemocracy 2018-03-11 13:18
All we have to do to save our banking system is to do what Kennedy had planed before they killed him. SHUT DOWN THE FEDERAL RESERVE. In our constitution it states that the Treasury Dept with over sight by Congress is in control of our monetary system. Late at night on the last day before the Christmas break Congress voted by a majority to put our monetary system under control of the banksters. There were only 8 people in the house to vote and they voted to pass this awful legislation which MUST BE CHANGED.

The rotten Federal Reserve gets to print money BACKED BY NOTHING and charge interest on it. It is this illegal interest that is killing our nation.
+6 # Rodion Raskolnikov 2018-03-12 06:12
want -- of course the Treasury Dept. has been controlled by Goldman Sachs since at least the 1980s. I'm not sure it would be much better. Let's face it -- a handful of very big global banks have taken over the US economy. They run it for their own benefit.

The FED was the baby of JP Morgan and the Rothschild banking empire (via Paul Warburg). Now the Treasury belongs to Goldman Sachs.

And they are complaining about Putin taking control of the presidency!!! All of America is for sale.
+7 # laborequalswealth 2018-03-12 10:49
Total agree. We now PAY banks to take out taxpayer dollars, then lend it back to us at interest! The Fed is nothing more than a counterfeit machine.

+2 # Benign Observer 2018-03-13 12:32
Has Warren weighed in on this, do you know?
+38 # wrknight 2018-03-11 13:25
Supporting Wall Street is not the only thing that Democrats and Republicans agree on. War spending is another. What Wall Street and the war-industrial complex have in common is the wealth of those who control those industries and can afford to purchase our politicians.
+21 # MaggieB 2018-03-11 14:07
Whatever happened to the progressive spirit of the Northern Plains and the great state of North Dakota, home of the Bank of North Dakota and the only state-owned flour mill in the U.S.? Senator Heitkamp's support of this bank-lobby-act seems a flat-out betrayal of that spirit, the NPL, and the ordinary working people and farmers of North Dakota.
+20 # PABLO DIABLO 2018-03-11 14:28
Vote these scoundrels out. Take back "our" government.
-1 # Robbee 2018-03-11 16:45
Quoting PABLO DIABLO 2018-03-11 14:28:
Vote these scoundrels out. Take back "our" government.

- i think i'm over, without any regard to who we're replacing them with, voting scoundrels out?

in order to rid us of dickhead, for one, i will not vote for pence, sorry! - in fact, no matter how weak the candidate, sorry! robbee votes dem!

in 2016 many here voted "never hillary!", without any regard to replacing her with dickhead! - pre-hatch chicken counters! they even said dickhead could never be elected, or not be re-elected, and we will all live happy ever after voting dickhead? or writing-in bernie? or voting jillie? or depriving lote of our vote?

well, it didn't happen! and those some of us threw under the bus! won't live happy ever after! - frankly, hundreds of thousands of us won't outlive/survive dickhead's regime at all!

# Robbee 2018-02-10 19:21
How to Not Die in America
By Molly Osberg, Splinter
10 February 18

- for your testimonial and mention that 45,000 people die every year for lack of coverage, hugs and huge thanks!

but me, no one here on rsn ever mentions those 45,000 people who die every year due to repuke congress & prez, state legislatures & governors

an audience of one, loud and clear i hear you!

- next time, lets make our vote count!

"Keep the faith and please remember, despair is not an option.
In Solidarity,”
Bernie Sanders
"Next election, resolve to MAKE OUR VOTE COUNT!”
+2 # Benign Observer 2018-03-13 12:34
Trying to derail another discussion, comrade? yawn.
+4 # worriedforusa 2018-03-11 20:20
For decades, a many have disparaged "the Congress," yet most of the Congress keeps getting reelected! WHY?

I discovered a long time ago that while many voters don't like "Congress," they DO like THEIR members of congress! It's those other scoundrels they want to toss out!

Again, Why? If you ask, you'll hear "I get a newsletter from him/her every few months," "S/he's a Democrat (or Republican) and that's my party," "I like his/her smile (style, hair, etc)

Ask them what they' don't like about the other Congress members, and hear "They're all crooks, except my guy," "They're always going on vacation; my Congressman/wom an works the whole time right here in the district," "Those other guys are getting paid off by lobbyists."

I've learned not to point out the obvious: that everyone believes everyone EXCEPT their member of Congress is a fraud, crook, or otherwise dumb!

A friend told me in 2008 that McCain would be the victor. He was absolutely certain ... b/c all of his friends were Republicans. Another friend, who always votes Democrat, said "Obama will win ... you just wait!"

And these same conversations happened in 2012.

It's called "confirmation bias" ... you and your friends like this person, so (of course) everyone does! Or, you voted for him/her so s/he must be good!

Hopefully the partisans haven't yet overwhelmed the independent thinkers!
0 # chapdrum 2018-03-11 21:02
We can all get along; who knew?
+5 # Rodion Raskolnikov 2018-03-12 06:38
Both establishment political parties are under the control of very wealthy people and institutions. There is a soft revolution brewing. There are more voters registered as independents or in minor parties than there are in the republicans and democrats combined. The parties no longer represent "the people." They represent only their billionaire funders.

Trump's election was in part caused by right wing populism, the same sort of thing that has been disrupting Europe. There's also a left-wing populism behind candidates like Sanders. I don't see the Trump "revolution" reversing, no matter how much the establishment tries to tear him down with its henchmen like Mueller and his avalanche of leaks to the establishment media like the Wapo and NYT. All this only feeds the anger of the right wing populists who voted for Trump.

The left wing populists are also gaining strength as the establishment democrats get exposed for their anti-democratic campaign tactics.

Change is coming. Change is risky and often ugly (as in the case of Trump). But the status quo is simply no longer possible. The establishment politicians are leading us into national poverty and permanent or total war. This is national suicide. We are sick and tired of looking down the "barrel of the money cannon." It is time to turn the guns on establishment republicans and democrats.
+8 # laborequalswealth 2018-03-12 10:47
Except that Dodd-Frank is a total piece of crap. It now has over 5,000 page of "regulations", i.e. loopholes you could drive a 747 through.

Reinstate Glass-Steagall. It only worked for 60 years!

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