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Well Played, Wall Street!

So the markets are getting skittish and the media is obsessing about the many things that could go wrong out there. It’s like 2007 all over again, but with one big difference: Back then the mega-banks were reasonably sure the government would, if necessary, bail them out of their hundreds of trillions of dollars of derivatives liabilities. Otherwise, as they actually did tell a befuddled George W. Bush in 2008, the next day would see martial law declared.

Then, in the wake of the near-evaporation of the global financial system caused by the aforementioned derivatives, Congress passed a law, Dodd-Frank, that required banks to move their derivatives trading to divisions that aren’t protected by the Federal Deposit Insurance Corporation (FDIC). In other words, no bailouts next time around.

But having to cover their own derivatives losses presents an unfair and unacceptable risk for the banks, so after helping finance the successful campaigns of a slew of new congress-folk in November, Wall Street immediately cashed in its chits, getting that provision of Dodd-Frank stripped out. From Bloomberg:

Wall Street’s Win on Swaps Rule Shows Washington Resurgence

Wall Street is re-emerging as a force in Washington as it closes in on one of its biggest wins against regulation since the financial crisis.

With must-pass spending legislation making its way through Congress this week, banks seized on an opportunity to attach a measure that would halt a planned restriction on derivatives trading they had long opposed. The industry’s lobbying extended to the highest levels of finance with JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon pressing lawmakers to support the change.

Wall Street’s success, after four years of struggling to persuade Congress to ease the Dodd-Frank Act, is a precursor to more fights next year against some of the law’s hallmarks: the consumer protection bureau and stiff oversight of big financial companies whose failure could threaten the financial system.

Banks had modest expectations even under the new Republican Congress that will convene in January, a group they presume will be more receptive to their agenda. Their surprising success this week may embolden lenders to seek deeper regulatory changes as Republicans take control of the Senate from Democrats.

The industry’s lobbying campaign on the provision gained momentum after a move by the Obama administration itself, which signaled last year that it was willing to bend on the swaps rule, said a person familiar with the bank’s campaign who sought anonymity to discuss the effort.

As the negotiations went down to the wire, Dimon picked up the phone and called senators urging their support for the deal, according to three people with knowledge of the matter.

Wall Street outspent any other industry on the November election, with employees of securities and investment companies and their political action committees contributing $169 million, according to Center for Responsive Politics data. About two-thirds of the donations went to Republican candidates.

After the record giving on a midterm election, finance-industry lobbyists said they want to make headway on a number of items in the next Congress, including some that Republican lawmakers failed to get in the spending bill. Those provisions will probably be a heavier lift, as Wall Street faces resistance from a broader swath of Democratic lawmakers, the lobbyists said.

Revisions to Dodd-Frank that were excluded this week include prohibiting the SEC from writing tough disclosure rules on stock brokers’ conflicts-of-interest, preventing regulators from imposing stringent regulations on large asset managers and barring the SEC from forcing companies to reveal their political contributions, according to a Democratic official with direct knowledge of the negotiations.

Another measure kept out of the spending bill would have given Congress authority over the budget of the consumer bureau, an agency long-opposed by banks that was created to oversee mortgage lending and credit cards, the official said. The regulator is now funded by the Federal Reserve. Handing lawmakers authority over its budget would allow them greater control of the agency.

Next year, the banks’ wish list will be even broader. They will be targeting burdensome regulations on lenders deemed “too-big-to-fail” and the Volcker Rule, which bans Wall Street from making market bets with their own money, lobbyists said.

“In terms of opening up Dodd-Frank, I think that train has left the station,” said Wayne Abernathy, executive vice president for financial institutions policy at the American Bankers Association. “The problems are piling up and it’s becoming embarrassing.”

For more on the politics of this issue see Dodd-Frank Budget Fight Proves Democrats Are a Bunch of Stuffed Suits by Rolling Stone’s Matt Taibbi.

In any event, this legislative victory couldn’t have come at a better time for the banks because all kinds of risky paper, including energy-company junk bonds and emerging market currencies along with related derivatives, have suddenly turned into losing bets. If the banks had had to wait through another election cycle to hand those risks off to taxpayers it might have been too late.

So congratulations, Wall Street. You’ve once again demonstrated that when it comes to milking the 99%, you are world-class financial dairy farmers. And don’t worry about us taxpayers. We’ll cover your 2015 losses by borrowing from our grandkids, and they’ll pay you the interest on those loans forever. So when you think about it, you win both ways. Again, nice work and great timing.

30 thoughts on "Well Played, Wall Street!"

