Congress Lit the Fuse to the Next Financial Disaster
Last week, a massive, steaming heap of a bill made up of what amounts to nearly a year's worth of legislation, along with other garbage in the form of riders that were too noxious to pass on their own, was jammed through Congress under the guise of keeping the government open. Members were given two days to read and digest the 1,600-page concoction, hear from their constituents, and decide how to vote. The various legislation and changes to legislation contained in the bill completely ruin any potential humor that could come from the irony of an earlier released CIA report detailing forced rectal feedings.
Among its many pro-corporation/anti-human entries were a trucking industry block on new federal rules requiring truckers to get adequate sleep each week, an exemption for factory farms from the Clean Air Act for certain farm ponds and irrigation ditches, an overturned ballot initiative in the District of Columbia that would have legalized marijuana, the rights to continue to dump coal waste for the mining industry, and pension plans won the rights to cut the benefits of current retirees by repealing a 40-year-old law protecting them. Add to that, deep and significant cuts to the EPA, IRS, and Obama's educational initiative. And on page 1599 of the bill they also voted to raise the cap on individual campaign contributions by a factor of 10, raising it from $32,400 (more than many people make in a year) to $324,000 (which buys you a really nice house in a great neighborhood). It pretty much wipes out the McCain-Feingold Act. By some estimates, using separate funds, individual contributions could be as high as $648,000. Say goodbye to your vote counting. Those victories alone would make it appear as though the GOP came out on top this round, but what win would be complete without enormous gifts and giveaways to their constituents, Wall Street, corporations, and the super-wealthy?
Last year, Republicans in the House passed a bill that would have repealed regulations preventing derivatives trading from being insured by the FDIC, but the Senate killed it. Remember those complicated financial weapons of mass destruction that nearly took down the economy in 2008? Parts of the Dodd-Frank bill, written and passed after the financial meltdown, very specifically stated that its intention was to end "too big to fail," protect consumers from abusive and dangerous financial practices, and ending taxpayer bailouts. Specifically Section 716, which forced commercial banks that trade certain risky types of derivatives to split them off into a separately capitalized subsidiary, uncovered by FDIC deposit insurance. It was also supposed to protect against banks using depositor's money to gamble with. Thanks to this recent vote, consider those protections gone. The House passed it in vote of 219 to 206 -- the majority made up of 162 Republicans and 57 Democrats. Later that week it passed through the Senate with 56 yays and 40 nays. It's expected to be signed by the president on Thursday.
It's now perfectly okay for banks to use your savings, retirement, and investments at the roulette table. If they lose, don't worry, the losses will come out of your taxes.
When I worked in the software industry, we would prepare for the release of a product by rigorously testing various aspects of it before selling it to consumers. We'd occasionally come across bugs in the product that would lead to long late-night meetings and discussions to determine how to address them. Some were small issues that could be repaired with a later patch, update, or workaround. In some cases though, the bugs were so significant that we would have to delay the release of the product because it would negatively impact our customers and potentially damage the reputation of the company. Those bugs were referred to as "showstoppers." The carve-out for Wall Street is a showstopper and it will inevitably lead to a financial disaster bigger and more serious than the one in 2008, wiping out savings, retirement, and whatever else is being thrown onto the craps table. This, at a time when loan mods are beginning to reset and estimates of as much as half of all private label residential mortgage backed securities (RMBS) being affected within the next five years are beginning to float to the surface.
The bill was written by and subsequently lobbied for by the biggest offenders responsible for the financial crisis. Seventy lines of the 85-line bill was written by Citigroup, who received $476.2 billion in cash and guarantees from the bailout.According to Gretchen Morgenson of the New York Times:
Among all the rescue programs set up by the Fed, $7.77 trillion in commitments were outstanding as of March 2009, Bloomberg said. The nation's six largest banks -- JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley -- borrowed almost half a trillion dollars from the Fed at peak periods, Bloomberg calculated, using the central bank's data. Those six institutions accounted for 63 percent of the average daily borrowings from the Fed by all publicly traded United States banks, money management and investment firms, Bloomberg said.
So Citigroup, which came in at number one for needing the most help due to their over-the-top antics, is writing legislation to gut the bill that protects the world economy from going down the toilet again.
For his part, Chase CEO Jamie Dimon was personally making calls to the Hill late last week to convince lawmakers to support the bill. It's safe to assume that it was the usual, "Nice little economy you have here, it'd be a shame if something happened to it" spiel. Nothing comes from Wall Street without a price tag, though, and this one does:
The banking lobby has always been a powerful force in Washington. The banks that could benefit from this change -- Citigroup and J.P. Morgan -- are among Washington's most influential corporate players. Each firm, for example, spent over $5 million a year lobbying in recent years, both of them ranking in the top 90 firms for lobbying expenditures, according to data prepared by the Center for Responsive Politics. In addition J.P. Morgan contributed over $5 million to federal candidates and parties in 2012, compared with $2.6 million in the last election cycle for Citigroup. And both firms have strong connections on Capitol Hill and the White House. Citi, for example, includes among its stable of lobbyists former House Speaker Bob Livingston (R-La.) and former Senators John Breaux (D-La.) and Trent Lott (R-Miss.).
