Republicans use ‘death by a thousand cuts’ strategy to deregulate Wall Street
For the second time in two weeks, House Republicans brought up a package of 11 bills designed to deregulate Wall Street and water down Dodd-Frank financial reforms. This time, they had the votes to pass it.
Today’s bill easily cleared the hurdle of majority support, gaining final passage by a count of 271-154 largely along party lines.
Even fewer Democrats supported the anti-reform measures this week than last week, which demonstrates the efforts of Democrats led by Elizabeth Warren to recast as politically toxic any legislation with favors for Wall Street.
The package will now move to the US Senate. President Barack Obama has sworn to veto any measures against financial reform if they cross his desk.
Republicans have a “death by a thousand cuts” strategy to get deregulatory measures approved and undermine the already-weak Dodd-Frank law. Less regulation is a goal of most major American banks and companies, which also tend to be generous political donors.
The deregulation has drawn fiery responses from advocates of tighter regulation for Wall Street.
On her Facebook page, Warren called the bills “ a giveaway for Wall Street ” and praised President Obama for being “committed to protecting Dodd-Frank and standing up to those who want to chip away at critical financial reforms”.
“The economic wreckage caused by the 2008 financial crash destroyed jobs, savings and homes,” said Dennis Kelleher, head of advocacy firm Better Markets. “Financial reform was passed to prevent that from happening again by reducing Wall Street’s high risk gambling. The votes last week and this week will unleash Wall Street’s biggest banks to go back to their big bets and derivatives trading, putting that progress at risk. It will also make future taxpayer funded bailouts more likely.”
Republican advocates, like Tony Fratto of Hamilton Place Strategies, argued that Democrats were not so against some of the measures only recently.
“There is overwhelming support for the vast improvements capital, liquidity, transparency, coordination, and oversight,” Fratto said this week. “Most of the supposed Republican efforts to ‘rollback’ Dodd-Frank had significant Democratic support as early as four months ago.”
Republicans signaled in December, and again last week, that they intend to keep chipping away at financial reform measures designed to curb Wall Street power.
Republicans have found success attaching unrelated policy riders to must-pass bills . Their blueprint has been to first pass the measures in the House with nominal “bipartisan” support, and then force them into some other legislation, essentially holding essential activities like funding the government hostage unless they reward Wall Street.
The White House has largely folded to the pressure and gone along with it.
Last week, Republicans led a vote on HR 37, a package of 11 financial reform measures, which required only two-thirds vote for passage. It was thwarted, however, after pro-financial reform Democrats led by Warren closed ranks and publicized the giveaways to the financial industry embedded in the bill. The strategy succeeded to limit Democratic support enough to block the anti-financial-reform bills.
HR 37 will water down standard requirements to report complete financial data to the Securities and Exchange Commission, which regulates US business on behalf of investors and the public.
The bill would make exemptions for several types of businesses: merger and acquisition brokers, savings and loans, emerging growth companies, and other groups.
It also pushes some derivative trading – which came under scrutiny during the financial crisis – into the shadows by allowing commercial businesses to make the trades privately, rather than through central clearinghouses where their actions would be visible.
Finally, HR 37 delays the date when banks must divest their holdings in collateralized loan obligations until 2019.
Collateralized loan obligations are bundles of loans that banks make to companies, then break up into pieces and sell to interested buyers. The result is that no one bank holds the entire loan, an arrangement that in theory reduces potential losses.
CLOs have been a powerful source of profit for banks in the past year as pension funds and hedge funds have clamored to buy more of the company loans.
RBS has estimated that CLO issuance hit $82bn in 2014, which would mark the highest volume since the global financial crisis started in 2007 .
The Volcker rule, a key provision designed to limit risk at deposit-taking financial institutions, required banks to divest their holding of CLOs.
Fratto, of Hamilton Place, said “the latest CLO fix doesn’t even change the Volcker Rule at all. It just gives banks of all sizes more time to divest CLOs bought prior to the final Volcker Rule.”
While Republicans claim that these are merely “technical” changes to the law, opponents argue that the changes will chip away at regulators’ ability to monitor financial activities, and enables more recklessness.
The House has passed other deregulatory measures this week.
HR 185, the so-called “ Regulatory Accountability Act ,” was approved on Tuesday by 250-175 . It would delay implementation of virtually all executive agency activities by forcing several layers of “cost/benefit” analyses and, presumably, time-consuming studies of alternatives for every major rule they propose.
Agencies would also need to seek executive approval for all major rules, undermining independent oversight.
Although Republicans may not get HR 37 and HR 185 approved right away, they have teed them up for must-pass bills down the road.
This has been done twice in the past month , on the “CRomnibus” year-end budget bill and on last week’s reauthorization of the Terrorism Risk Insurance Act.
Both times, Obama signed laws with riders deregulating Wall Street, from killing the “swaps push-out” rule that would have forced risky trades out of financial institutions eligible for FDIC deposit insurance, to rolling back the mandate for derivatives end-users to post collateral when making trades.
The Republican strategy, in other words, has been very effective.
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