  1. The United States Government is a private owned foreign corporation. So, if you want to stop ALL the thieving by this corporation…..Everybody stop going to work for 6 months. Everybody come together and pool your resources and take care of each other. Pull ALL your money out of their system….and watch it fail in a heartbeat. If it has no food (your labor and energy), THE MONSTER WOULD DIE. However, people are too stupid to see the remedy to the cancer that is consuming the world.

  2. Mr. Rubino, it is my understanding that the change of law also allows the big banks to go to the Fed for bail-out money for their derivatives, just as the Fed bought toxic mortgage-backed securities on the banks’ books during the days of “Quantitative Easing.”

  3. The fact that the 1.1 trillion dollar spending bill was passed without barely a comment from any news source or blog I know shows that the situation in the US is intractable and inexorable.

    It’s just a matter of time before it all implodes, and who knows what the fall out will be. Everything is so complex and interconnected.

    It’s unfortunate that the central banks of the world are enabling the demise of industrialized countries by distorting the price signals of the financial markets. Otherwise things would have had to change years ago. We couldn’t have gotten this deep. It’s been going on for decades, basically since the US went off the gold standard. Now there is no going back.

    The corruption is grotesque, but it really doesn’t matter any more because I see no practical way to change things. No one – politicians, bankers, or voters – will willingly choose to hit the wall before they have to. It’ll just have to run its course at this point.

    1. we’re all bozo’s on this bus and the bus drives off the cliff. And yes, we do know what the fallout will be. Death. Less useless eaters and more for the central banksters.

  4. The issues get bigger & bigger & the casino players on Wall Street don’t even know it.They can buy a law that will guarantee their derivative losses but the Amount of wealth involved will make the guarantee meaningless.No one,up to & including the Government in Washington, can come up with at least 10’s of trillions of dollars to cover derivative losses.It can only end up as a default.The Global financial markets are running out of time.Wall Street & the Fed. have used up most of their magic financial trick since 2008.They are now down to the wire & they cannot keep this economy alive with creative book keeping tricks much longer!
    There are too many factors that can’t be resolved & papering over these problems will no longer do any good
    A)As the establishment elites try to inflate away their leveraged debts they are also killing the middle classes.The people in the middle are the bulk of the consumers in our consumer driven economy.If the big corporations pauperize their clientele who will these corporations sell their products to?
    B)As things get worse on the Main Streets of the world ordinary people become fearful.This fear starts to cause other problems in the socio/economic & political spheres far from the financial markets

    C) an example of this is the rapid drop in oil prices which is resulting in huge losses to investors.The common wisdom kicked around is that Saudi Arabia is reacting to economic
    competition caused by a glut in energy supplies.I think otherwise!
    I believe that Saudi Arabia & it’s Sunni allies have started an oil war against it’s enemies,Iran & Russia.They are trying to bankrupt & destroy the regime in Iran before it can go nuclear.This is an economic extension of the Sunni-Shiite religious war that is already ripping Syria & Iraq apart.These events in the Middle East have little to do with the financial markets,as such!The financial havoc caused by huge drops in oil prices is collateral damage.However this collateral damage may be the Black Swan event that could destroy an already shaky global economy.
    The incompetent regime in Washington has set all of this in motion by pushing this Arab Spring nonsense.Washington has also encouraged radical elements in the Arab world & scared the conservative Arab regimes.They are alarmed by Washington’s backing of their enemies in Iran & it’s drive to go nuclear.Meanwhile Russia,which like Iran is also dependent upon oil revenues,is also getting hurt.They are trying to hit back by setting up a new currency reserve system to by-pass western central banks & the IMF.
    What happens when these BRIC nations start to reduce their dollar reserves & all of those dollars start to return to the American economy? huge inflation? What happens if/when The Saudis decide to completely ditch the Petro Dollar system,all of those dollars coming back to America.At this point we will no longer have the worlds reserve currency.there will no longer be one global reserve currency!
    What would happen if the BRICS backed their currencies with gold & silver? could a fiat paper money system compete with money redeemable in gold or silver?
    Because of very poor leadership in western capitols,especially Washington,the worlds social,political & financial status is starting to erode away to the point where stability cannot be saved,We are sliding down a slippery slope & finance is only one of our problems!
    P.S.I fear that in many ways we are duplicating the events of 100 years ago.We may be witnessing a chain of events that are similar to events that led to WW1!
    Things are definitely spinning out of control!

