Taibbi writes: "Wall Street lobbyists are awesome ... They always go right to the edge of outrageous, and then wittily take one baby-step beyond it."
President Obama signs the Dodd-Frank financial reform legislation. (photo: Getty Images)
How Wall Street's Rolling Back Financial Reform
20 September 12
all Street lobbyists are awesome. I'm beginning to develop a begrudging respect not just for their body of work as a whole, but also for their sense of humor. They always go right to the edge of outrageous, and then wittily take one baby-step beyond it. And they did so again last night, with the passage of a new House bill (HR 2827), which rolls back a portion of Dodd-Frank designed to protect cities and towns from the next Jefferson County disaster.
Jefferson County, Alabama was the most famous case - the city of Birmingham went bankrupt after being bribed and goaded into taking on billions of dollars of toxic swap deals - but in fact it was just one of hundreds of similar examples of localities being duped into suicidal financial deals by rapacious banks and financial companies. The Denver school system, for instance, got clobbered when it opted for an exotic swap deal pushed by J.P. Morgan Chase (the same villain in Jefferson County, incidentally) and then-school superintendent/future U.S. Senator Michael Bennet, that ended up costing the school system tens of millions of dollars. As was the case in Jefferson County, the only way out of the deal involved a massive termination fee that might have been even more destructive than the deal itself.
To deal with this problem, the Dodd-Frank Act among other things included a simple reform. It required the financial advisors of municipalities to do two things: register with the SEC, and accept a fiduciary duty to respect the best interests of the taxpayers they are advising.
Sounds simple, right? But Wall Street couldn't have that. After all, if companies are required to have a fiduciary responsibility to cities and towns, how in the world can they screw cities and towns? The idea was a veritable axe-blow to the banks' municipal advisory businesses.
So what did Wall Street lobbyists and trade groups like SIFMA (the Securities Industry and Financial Markets Association) do? Well, they did what they've been doing to Dodd-Frank generally: they Swiss-cheesed the law with a string of exemptions. The industry proposal that ended up being HR 2827 created several new loopholes for purveyors of swaps and other such financial products to cities and towns. Here's how the pro-reform group Americans for Financial Reform described the loopholes (emphasis mine):
For example, any advice provided by a broker, dealer, bank, or accountant that is any way "related to or connected with" a municipal underwriting would be exempted from the fiduciary requirement. A similar exemption would be created for all advice provided by banks or swap dealers that is in any way "related to or connected with" the sale to municipalities of financial derivatives, loan participation agreements, deposit products, foreign exchange, or a variety of other financial products.
So basically, if you're underwriting a municipal bond for a city or a town, and you happen also to give the city or town advice about some deadly swap deal that will put the city into bankruptcy for the next thousand years, you don't have a fiduciary responsibility to that city or town. The banks' view is that being asked to perform the merely-technical function of underwriting a bond is very different from advising someone to take on an exotic swap deal - so if a bank is mainly an underwriter and happens to offhandedly recommend this or that swap deal, it just isn't fair to drop this onerous financial responsibility, this weighty designation of municipal financial advisor, on its shoulders.
Here's how SIFMA describes what that awful burden would have been under Dodd-Frank's original reform:
The consequences of being deemed to be a municipal advisor are very serious. Providing municipal advice without having registered is "unlawful"-i.e. potentially criminal. The highest standard of conduct--a fiduciary duty--is imposed.
God forbid! Thankfully, this new law provides an exemption from that "highest standard of conduct" providing the bank or financial company is not just giving advice, but also performing a merely technical function like underwriting.
The details of this law are pretty hairy, but the basic idea is simple: provided a bank isn't dumb enough to only provide advice, or to ask for separate compensation for advice, it doesn't owe anyone any goddamned fiduciary responsibility. So they can keep screwing cities and towns as much as they'd like.
On the whole, this reminds me a lot of an episode of the classic British spoof show Brass Eye, which describes the sale of dangerous drugs as completely proscribed by law - unless the sale is conducted "through a Mandrill."
This bill passed last night with the support of both parties and Barney Frank. Are you proud to be an American yet?
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It looks like things are really working against the people.
Why would anyone step right up in full confidence to a roulette wheel in Vegas?
When even the House will tell you that Roulette has the odds heavily stacked in favor of the House ? And that is true even when the House is playing totally clean !
Cities are desperate, and, like people who can't afford home mortgages, Cities are willing to listen to "experts" who are totally blowing smoke.
The Republicans gutted Federal Revenue Sharing with the States. This, of course caused the States to curtail Revenue Sharing with the Cities.
All this amid a religion of no new taxes, and your "chickens" are ready-made for the plucking - everyone's broke, and they can't increase revenue by raising taxes, bcuz they now have Republican Controlled Legislatures.
Although the modern Robber Barons dress this up in arcane language, stealing is still stealing, and it's still pretty inelegant, no matter what else you might try to call it.
But the "genius" here is to have created the "crisis" that forced your "chickens" to call begging the fox to come guard the hen house in the first place.
See a book by Naomi Klein called "The Shock Doctrine".
--This book should be required reading for every citizen in my opinion. Before I read it, I THOUGHT I "knew"...it was an eye-opener.
you take a bunch of ignorant f'ing yahoos who have a football ideology of the world but no brains or commons sense, you give them power, and they get these grandiose, outdated rightwing fascist ideas. They meet some hood in a pinstripe suit and a violin case, and soon your town is turning tricks for her wall street pimps to the that 2000% interest loan.
The proposed first step to achieve that objective is to file multiple class-action lawsuits seeking to reverse two absurd Supreme Court decisions: Santa Clara ("corporations are persons"), and Buckley ("money is speech"). Success will require one of the five conservative Justices to again step forward and go down in history as a true American patriot, as did Chief Justice Roberts recently in upholding Obamneycare.
As the cases advance toward the Supreme Court, widening public awareness of them will propel a tsunami of public pressure, outcry, and support from the over 80% of American citizenry who are disgusted with the legalized corruption of our politicians by the obscene amounts of money-in-politi cs. Past Supreme Courts have been responsive to public opinion.
Once those decisions are reversed, the liberated Congress would be enabled to enact legislation in the public interest, such as to provide for public financing of elections, free airtime for candidates, universal health care, raising needed revenue from those who can best afford to provide it, and exerting world leadership in preventing and mitigating global warming.
You can contact me via the Web site on my RSN Profile Page, reachable by clicking on my photo.
Please, everybody, let's come up with some answers. Rooting out corruption in campaign financing is probably THE most pressing problem for us today!
Because Barn is a politician, and that's what politicians are paid to do. He is helping to gut the same laws that he once proposed.
Political Theater, anyone ?
Dodd-Frank is watered down pro-Wall Street BS.
What is the Obama White House going to do if Wall Street violates this faux reform?
Maybe, ask for more contributions??
Re-imposition of FDR's Glass-Steagall firewall between Wall Street gamblers & Main Street bankers would be a real reform.
But Obama and Geithner oppose FDR's reform--slightl y more violently than does Bain's Romney.
Investing in AMERICA'S Wall Street is like aiding and abetting criminals.
I gotta say...there's as much cognitive dissonance on the left as on the right these days.
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