Today is derivatives and Volcker day, and the last day that something that constrains the bankster casino just a little bit could happen. That lies in keeping the Senate language on derivatives, and adopting the stronger Volcker Rule proposed by Sens. Merkley and Levin. In the televised negotiations, what you've mostly seen is a fight over the role of GSEs (Fannie and Freddie) in the housing bubble, because Republicans bring it up at every opportunity to prove the point that they don't think moderate-income people should have a share in the American dream.
Off-camera, the deals among Democrats are made, and still in flux. The House has made an offer on derivatives that creates some serious weakening loopholes:
If the Senate accepts the House changes, one of two things will happen, said Michael Greenberger, a University of Maryland professor and the former head of the Commodity Futures Trading Commission's Division of Trading and Markets. "Either we're going to have a bill that's regulation in name only or we going to have no regulation, which means no consumer protection infrastructure, no resolution authority and the whole of the benefits the reform provides," said Greenberger, who said he generally concurred with White's overall analysis....
The House effort to gut Lincoln's reform is so extreme, said Greenberger, that enough progressives in the Senate would abandon the bill on a final vote and bring down reform altogether. Progressives often cave to centrist compromise under the reasoning that something is better than nothing. Covering some people with health insurance is, for instance, better than covering no people. But when it comes to Wall Street reform, something isn't always better than nothing. If the reform isn't tough enough and the same practices are allowed to continue through a variety of loopholes, the risk to the system and the size of the financial catastrophe that could occur may be no greater and no less with reform than without. The shame, said Greenberger, would be to lose valuable reforms such as the consumer financial protection bureau. But without real derivatives reform, he said, the country could experience another financial panic, leading to taxpayer bailouts, in as little as six months.
But, a bloc of House Dems could be riding to the rescue, forming a new coalition to block the New Dems and NY Dems efforts in weakening the bill. Dems Bart Stupak (!), Rosa DeLauro, and Jackie Speier circulated a letter among colleagues to argue for a stronger derivatives outcome.
Dear Conferees:
We write to urge you to preserve the strong Senate language regulating the derivatives markets in the final financial reform legislation. Effective regulation of the $600 trillion derivatives market is fundamental to our financial security because the significant unregulated over-the-counter market was a fundamental cause of the financial crisis, and without change will remain an ever present danger. Effective regulation also is necessary because unchecked speculation in these markets causes price fluctuations in vital commodities including food and oil that hurt businesses and consumers.....
It is crucial to ensure that the legislation is effective by closing the enforcement gap left when the Senate Banking and Agriculture Committee versions of the bill were combined, and ensure that rules cannot be evaded by clearinghouses simply refusing to clear trades that the regulators have ordered to clear. Rules to prevent domination of the clearinghouses by the biggest traders, like the language of the Lynch amendment in the House, in addition to the rulemaking authority on conflicts of interests provided to the regulators in the Senate bill are also important.
Riding shot-gun for the House Dems and Lincoln, unbelievably, is Chuck Grassley. He was one of the Republican votes for the Senate bill. According to Roll Call [sub] he's issued his own veiled threat: "I heard there was some compromise or some backing down on Blanche Lincoln’s part, and I hope she doesn’t back down.... I voted for it in the Ag Committee, and it’s one of the main reasons I voted for it on the floor of the Senate."
On the Volcker Rule, as of last night it appeared that in the Scott Brown vs. Russ Feingold showdown, Brown has the edge.
Brown for weeks has been seeking a carveout in the legislation--originally authored by Sens. Carl Levin (D-MI) and Jeff Merkley (D-OR)--that would allow banks to invest a portion of their profits in hedge and private equity funds. And as the 60th vote for financial reform, his demands carry a lot of weight. Enter Feingold, who opposed financial reform from the left. After discussions with, and public pressure from, pro-reform groups, Feingold has toyed with the idea of changing his vote from 'no' to 'yes', becoming the new 60th vote and robbing Brown of his leverage--if the Volcker rule survived loophole free.
Multiple sources tonight say that in all likelihood the hedge fund loophole (known as a 'de minimis exemption') will be included in the offer that the conference committee considers this week.
Depending on how that loophole is written, it could essentially gut the Merkley-Levin proposal. Why Senate negotiators want Brown to be the 60th vote vs. Feingold is entirely unclear, but if they end up caving on both derivatives and Volcker, they could end up potentially losing more than just Feingold.
