Two of the nation’s top financial regulatory agencies don’t have enough funding to competently regulate the Wall Street banks they oversee, top regulatory officials told the Senate Banking Committee yesterday. The Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) both took on new regulatory responsibilities under the 2010 Dodd-Frank Wall Street Reform Act, but multiple rounds of Republican-led budget cuts aimed at neutering the new law have left them without sufficient funding to carry out those mandates.

As a result, the agencies are “outgunned” by the Wall Street banks they oversee, SEC head Mary Schapiro and CFTC head Gary Gensler told the committee Tuesday, the Huffington Post reports:

“We’re way underfunded at the CFTC,” Gensler told lawmakers, after a question on the subject from Senator Chuck Schumer (D- N.Y.). “Imagine if, all of a sudden, there are eight times the number of teams on the [football] field, but only seven refs,” Gensler said. “There would be would be mayhem on the field. The fans would lose confidence.”

SEC chief Schapiro echoed the point: “We’ve been asked to take on very significant new responsibilities,” she said. Though the SEC has made progress in hiring new staffers and improving its technological capabilities, Schapiro conceded that, in some areas, the efforts haven’t gone far enough.

As ThinkProgress noted in January, adequately funding the CFTC and SEC is imperative to successfully implementing new regulations and policing Wall Street. Republicans oppose those efforts and have repeatedly pushed for cuts to the agencies’ budgets. “The less we fund those agencies,” Senate Minority Leader Mitch McConnell said last June, “the better America will be.”

The SEC is funded by fees paid by banks, not by taxpayers, so cuts to its budget won’t affect the federal deficit. But it is prohibited from collecting more in fees than it is allocated in the budget, so the $225 million cut Republicans pushed last year amounts to a massive giveaway to Wall Street, which will save exactly that amount.

As the 2008 financial crisis demonstrated, failure to police Wall Street can have perilous consequences for American taxpayers and the economy. But when one party’s purpose, as Rep. Spencer Bachus (R-AL) said last year, is to “serve the banks,” preventing another such fiasco is apparently of little matter.

When JP Morgan Chase CEO Jamie Dimon dropped a bomb on the financial world two weeks ago by announcing that the bank had lost at least $2 billion on a series of trades that went bad on a London-based investment desk, Tennessee Sen. Bob Corker (R) was among the first lawmakers to call for investigations and hearings into the trade. Today, Corker got his first chance to get some answers, as the top regulators from the Commodities Futures Trading Commission and Securities and Exchange Commission appeared before the Senate Banking Committee.

But it wasn’t JP Morgan’s losses that Corker seemed concerned with. Instead, with advocates for stronger financial rules (including President Obama himself) pushing for a re-examination of pending regulations instituted by the 2010 Dodd-Frank Wall Street Reform Act, Corker was worried that the JP Morgan losses would bolster the case for a stronger Volcker Rule — the yet-to-be-finalized regulation that would ban federally-insured banks from engaging in certain types of risky trading:

CORKER: I fear that you’re under pressure, that a lot of calls are being made, that the administration is concerned that the American people are going to wake up and look at the last three years as a bad dream. … This big Dodd-Frank bill really doesn’t address real-time issues. And what you’re going to do is cause this Volcker Rule to become something that it was never intended to be.

Watch it:

Regulators are indeed facing pressure to strengthen the Volcker Rule, and as I wrote yesterday, that pressure is legitimate. Though it is unclear whether JP Morgan’s trade would have been subject to the rule, it is clear that the Volcker Rule as proposed was stronger than it is in its latest draft form. But JP Morgan and its cohorts on Wall Street played a major role in watering it down. That lobbying created a loophole that may have kept JP Morgan’s trade legal even under the rule.

Risky trades designed to make bank’s massive profits — known as proprietary trades — were at the center of the financial crisis that ultimately ended with taxpayers bailing out America’s biggest banks. Regulations like the Volcker Rule (and others included in Dodd-Frank) are aimed preventing taxpayers from having to foot the bill again in the future. The JP Morgan loss has given regulators and policymakers a golden opportunity to re-examine those rules and make sure they are sufficiently strong.

That may seem an inconvenience to lawmakers, like Corker, who opposed the regulations in the first place. To Americans who have to backstop this risky trading even when it goes drastically wrong, though, the chance to strengthen the rules should be a welcome one.

