House Financial Services Committee Chairman Spencer Bachus (R-AL)

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.”

For years, much of the for-profit college industry has operated as a taxpayer-funded predatory lending operation targeting minority and low income students. As Pat Garofalo has noted, although just 11 percent of higher education students in the country attend for-profit schools, they account for 26 percent of federal student loans and 44 percent of student loan defaults. Sales representatives for for-profit schools, under the guise of being “guidance counselors,” instruct students to make use of Pell Grants, Stafford Loans, and other federal assistance — so much so that up to 90% of revenue for many of the top for-profit schools comes from the government.

Investigations by the GAO, the Los Angeles Times, and others have found that dozens of these for-profit schools systematically defraud their students by showing them fake job placement rates, providing false claims about the types of jobs they can attain, misrepresenting that their credits will transfer to state universities, and giving false promises that students do not have to pay back their loans.

To address these problems, the Obama administration is attempting to implement tougher regulations — dealing with what’s known as “gainful employment” — which would cause for-profit programs, as well as some programs at non-profit and state schools, to lose their access to public money if their graduates fail to meet a certain debt-to-income ratio or have high rates of student loan default. The regulatory drive has caused the for-profit “subprime schools” to retain a slew of lobbyists. ThinkProgress has dug into the predatory college lobbying lobbying campaign:

– Education Management Corporation (EMC), a for-profit company owned in part by Goldman Sachs that runs the Art Institute colleges and a number of other schools, has hired two infamous astroturf lobbying firms, BIPAC and the DCI Group, to fight the proposed regulation. In 2009, ThinkProgress exposed a fake organization of doctors maintained by the DCI Group to oppose health reform, and the firm is known for generating fake “citizens groups.” In one set of letters to the Department of Education generated by EMC, an Art Institute student “Alicia Laury” signed over 74 identical letters about her opposition to regulations on the for-profit college industry. Other names, with the same copy and paste letter opposing reform, appear dozens of times.

– Much of the for-profit lobbying campaign is organized through an industry trade association called the Association for Private Sector Colleges and Universities (APSCU). On its website, the association posted series of revealing PowerPoints detailing the industry’s efforts to kill the proposed regulations. In one presentation given by APSCU with slides titled “WAR,” employees are instructed to “Prepare for Battle” by raising money for key lawmakers, hosting political fundraisers at schools, and organizing “students and employees” for the lobbying effort. A memo distributed by the group lays out a point by point guide for carefully orchestrating visits from lawmakers to their college campuses. Executives from subprime schools are even expected to assemble “at least four students who reflect the diversity of the campus” to be ready to meet with members of Congress.

– Top lobbyists from the subprime school industry designed a strategy to “target” key members of Congress. One presentation given by industry lobbyist Brian Moran instructs schools to ask lawmakers to write letters stating their opposition to reform. Indeed, prime recipients of industry donations, including Sen. Lamar Alexander (R-TN), former Rep. John Spratt (D-SC), and Rep. John Kline (R-MN), authored letters to the Department of Education raising concerns about proposed regulations concerning the industry. Kline, who accepted over $100,000 in subprime college cash, is now seeking to roll back existing regulations so his benefactors can obtain even more taxpayer subsidies.

– As Campus Progress’ Kay Steiger has reported, for-profit schools have tapped into a network of lobbyists who specialize in generating op-ed pieces and other forms of elite praise for controversial clients. Steiger documented that Lanny Davis, a lobbyist now representing for-profit colleges, has a history of work on behalf of unsavory actors, including dictators. Most recently Davis signed up to represent, but then, after public criticism, dropped, Ivory Coast leader Laurent Gbagbo, who refused to leave office after he was defeated in his country’s presidential election. Steiger also pointed out that Al From, a Democrat defending the industry’s practices, “is a consultant to Akin, Grump, Strauss, Hauer, & Feld LLP, a law firm that has lobbied on behalf of for-profit giant Kaplan University, which is actively opposing the regulations.” From did not disclose that connection when publishing an op-ed opposing regulation of the for-profits. Similarly, former Congressman Bob Barr has published several pieces defending the for-profits, without disclosing that he is employed by one.

– The American Legislative Exchange Council, a nonprofit that helps corporate lobbyists draft legislation for state lawmakers, is now working with subprime college lobbyists. Paul DeGuisti, a representative from the for-profit group Corinthian Colleges, and Melissa Garrett, of for-profit college company Bridgepoint Education, worked with ALEC to write a template resolution for state representatives and state senators across the country to introduce titled “Resolution in Support of Private Sector Colleges and Universities.”

– APSCU boasts that it created a front called “Students for Academic Choice,” and that it “developed a leadership team, created by-laws, collected 32,000 signatures opposing Gainful Employment, and now building [sic] database of positive student experiences.” As the Associated Press reported, lobbyists from APSCU even set up an “election” to make the group appear to be led by students. Bruce Leftwich, a former Senate liaison for the Republican National Committee now working for APSCU, left an online trail of Facebook messages, press releases, and other announcements recruiting students to join his Students for Academic Choice front.

The proposed regulations have prompted for-profit colleges to hire a wide array of other lobbying firms, including the Raben Group, Elmendorf Strategies, Prime Policy Partners, Barnes and Thornberg, the Moffet Group, the Podesta Group, Akerman Senterfitt, Clark and Weinstock, Heather Podesta and Partners, K & L Gates, Dow Lohnes Government Strategy, former Rep. Al Wynn (D-MD), Wheat Government Strategy, and Dutko Public Affairs, just to name a few.

For more information, read our Progress Report item, “For-Profits, Not Students.”

When Congress approved a continuing resolution in March to keep the government funded, it did not include additional money for the Securities and Exchange Commission or the Commodity Futures Trading Commission to implement the Dodd-Frank financial reform law. The two agencies, which were given important new responsibilities under Dodd-Frank, have already had to restrict some activities, delay implementation of various aspects of the law, and put off hiring personnel to fill key new positions policing Wall Street and the nation’s biggest banks.

The budget that the Obama administration proposed yesterday included boosts for both the SEC and the CFTC, as well as a proposal to allow the CFTC to begin collecting fees to raise additional revenue. In fact, under the budget, the CFTC would receive an 82 percent funding boost (to $308 million), as it has the vast new task of overseeing the derivatives market.

However, House Republicans have made it quite clear that they have no intention of giving the regulators any additional money. In fact, their proposed continuing resolution for the remainder of the fiscal 2011 year (which ends in October) explicitly cuts funding from both the SEC and CFTC:

Securities and Exchange Commission — $25 million from 2010 level

Commodity Futures Trading Commission — $56.8 million from 2010 level

This is essentially an attempt to repeal Dodd-Frank through the backdoor, by simply making it impossible for the regulators to implement and enforce the law. As Michael Ettlinger and Adam Hersh noted, this is only inviting another devastatingly expensive financial crisis, in the name of modest savings in the short-run:

The International Monetary Fund estimates that the financial crisis has cost U.S. taxpayers, after subtracting fees and penalties paid by financial institutions, 3.6 percent of GDP — which adds up to hundreds of billions of dollars. On top of that is the cost of the gut-wrenching pain this crisis has caused for most Americans through lost wealth, high unemployment, and stagnating incomes. That’s not to mention the scores of other countries similarly afflicted. Add those up to see the true cost of not regulating finance. Talk about “million wise, trillion foolish.”

When they were in power, Republicans consistently underfunded the regulatory agencies, while appointing regulators that had no interest in actually regulating. Now that new law has been put in place to rectify the situation, the GOP is doing all it can to keep that law from coming online.