In the case of the so-called "new derivatives crackdown" that is being philosophically supported by our President, and then signed, sealed and delivered to him by the House and Senate, for his signature, it appears that, once again, the Legislative Branch of our government (and, perhaps, our President, if the legislation passes as proposed and assuming he signs it into law) is about to cave-in to the Wall Street money-gods that obviously--as it becomes clearer with every passing day--"own" them.
This time, however, the implications of their actions--if these folks follow-through as it appears they may--will leave the gates of potential, ongoing economic disruption wide open for many years to come.
As Reuters reminded us, late last night, in: "U.S. regulators ready laws for OTC derivatives crackdown"...
In the United States, four large banks control over 90 percent of the derivatives market: JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc, and Goldman Sachs Group Inc.
Putting it simply, under the newly-proposed legislation (as explained in the Reuters piece, linked above), roughly 30% of all derivatives (i.e.: those that are "customized," which is a vague, catch-all category that may mean whatever Wall Street wishes it to mean, assuming the numbers break as they have up until now between "standard" versus "customized" derivatives products going forward), will be cleared through clearinghouses, as opposed to being openly traded on new exchanges, which are now being put in place specifically to handle the remaining 70% of "standard" derivatives traffic, in what would otherwise be a totally (100%) transparent process.
The real problem here becomes self-evident when one realizes--more than likely despite any congressional bloviations to the contrary--the entity that will be tasked with overseeing these "clearinghouses" will be the New York Federal Reserve. And, the New York Federal Reserve, as many reading this may now know, is--literally--owned by a handful of Wall Street firms, including the: "...four large banks [that] control over 90 percent of the derivatives market: JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc, and Goldman Sachs Group Inc."
Gretchen Morgenson and Don Van Natta gave us all the detail on this on June 1st, just 10 days ago, in the NY Times, in : "In Crisis, Banks Dig In for Fight Against Rules." (It's an excellent review of the matter at hand.)
And, I've posted a couple of diaries since then, including: Another Ranking Member of Congress: "Banks Run The Place," and and "Is Wall St. Railroading Main St. On Derivatives Oversight?" But, it's going to take a hell of a lot more than that to prevent Wall Street from continuing along with their exact same behaviors that drove us into this hell-hole in the first place.
In short, without mandating that these clearinghouses not be controlled by the New York Fed, this "crackdown" legislation provides a massive hole, big enough to drive an aircraft carrier through, by which Wall Street may continue to exploit the derivatives market in pretty much the exact same manner that got us to where we are today.
So, unless we make absolutely certain that this type of "oversight" will no longer be allowed to continue, the foxes will still be guarding the henhouse.
It's up to all of us to scream as loud as we can, or this whole exercise becomes nothing but theater. (And, not very good theater, either.)
There! Wasn't that easy? And, you thought all this derivatives stuff was so complicated, right?