2012 presumptive Republican presidential nominee Mitt Romney this week defended JP Morgan Chase’s $3 billion trading debacle as just “the way America works.” He denied that the episode makes the case for stronger regulations to rein in banks’ risky trading.

Overall, of course, Romney has shown little interest in diagnosing or addressing the causes of the 2008 financial crisis, and the role of the nation’s biggest banks in nearly sinking the global economy. And the banks surely appreciate it, considering that employees of the biggest financial firms are his top donors, as the Boston Globe noted today:

When the head of JPMorgan Chase met with shareholders to answer for a trading loss of more than $2 billion Tuesday, it was against an evolving political backdrop: Donors from big banks are betting on Mitt Romney to defeat President Obama and repeal new restraints on risky, large-scale investments. [...]

The top five donor groups in Romney’s campaign are individuals and political action committees associated with large financial institutions, led by Wall Street giants Goldman Sachs and JPMorgan Chase, according to information compiled by the Center for Responsive Politics, a nonpartisan research group that tracks campaign donations.

The Globe actually got it a bit wrong: the top six donors to Romney come from the biggest banks — Goldman Sachs, JP Morgan Chase, Bank of America, Morgan Stanley, Credit Suisse, and Citigroup. And the finance/insurance/real estate industry is far and away the largest donor to Romney’s campaign, giving him $18 million. Of course, banks also throw money at the Democrats, but in this cycle, they’ve clearly favored the GOP.

Romney is surely not the only Republican lawmaker getting JP Morgan’s back, as House Financial Services Committee Spencer Bachus (R-Al) also defended the bank. Bachus, though, is also bankrolled by the financial industry.

House Republicans, in the wake of JP Morgan’s now $3 billion trading mess, have temporarily backed off their zeal to repeal the Dodd-Frank financial reform law. However, House Financial Services Committee Chairman Spencer Bachus (R-AL) — who believes Washington’s role is to “serve the banks” — has JP Morgan’s back, excusing its actions and attacking Congressional Democrats for wanting to tighten regulations governing risky bank trading:

“Even with this loss, I believe they’re one of the most profitable financial institutions in the country, and unless the facts are diametrically different from what we’ve heard, there is no risk from this loss to depositors or to taxpayers,” Bachus said during a House hearing. “They remain a very profitable, viable institution.”

Bachus, an Alabama Republican, noted that JPMorgan Chase’s net worth is $189 billion, and its pre-tax profits last year were $25 billion.

“So a $2 billion loss would represent one month of earnings,” he said.

Bachus accused some fellow members of Congress — clearly a reference to Democrats — of advocating for laws that would essentially prevent businesses from losing money or taking risks.

“And no law can do that, nor should a law attempt to prohibit a company from taking risks,” he said.

But Bachus, like other Republicans, completely misses the point. The goal of financial regulations like the Volcker Rule — which the White House is attempting to strengthen following JP Morgan’s debacle — is not to prevent companies from taking on risk, but to prevent them from doing it while backed by taxpayers. JP Morgan carries deposits backed by the federal government, has access to the Federal Reserve’s emergency lending window, and is big enough to pull down the whole economy should it fail. It is, for all intents and purposes, entirely backed by taxpayers.

Therefore, it is entirely appropriate to say that JP Morgan either shed its federal backing — which would require it to shrink — or not take on risks that cost it billions of dollars. But many in the GOP have ignored the lesson.

JP Morgan’s $2 billion trading debacle has grown into a $3 billion trading debacle, as the White House is going on offense to push regulators to craft a stronger version of the Volcker Rule, which is meant to rein in banks’ risky trading. Even House Republicans have backed off their deregulatory zeal for the moment, in the wake of JP Morgan’s mess.

Presumptive 2012 Republican presidential nominee Mitt Romney, however, said that the loss is simply “the way America works,” and said that it doesn’t make the case for enhancing any regulations:

In his first direct comments on the bank’s missteps, Romney said, “I would not rush to pass new legislation or new regulation.” [...]

“This was not a loss to the taxpayers of America; this was a loss to shareholders and owners of JPMorgan and that’s the way America works,” he said. “The $2 billion JPMorgan lost, someone else gained.” [...]