To elaborate on the software release analogy, most of the show stopper bugs were found by one person. Usually someone close to the end user or customer, such as tech support, a writer, or one of the QA folks, all of whom worked closely with customers and the products. They'd bring up the issue at a meeting or in an email and the engineering crew would quickly plan that person's demise as if it were the fault of the person discovering the problem rather than the person writing the code. Everyone needs a scapegoat.
The target of attacks, particularly from the right in this case, has been Elizabeth Warren, who took the floor of the Senate to vehemently oppose this bill and publicly chastise Citigroup and Wall Street for their unfettered power and control over congress, the administration, and the economy:
And now we're watching as Congress passes yet another provision that was written by lobbyists for the biggest recipient of bailout money in the history of this country. And it's attached to a bill that needs to pass or else the entire federal government will grind to a halt.
Think about that kind of power. If a financial institution has become so big and so powerful that it can hold the entire country hostage. That alone is reason enough to break them up.
Enough is enough.
Enough is enough with Wall Street insiders getting key position after key position and the kind of cronyism that we have seen in the executive branch. Enough is enough with Citigroup passing 11th hour deregulatory provisions that nobody takes ownership over but everybody will come to regret.
Enough is enough.
Washington already works really well for the billionaires and the big corporations and the lawyers and the lobbyists. But what about the families who lost their homes or their jobs or their retirement savings the last time Citigroup bet big on derivatives and lost? What about the families who are living paycheck to paycheck and saw their tax dollars go to bail out Citi just 6 years ago?
Here's the video of the speech:
Partisan hack Lindsay Graham (R-SC), not wanting to disappoint his Wall Street donors, saw fit to give Warren a lesson about democracy, saying, "You have every right to vote no and argue to bring the bill down. If there's something you don't like, welcome to democracy."
He went on to denigrate her a little more, announcing that she was the problem: "If you follow the lead of the senator of Massachusetts ... people are not going to believe you are mature enough to run the place. Don't follow her lead. She's the problem."
Here's what Matt Taibbi had to say on Saturday:
All of this is infuriating on multiple levels, but mainly because Warren's opposition to the Citi provision wasn't a left-leaning move at all. It was very much a conservative position. Ayn Rand herself, dragged from the grave and lashed to a chair on the floor of the Senate, would have argued the same thing.
Somehow Warren has earned the title of the left's Ted Cruz. A title used generally by media that are too lazy to examine policy positions and their nuance and by wingnuts from the right who insist on seeing everything in terms of black vs white and good vs evil. If the left is for it, they're against it, even if it includes clean air, potable water and, in this case, protecting the life savings and retirement of average American people. Warren and the Democrats who stood behind her are fighting to give working people a fair shot. Ted Cruz and his ilk are fighting hard to take things away. Cruz was willing to shut down the government again while he held the entire Senate hostage over the weekend in order to take away affordable healthcare and deny immigration to millions -- something he and his family from Cuba and Canada have benefited greatly from. Theatrics even fellow Republicans called ridiculous.
How's this for nuance: The Democrats who voted against this bill did so to protect the American people. The Republicans who voted for the bill did it for Wall Street and could care less about the American people. As for the Democrats who voted for it, their motives are fairly clear as well. They've received twice as much money from Wall Street as those that voted "no." And the Republicans who voted against the bill did so because they would have preferred a shutdown, a repeal of Obamacare, and an end to immigration. They are the lunatic fringe of the party who will jump in and oppose anything the president suggests and who cater to a base of hillbillies that show up at the White House demanding a lynching -- yes, a lynching.
President Obama called for this bill to pass, warts and all, saying, "This is by definition a compromise bill," adding that this might signal the GOPs willingness to compromise in the future. That's a strange takeaway from a guy who's seen nothing but resistance to everything he's tried to do from the GOP in the last six years. It's also pretty optimistic considering the Democrats completely folded in the end and seem more apt to retreat and surrender than put up a fight. "It was a missed opportunity to reinforce the contrast between Republicans and Democrats," Representative Steve Israel, a member of the Democratic leadership, said Friday morning.
This bill is slated to hit the president's desk and be signed on Thursday, complete with a massive showstopper bug. Obama oversaw a recovery from the biggest financial disaster since the Great Depression. In many cases he's been unfairly blamed for the residual effects that continue to linger. In one stroke he will pretty much undo much of what he's accomplished and guarantee that it will happen again.
Maybe he'll get lucky and it will happen far enough into someone else's term. After all, how many people blame Reagan's deregulation-palooza and Clinton's repeal of theGlass-Steagall Act for the last disaster?