  5. I’m surprised to find out that the Dodd-Frank Act actually had the positive provision of preventing bailouts of derivative losses to big banks. I figured any law with Barney Frank’s name on it was automatically all bad for the country. I’ll give the devil his due in this one isolated case that previously prevented taxpayer bailouts to big banks. Chris Dodd and especially Barney Frank were typical liberal, central planner, statist types that libertarians like myself, and allegedly Mr. Rubino, hold in disdain. But even a broken clock like the Dodd-Frank Act can be right twice a day. I wish there were some way to prevent bailouts to big banks without having to pass labyrinthine laws like Dodd-Frank, Sarbanes-Oxley and all the other socialist, big government regulations that have strangled what was once the richest and most productive economy on the planet. It’s hard to move forward with wealth creation when central planners like Barney Frank pass a hundred new regulations and one or two of them are beneficial and the rest depress free enterprise. That’s what we’ve been doing as a nation since 1933.

    Mr. Rubino and other libertarian writers frequently point out that the American taxpayers shouldn’t have to bail out the investment mistakes of big banks and of course everybody except the big banks and their government lackeys agree with that. But the taxpayers aren’t going to have their taxes significantly raised in the next round of bailouts. Taxes weren’t raised much after the 2009 bailouts. A 100% income tax rate for the next 100 years couldn’t even begin to pay off the trillions in derivative losses that could be coming in the next economic crash. So after the crash of 2015 or whenever happens, the Federal Reserve will just do what it did in 2009; it will print the needed money out of thin air and give it to the banks to cover their losses. Printing money doesn’t cause taxes to go up. It will just cause massive inflation and Mr. Rubino and his readers already know to protect themselves from that – keep buying gold and silver.

    1. “Mr. Rubino and his readers already know to protect themselves from that – keep buying gold and silver.”

      Wait till the collectibles tax gets raised to punish hoarders and “rich people”. Already, legislators in India malign gold buying as “luxury item” and have threatened to raise import duties on gold even higher under the guise of it being a “luxury item”. And that’s India we are talking about here … just imagine what schemes the banksters in the US can come up with.

      1. Actually, the new prime minister Mr. Modi is a pro-business guy who is expected to relax gold import restrictions when he gets the chance. Anyway, regulations in India haven’t stopped millions of Indians from buying gold on their blackmarket. If America needs a gold blackmarket, we can make one too.

        I do agree that our government will try to tax, regulate and harass Americans owning precious metals but you have to own some anyway. It’s better to have a plan that might not work than no plan at all. Those who don’t own any precious metals are going to be washed away when the next economic collapse occurs.

        I don’t actually own physical precious but their stocks instead. Stocks fall under different regulations and are taxed differently and lower (15%) than “collectibles” like physical gold and silver. I’m counting on the big banksters preventing the government from raising capital gains taxes on stocks since the banksters are heavily in the stock market themselves and don’t won’t to rock the boat.

        1. What you own is a piece of paper, with the same intrinsic value as the dollar in your pocket. When the SHTF, you paper is worthless. Get the physical metal, you will be glad you did.

  6. A separation of state & money power, like the separation of church and state, is essential for human evolution. Slaves and cronies rationalize the continued existence of money cartels, enlightened free humanity must route them out.

  7. Corruption and Human Nature go hand in hand. It’s a never ending circle. Nothing has changed in thousands of years and nothing is going to change. Just get used to it and make the best of it.

    1. For most of us, and depending on our country, there are better times, and worse times. “Get used to it” is pretty much never the answer — at the very least we need a little public oversight, pushing back against the corruption. Our success will vary greatly depending on location and decade, but it’s always worth trying. There’s nothing noble in being compliant toward your oppressors.

  8. I wish I could just get on the phone and call a few whores and have them do anything I want. Jamie sure has them trained well.

    1. More like Lloyd Blankfein and Jamie Dimon, both vote democrat. Not that it matters, really. One party system now in the USA, of, by, and for the banksters. They will hang, every one.

  9. Sigh, it is not “marshal law,” it is “martial law.” For me, at least, an early misuse of the English language like that takes away from the entirety of an otherwise excellent analysis.

    1. It’s the substance that counts. Editors are a dime a dozen. The guys who can do the thinking-notwithstanding a few spelling or grammar errors-are the ones who are rare.

      1. The intertubes are full of slip ups people used to learn about in grade school, like compl[ie]ment, undo/undue, to/too, etcetera ad infinitum. Many of them are good for a laugh, but detract significantly from the authority of whatever substance may be brought to the fore.

        1. According to historians, Einstein was a poor speller. So was George Washington and Winston Churchill. I doubt you would look down upon whatever these gentleman had to say simply because they misplaced a letter or two.

    2. Finance guys aren’t always the best on grammar/spelling. Also, when you want to invest, its best not to go with English teachers.

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