While Romney supported the federal bailout of the banking system, known as the Troubled Asset Relief Program, he said in yesterday’s interview that the economic climate has changed and banks now should be allowed to fail.

“My own view is that if a large bank gets in difficulty, why, it can fail,” he said. “There’s no reason why the shareholders or bondholders of a bank can’t lose their funds if a bank were to get in trouble.”

Romney, in his hurry to decry regulations, misses the key point: risky bank trading is not the embodiment of capitalism if the government needs to step in and rescue a giant firm that fails. While JP Morgan survived this particular trade, there’s no telling what would happen to a bank in worse financial shape that took a similar risk. And the episode highlights that the biggest banks — which, contrary to Romney, can’t simply fail, as they could haul down the whole economy down with them — are still ready and willing to take absurd risks with taxpayer backed dollars. And Romney is happy to see them do so.

Of course, this is just part and parcel of Romney’s fealty to Wall Street interests. He has shown no interest in correcting the gaps in oversight that contributed to the 2008 financial crisis, instead promising to repeal Dodd-Frank, while laying out no alternative.

JP Morgan’s $2 billion derivatives trading debacle has forced House Republicans to, at least temporarily, delay their efforts to repeal the Dodd-Frank financial reform law. Republicans on the House Agriculture Committee yesterday pushed back votes on a series of bills that would weaken the derivatives portion of Dodd-Frank.

Those bills had already been cleared by the House Financial Services Committee, which has been making a concerted effort to chip away at Dodd-Frank. And overall, according to a report from Public Citizen, nine bills are pending in Congress that would weaken Dodd-Frank’s title on derivatives:

Since the passage of Dodd-Frank, industry has engaged in a concerted effort to weaken it. At least nine bills are pending in Congress that would water down its derivatives reforms. Three additional bills would saddle federal agencies with additional burdens to fulfill requirements to issue concerning financial services, including those involving derivatives.

Among other things, these bills would eliminate a requirement for federally insured banks to spin off their derivatives operations; reduce disclosure requirements for certain derivatives trades; provide a broad exemption from Dodd-Frank’s provisions for swaps involving foreign affiliates of U.S. companies; and exempt purportedly small players, even those with up to $200 billion in the notional value of their derivatives exposure.

These proposals threaten to create large oversight-free zones that could allow risky behaviors to flourish.

All but one of those nine bills is sponsored by a Republican, with Rep. Jim Himes (D-CT) the lone Democrat.

In addition to attempting to gut derivatives regulation, House Republicans have also refused to give the Commodity Futures Trading Commission, which is charged with enforcing those regulations, the funds needed to do its job. As CFTC Commissioner Bart Chilton wrote this week, the CFTC “is shy over $100 million of what is needed and what was requested in the President’s budget. And, the CFTC is a front-line regulator charged with overseeing the exact type of trading that caused the economic collapse and dealt the body blow to JPM.”

JP Morgan’s $2 billion trading loss has renewed interest in the Volcker Rule, part of the Dodd-Frank financial reform law meant to prevent banks from engaging in risky trading with federally backed dollars. Wall Street banks have been lobbying to water down the rule. In fact, JP Morgan CEO Jamie Dimon helped open up a loophole that would allow the sort of trading that cost the bank billions.

House Republicans, of course, have been following Financial Service Committee Chairman Spencer Bachus’ (R-AL) directive to “serve the banks” by helping them in their efforts to water down and dismantle Dodd-Frank. In addition to preventing financial regulators from having the budgets necessary to do their jobs, the House GOP has been chipping away at Dodd-Frank, voting to repeal several important provisions.

But in the wake of JP Morgan’s mess, that effort has stopped, at least temporarily:

House Agriculture Committee Chairman Frank Lucas (R-Okla.) announced Tuesday that his panel would be postponing a Thursday markup of the bills, which would have repealed or altered provisions of the financial overhaul.

Lucas directly cited the high-profile losses of the nation’s largest bank as the reason for the delay, saying he wanted to make sure the bills would not inadvertently encourage Wall Street to take on risk haphazardly.

