Republicans fought the new derivatives regulations, and Dodd-Frank more generally, tooth and nail, falsely claiming that regulating derivatives would have a detrimental effect on everything from energy prices to the makers of Snickers bars.
Today, Republicans broke out a new piece of evidence meant to dissuade the Commodity Futures Trading Commission — which has been charged with implementing the derivatives title of Dodd-Frank — from actually following through with the law’s requirements. They cited “a recently released report, backed by pro-business groups, that claims a hypothetical three percent margin requirement [for derivatives trades] could cost 130,000 jobs.” Here’s Financial Services Committee Chairman Spencer Bachus (R-AL):
One study, released just yesterday, concludes that upwards of 130,000 jobs could be lost if U.S. regulators impose new restrictions on derivatives transactions too broadly. Others may not see a loss of jobs, but will see increased costs because of these regulations — costs that will be passed along to consumers.
For one thing, Republicans are trying to convince regulators to exempt non-financial companies from derivatives requirements when such exemptions already exist. But for another, they are relying on a thoroughly discredited study circulated by, among others, the U.S. Chamber of Commerce and the Business Roundtable, two of the banking industry’s chief apologists.
The study, conducted by Keybridge Research on behalf of the Coalition for Derivatives End Users, which is an umbrella group that includes the Business Roundtable and the Chamber of Commerce, claims that derivatives regulation will cause 130,000 jobs to be lost. As MIT professor John Parsons wrote, the calculation left out a key step:
A regulation that requires using cash instead of credit costs the company on one side, but loosens its constraints on the other. The net effect on the company’s free cash flow is zero. Keybridge’s oversight here is a first order mistake. One could argue that the cash requirement is costlier than credit, but then you would have to figure out by how much. That would be an extra, very difficult step in the calculation, and any reasonable estimate for the differential would drive the headline number down enormously, possibly to zero.
“This is not any kind of research. This is people who want to overleverage and risk the system — because, once again, they will get the upside and taxpayers/all citizens get the downside,” added MIT’s Simon Johnson.
In fact, the firm that the Chamber and Roundtable relied upon has been touting its affiliation with various scholars — including Nobel Prize winner Joseph Stiglitz — without those scholars knowing it. As the New York Times’ Andrew Ross Sorkin noted, “As I made calls about the relationship between Keybridge and the academics, names mysteriously disappeared from the group’s site.” Stiglitz himself said of Keybridge’s study: “The argument they make is particularly foolish…Companies are sitting on $2 trillion of cash. It’s just an embarrassment that they’d use that argument in the current context.”