So — What's In The New FY 2015 Federal Budget, And What Does It Do To Financial Regulations?

See how your money flies!

Sharmini Peries, executive producer at The Real News Network (TRNN), interviews Gerry Epstein, codirector of the Political Economy Research Institute (PERI) at UMass Amherst:

PERIES: So, Gerry, let's begin with what you see as changes as a result of this budget to Dodd-Frank rules and legislation.

EPSTEIN: Well, it's outrageous what is going on. The Republicans and the Democrats are negotiating this huge budget bill, as you described, in order to prevent another government shutdown, which is an admirable thing to do.

But, of course, when this happens, people try to sneak in all kinds of irrelevant sort of wish-list bills in--provisions into these bills. And one of the most outrageous ones is the banks have stuck in a provision that's going to [blunt (?)] one of the most important aspects of the Dodd-Frank legislation, which, as you said, was designed to reduce the chances of another big financial crisis, and therefore it was designed to reduce the chances that the taxpayers would have to bail out these massive banks.

A provision of the Dodd-Frank that they're repealing by sticking this into this budget bill was designed to prevent the big banks from speculating using derivatives. These derivatives are these complex financial instruments that they use to speculate to make billions of dollars. But when they turn south, they caused Citicorp and Bank of America and these other big banks to virtually go bankrupt, and then the government bailed them out.

So the Dodd-Frank bill said, look, financial institutions can engage in these kinds of complex derivatives speculation if they want, but banks that are supported by the government through FDIC insurance, through deposit insurance, and through having access to the Federal Reserve bailouts and so forth, they can no longer engage in this kind of speculation. ...

And now they see the chance to get into this big must-do bill, and it's going to gut even further the Dodd-Frank legislation and make it much more likely that these big banks could start speculating or continuing to speculate, and it makes it much more likely that the taxpayer is going to have to bail them out again. ...

EPSTEIN: Well, first of all, they don't need to be doing this. There are all kinds of other institutions that can do it. But second of all, that's not how they use the derivatives. They use the derivatives to speculate on commodities. They use derivatives to speculate on municipal bonds, as we saw in Detroit. They use derivatives to cheat their customers. They use derivatives to cheat homeowners when they write these mortgages and pack them into these complex products, like collateralized debt obligations. And they do it with subsidized funds. That is, when these big banks that have deposit insurance and that they know the Federal Reserve will bail them out if they get into trouble, they get to borrow money more cheaply. Therefore, they get to speculate using cheaper money. They make much more profits. They pay their CEOs and their rainmakers millions and millions of dollars each year. And then, when things go bust, we have to bail them out.

...

Read the whole thing; see the whole sorry scam. As CSN&Y sang in "Deja Vu," we have all been here before. Remember the S&L scandals and bailouts from about 1986 to 1995? Who paid for that? (Hint: it wasn't the scandalous S&Ls themselves!)

Now the banks want to do it all over again. Now that there's no distinction between commercial banks and investment banks, the whole of Wall Street is one big criminal enterprise... backed by your tax dollars, if this bill passes and is signed into law.

Better start stuffing those mattresses, folks...

Blogger wendydavis at FDL quotes Lambert Strether at Naked Capitalism:

What could go wrong? The bottom line here is that the legalities and the contractual relations and whatever moral commitments were made don’t really matter. What does matter is that whenever there’s a big pot of money lying around that theoreticallly should go to working people — say, retirement funds, but it could be anything — Congress can retrade whatever deal put the money into the pot, and years after the fact, too. Oh, and workers lose the right to challenge the cuts in court. Nice!

Nice indeed. Nice screw job, from Wall Street to your ear...

Wall Street Lobbyists: Pass Bill Deregulating Derivatives — Or We Will Shut Down Government

Via Isaiah Poole at Campaign for America's Future, we have the following from Zach Carter at Huffington Post:

According to multiple Democratic sources, banks are pushing hard to include the controversial provision in funding legislation that would keep the government operating after Dec. 11. Top negotiators in the House are taking the derivatives provision seriously, and may include it in the final bill, the sources said.

The bank perks are not a traditional budget item. They would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. -- potentially putting taxpayers on the hook for losses caused by the risky contracts. Big Wall Street banks had typically traded derivatives from these FDIC-backed units, but the 2010 Dodd-Frank financial reform law required them to move many of the transactions to other subsidiaries that are not insured by taxpayers.

...

The more things change, the more the changes are reversed by Republicans. Derivatives are arguably a major cause of the Wall Street collapse of 2008. They are inherently risky and under Dodd-Frank are currently not government-backed; see Wikipedia for a summary and list of the risks. Wikipedia concludes

[The loss] comes to a staggering $39.5 billion, the majority in the last decade after the Commodity Futures Modernization Act of 2000 was passed.

GOP Santa

Wikipedia is not known for allowing disputed content to remain unchallenged for long: almost everyone except the Wall Street fraudsters agrees the risks of unregulated derivatives are unacceptable. But Wall Street wants them back, with bells on... i.e., with FDIC backing. Your tax dollars at work, for Wall Street!

And the Party of No says Yes! Yes! Yes! to reviving them, or else they'll take their marbles and go home.

Campaign for America's Future has a petition. I signed it; what about you?