“As always, Washington has a tendency to overreact,” he said in a statement. “While the news of JP Morgan’s trading loss is unfortunate, the bipartisan legislation the Committee was scheduled to consider is unrelated to the cause of the trading loss. However, this Committee will take the time to gather all relevant information before we proceed to ensure there are no unintended consequences of the legislation that would encourage recklessness in our financial institutions.“

House Republicans have aimed to water down the derivatives section of Dodd-Frank, which would bring transparency to the opaque market that helped blow up the economy in 2008. However, JP Morgan’s woes have evidently made them think twice. Today, President Obama explained how JP Morgan’s trading loss shows “exactly why Wall Street reform’s so important.”

JP Morgan Chase’s $2 billion trading loss is “exactly why Wall Street reform” is so important, President Obama said in his first interview since the bank announced the massive loss last week. Obama signed the Dodd-Frank Wall Street Reform Act, which could ban risky trades like the one that hit JP Morgan, in 2010.

JP Morgan CEO Jamie Dimon announced the loss last Thursday, sparking stock losses and reminders of the 2008 financial crisis across Wall Street. In Obama’s interview, which will air this morning on ABC’s “The View,” the president referenced the federal bailout that resulted from that crisis and said a similar loss at a weaker bank may have caused yet another bailout, ABC News reports:

“JPMorgan is one of the best-managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got and they still lost $2 billion and counting,” the president said. “We don’t know all the details. It’s going to be investigated, but this is why we passed Wall Street reform.”

“This is the best, or one of the best-managed banks. You could have a bank that isn’t as strong, isn’t as profitable making those same bets and we might have had to step in,” Obama said. “That’s exactly why Wall Street reform’s so important.”

What Obama didn’t mention was how successful Dimon and JP Morgan were in watering down Wall Street reform. The bank has spent nearly $10 million since the beginning of 2011 on lobbying, focusing largely on the Volcker Rule, a regulation that would largely prohibit risky proprietary trading at federally-insured banks. The trade that caused JP Morgan’s losses would likely still have been legal under the Volcker Rule, but only because of a loophole that JP Morgan lobbied for.

Obama is right that JP Morgan’s situation demonstrates the need for Wall Street reform. But it also makes clear that the new rules need to be strong and immune from Wall Street’s lobbying influence if we don’t want a repeat of the 2008 crisis.

The news that JPMorgan Chase lost at least $2 billion on a single trade that went sour is not evidence that the industry needs to be more stringently regulated and is instead proof that Wall Street needs even less regulation, Republican National Committee Chairman Reince Priebus said Sunday.

Republicans, who fought efforts to pass new regulations in the wake of the 2008 financial crisis and have helped weaken the regulations that ultimately passed, have largely remained silent amid widespread calls for stronger regulations since JPMorgan CEO Jamie Dimon announced the massive loss Thursday. Priebus, however, made it clear during an interview with NBC’s David Gregory yesterday that the GOP still opposes the sort of regulation that could have prevented the losses and protected taxpayers and the economy:

GREGORY: You think we need less financial regulation, rather than more?

PRIEBUS: I think we need less. I mean, the fact of the matter is, Dodd-Frank didn’t work. [...]

GREGORY: So, you’re satisfied with the way Wall Street operates, with the kinds of bets that were taken by JPMorgan Chase that led to this kind of loss. You don’t think that Washington regulators can remedy that?

PRIEBUS: Certainly Dodd-Frank didn’t remedy it.

Watch it:

Sen. John Thune (R-SD) made a similar call on Fox News Sunday, saying, “We need to make sure we get all facts before jumping to conclusions about the need for greater financial regulation.”

It’s hard to make sense of these claims. JPMorgan’s loss is hardly proof of Dodd-Frank’s failure — the Volcker Rule, which could have prevented the trade, hasn’t yet been finalized and implemented. And if Dodd-Frank “didn’t remedy” the problem that led to JPMorgan’s losses, it’s because of the efforts of Republicans and Wall Street lobbyists, who have watered down the rule and fought to insert a loophole allowing the sort of trade that cost JPMorgan billions of dollars. At a time when it’s painfully clear that Wall Street can’t manage its own risk or prevent its own failure — even with the lesson of 2008 fresh in its mind — Priebus still thinks the industry is too heavily regulated.

“I’m not a financial expert,” Priebus later told Gregory. At least he got something right.