Derivatives Dealmaking: A Recipe for Disaster

There is a surprisingly tough provision in the current financial reform bill that would force commercial banks to spin off their derivatives trading desks, but big bank lobbyists are fighting hard to make sure Congress strips the language out of the bill.

One rumor floating around Washington is that Democrats will hold off on an amendment that weakens the language until Senator Blanche Lincoln’s primary election in Arkansas on Tuesday. The derivatives language originated in the Senate Agriculture Committee, chaired by Lincoln. A delay will essentially help Congress avoid electoral accountability for caving in to the big banks.

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The Lobbyists Behind Tom Carper’s Attack on Consumers

Tom Carper has proposed an amendment to the financial reform bill that would severely weaken consumer protections to the point where it is understood to be one of the more destructive changes to the bill. Yesterday, Zach Carter wrote an excellent piece analyzing its potential consequences for financial reform:

There are two consumer protection amendments getting serious attention on the Senate floor this week, one of them positive, one of them incredibly destructive. Both revolve around the concept of “preemption”—the ability of federal regulators to block states from enforcing laws aginst banks that operate within their borders. Over the past decade, state regulators tried to crack down on subprime outrages, but federal regulators stepped in to protect the megabanks. If we want to establish a fair financial system, we have to empower states to take action against abusive banks.

That’s what makes a new amendment from Sen. Tom Carper, D-Del., so dangerous.

At OpenLeft, Chris Bowers has called the amendment “the most dangerous to Wall Street reform.”

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Shining a Light on the Shadow Bank Lobby

In 2008, economist Nouriel Roubini popularized the term “shadow banking system” to describe the non-bank financial institutions that eventually helped spur the collapse of the financial system: highly-leveraged hedge funds, investment banks, and the like. This shadow system fueled Wall Street profits for years before eventually necessitating massive bailouts of the financial sector.

These days, a “shadow bank lobby,” has played a prominent role in shaping the financial reform process, pushing amendments that will weaken consumer protections, water down regulation of the Wall Street casino, and increase the likelihood of continuing fraud and future bailouts. I discuss this “shadow bank lobby” in Big Bank Takeover, the report on the big banks’ army of lobbyists released yesterday by the Campaign for America’s Future.

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Eye on the Big Bank Lobby

Over the course of the financial reform process, the six biggest banks and their trade associations have waged an historic assault on democracy, hiring hundreds of revolving door lobbyists and spending hundreds of millions of dollars to push their legislative agenda, according to a report released today by the Campaign for America’s Future.

The report, Big Bank Takeover: How Too-Big-To-Fail’s Army of Lobbyists Has Captured Washington, shows how the six too-big-to-fail banks have hired 243 lobbyists who once worked in the federal government, including 202 who used to work in Congress, with others having worked at the Treasury, the White House, or a relevant federal agency like the SEC. (I authored the report, with assistance from researchers at

This translates into an average of 40 revolving door lobbyists per big bank.

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BP: The Writing on the Wall and the Damage Done

In a 2009 Wall Street Journal interview, the brand new president of BP America, Lamar McKay, answered a question regarding BP’s recent “mishaps and setbacks, ranging from a lethal explosion in a Texas City refinery to a spill in Alaska” by asserting that the company had learned “that consistency, rigor and constancy of operating standards is important and that accountability must be clear.” Apparently this is what “clear accountability” means to the new and improved BP, as CEO Tony Hayward shrilly makes his media rounds incessantly insisting that “the responsibility for safety on the drilling rig is Transocean. It is their rig, their equipment, their people, their systems, their safety processes.” In case you missed it the first time Hayward re-emphasized to CNN that “the systems processes on a drilling rig are the accountability of the per — the drilling rig company” (emphasis mine). This is just the latest example of a warped, unaccountable corporate culture that has become utterly incapable of accepting responsibility for its tragic and costly mistakes.

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McCaskill’s Donor at the Fed

Claire McCaskill has suggested that she will oppose the Fed audit admendment. This represents a flip-flop, as the Senator from Missouri voted for the Fed audit back in April.

One possible explanation for the shift: one of McCaskill’s top donors is Steven H Lipstein, chair of the St Louis Federal Reserve. Lipstein has given McCaskill and her committees $16,000 since she first ran for the Senate in 2006, including $11,200 for that campaign, the sort of outrageous sum that illustrates the complete meaninglessness of campaign finance limits. In February 2010, he gave her $4800, maxing out to both her primary and general accounts. His wife, Susan Lipstein, donated $2100 to McCaskill during her 2006 campaign.

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