Alexis Goldstein worked on Wall Street for seven years and is now an Occupy Wall Street activist.
When it comes to helping Wall Street lobbyists gut reforms passed in the wake of the financial crisis, there is often very little difference between the Republicans and the Democrats. Recent votes in the House Financial Services Committee demonstrated this bipartisanship all too well. Last month, the committee considered H.R. 1256, the Swaps Jurisdiction Certainty Act, which garnered a “Yea” from every single Republican and a majority (17) of Democrats. Eleven Democrats voted against the measure, including Ranking Member Maxine Waters (D-Calif.). Republicans are making a move to bring this deregulatory bill to the House floor as early as Wednesday.
Despite its formal name, H.R. 1256 should really be called the “Intimidate a Financial Regulator Act.” The bill seeks to change how derivatives are regulated. Derivatives allow bets to be made on the future value of some real asset like corn or gold or a stock. Warren Buffett has called derivatives “financial weapons of mass destruction,” and they played a major role in the financial crisis; it was derivatives trading, for example, that brought down the giant insurance company AIG and led to a government bailout.
The Commodities Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) have authority to oversee different portions of the derivatives (or “swaps”) market. And in the wake of the financial crisis, the Dodd-Frank financial reform bill approved new regulations for derivatives, requiring the two agencies to come up with new enforcement rules, including how derivatives should be regulated when one portion of the trade is in the United States and another side is overseas, which regulators call “cross-border.” The SEC’s proposed cross-border rule is weak and allows U.S. banks to dodge rules governing derivatives if portions of their deals are done in their foreign branches.
But the CFTC has signaled that it will take a much tougher approach. When the industry got rules that limited their ability to speculate in commodities (which can drive up the price of food and oil) overturned in court, Gary Gensler, the CFTC’s chairman, vowed to fight back. Gensler has long been hated by the financial industry for his tough stances. It was the CFTC under Gensler that vigorously pursued the LIBOR-fixing scandal, where banks were found to have been deliberately manipulating a key benchmark for short-term interest rates. They continue to pursue an investigation into whether banks manipulated yet another key market benchmark, ISDAfix. Gensler has led the CFTC to complete 40 Dodd-Frank rules, more than any other financial regulator, despite the fact that his agency has the smallest budget of the financial watchdogs. He has also been fighting hard to ensure that U.S. rules will govern derivatives traded overseas so that banks can’t just sneak past U.S. regulations by trading out of, say, London. And that’s exactly the kind of spine that H.R. 1256 wants to snap.
Wall Street won’t stand for such strength coming from the CFTC, especially since, between the two regulators, the CTFC regulates the majority of the swaps market. The bill is sponsored by one of Wall Street’s favorite House members, Rep. Scott Garrett (R-N.J.) . The New York Times reported that Garrett received more than a half-million dollars in contributions from Wall Street in the last election, and that, according to Garrett himself, the banks asked in return that he “Put as much pressure as possible on the CFTC.” The bill forces the two regulatory agencies to “harmonize their rules,” which is Beltway-speak for “weaken the side that’s fighting back against Wall Street.”