The House of Representatives is poised to pass a bank-written bill undermining new regulations of the financial products that were at the epicenter of the 2008 financial crisis. While the measure is not expected to become law due to Senate and White House opposition, it enjoys such broad support in the lower chamber that critics have labeled the House “one of Wall Street’s last strongholds in Washington,” according to the New York Times.
The law in question guts a Dodd-Frank financial reform provision that forced federally-insured banks to cease trading in derivatives. The bill is just 85 lines of text, and 70 of those lines were written by lobbyists working for Citigroup. “Two crucial paragraphs” where taken verbatim from Citigroup’s recommendations when the law was re-drafted in May, the Times reported. The Citigroup-written derivatives rule repeal and another Wall Street-friendly law regarding regulation of investment advisers are slated for passage in the House this week.
The derivatives rule, often called the “push out” rule because it pushed derivatives gambling out of the banking industry and into separate companies, was included in the Dodd-Frank reform package because derivatives trading was at the epicenter of the financial crisis. Derivatives are financial products that allow investors and companies to place unlimited wagers on the future performance of a given investment product even without owning the underlying product — a high-risk practice that dramatically increases the chances that a market downturn will cause bank failures and financial chaos that spills over into the real economy. By 2010, the total value of all outstanding derivatives was equal to about 23 times the entire economic output of the planet, or 1.4 quadrillion dollars.
Wall Street has been hard at work undermining financial reform in other ways. Financial services industry lobbyists have been caught supplying talking points to House members and ghostwriting letters ostensibly sent by members of Congress. Three years after the law passed, the rules that will give Dodd-Frank’s ideas teeth remain largely unwritten. The regulators charged with writing those rules have been meeting with bank lobbyists 14 times as often as they have met with reform and consumer advocates.
But the deregulation of Wall Street takes wealth from the rest of the economy and redistributes it to the banking class, as recent research has shown. Deregulation encourages greater risk-taking by banks, which hurts the real economy where people make and sell things in order to feed and educate their families.