This “regulatory improvement act”, introduced by the current Representative for Illinois’ 14th District, is actually nothing less than the gutting of Section 716 of the Dodd-Frank financial reform bill.
Dodd-Frank, you will recall, was passed back in 2010 in the wake of the near collapse of the Nation’s financial system that began in 2008 and triggered the recession from which we are still slowly recovering.
Here’s how the “improvement act” would work…
Under Dodd-Frank rules, banks are barred from using Federal Deposit Insurance Corporation (FDIC)-insured funds (that means funds insured by you, the average American depositor and taxpayer) to engage in the trading of certain types of high-risk derivatives (“swaps” are a type of derivative). Remember derivatives, the risky financial instruments that were largely responsible for bringing down Countrywide Mortgages, Bear Stearns, AIG, Lehman Brothers, Washington Mutual, Wachovia and very nearly the Nation’s entire financial system? Well, big banks want your guarantee that you’ll help them out if their investments head south once again In short, this bill socializes risk (we all pay for their gambles if they fail) and privatizes profit (they gain a whole lot with very little risk because of your guarantee). Who wouldn’t head to the casino if they knew that the folks back home would reimburse them for any losses should their evening turn out badly?
Who in the world would write such a bill? Was it Mr. Hultgren and other members of the House? Not really. While Mr. Hultgren sponsored the bill, Citigroup was kind enough to help him out by authoring 70 of the bill’s 85 lines. Oh, there was some tweaking of some words, but the product was Citigroup’s. Let’s not forget that during the financial sector meltdown Citigroup was bailed out to the tune of some $45 billion. That Citigroup paid the funds back, while a good thing, is not really the point here. The point is that the public bailed them out in the first place because they were deemed “too big to fail.” That the risk of their actions was shifted to the public at all is the problem, and had they actually collapsed, the public – we all – would have been out that $45 billion.
The behavior of these large banks and financial institutions cost all of us in loss of value in our retirement accounts, in lowered property values and, most importantly, in the general and deep recession that followed the failure of their gambling. The idea of “too big to fail” is still with us, and has grown even more threatening as these institutions have continued to grow. Next time would likely be even worse, and to propose an easing of the controls on such behavior is irresponsible. Were I the 14th District’s Representative in Congress, not only would I not have introduced such a bill, I would have voted against it on the floor of the House. The argument that this change in Dodd-Frank needs to be made because without it these trades would be insufficiently regulated rings rather hollow. If we need more regulation on these too-risky-to-insure transactions, then regulate them, but don’t ask the American public to hold the bag when they fail.
