Republicans, with help from Wall Street’s biggest banks, have already successfully watered down one of the most important financial regulations included in the 2010 Dodd-Frank Wall Street Reform Act. Now, two House Republicans are attempting to delay the rule’s implementation for another two years, even though it is already behind schedule and likely won’t be finished until 2013.

The regulation in question is the Volcker Rule, which would prohibit certain kinds of risky trades — known as proprietary trades — at banks that are backed by taxpayers and the federal government. Prop trading is widely credited with playing a role in the collapse of the financial industry in 2008, and the Volcker Rule, named for former Federal Reserve chairman Paul Volcker, is aimed at preventing a similar occurrence in the future. Reps. Spencer Bachus (R-AL) and Jeb Hensarling (R-TX), though, are attempting to ensure it won’t take effect for another two years, Bloomberg reports:

“Given the time that it will take for you to agree on one version of the Volcker Rule as well as the tremendous uncertainty that market participants face in trying to anticipate what the final rule will look like, we respectfully suggest that the Federal Reserve Board delay the Volcker Rule’s effective date,” the lawmakers wrote. [...]

“While the Volcker Rule promises little if any benefit, what little benefit it does promise will not be realized if regulators further fragment financial markets and ratchet up the costs of compliance for market participants by issuing multiple versions of the Volcker Rule,” the lawmakers wrote.

Republicans and Wall Street banks lobbied to prevent the Volcker Rule’s inclusion in Dodd-Frank, and though they were ultimately unsuccessful, outgoing Sen. Scott Brown (R-MA) made sure it was watered down before the bill passed. Both the GOP and Wall Street have fought the rule incessantly since its passage, lobbying regulators and Congress to water it down even further. It’s so weak now — it includes a loophole large enough to drive a Mack truck through, according to one of its original authors — that Volcker himself isn’t satisfied with it.

And contra Bachus and Hensarling’s claims, the Volcker Rule provides a major benefit to taxpayers. It will indeed make banks less profitable, but it also makes them safer by shifting risky trading to hedge funds and other institutions that aren’t backed by taxpayers, thus ensuring that risky trading won’t again jeopardize the entire financial system and billions of taxpayer dollars. Despite opposition from the GOP and current bankers, it is backed by former traders and ex-CEOs of major Wall Street banks, including the former Citigroup chair credited with inventing the type of supermarket banks the rule is designed to prevent. The rule, according to a former Merrill Lynch executive, is “necessary to correct a mistake that poses a danger to our economy.”

As part of the Dodd-Frank 2010 financial reform law, the Commodity Futures Trading Commission was directed to implement limits on oil speculation. Many analyses have shown that speculation has been a significant driver of recent spikes in oil prices.

A judge last week blocked the CFTC’s rules from taking effect on schedule, ruling in favor of a consortium of big banks and energy companies. The CFTC is considering appealing the ruling. However, Republicans are seizing on the judge’s ruling to claim that the CFTC’s efforts to limit oil speculation are just wasteful spending. Four House Republicans said in a letter:

Given the court’s finding that the CFTC failed to properly justify the rule, we are concerned that CFTC funds were prioritized to promulgate and defend a rule that was not central to the financial crisis…We are very concerned, in the wake of the financial crisis, that CFTC staff are using limited resources to pursue ideological and political goals rather than using the resources allocated by Congress to carry out the direct requirements of the agency.

These Republicans act as if the Dodd-Frank law did not instruct the CFTC to implement speculation limits, thus making it a “direct requirement” for the agency. But this is just part and parcel of the House Republican effort to scuttle Dodd-Frank by not providing regulators with enough funding to implement the law.

The House Republican budget, for instance, would force the CFTC to lay off 8 percent of its staff, while it already can’t handle its workload. “We’re way underfunded at the CFTC,” said Chairman Gary Gensler. “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 mayhem on the field. The fans would lose confidence.”

House Financial Services Chairman Spencer Bachus (R-AL) has even admitted that the agency doesn’t have the resources to do its job. But instead of providing those resources, it seems that the House GOP will be claiming that the rules themselves are a waste of money.

House Financial Services Chairman Spencer Bachus (R-AL) — who said that, in his view, Washington’s role is “to serve the banks” — has put out a call to the financial industry to suggest “legislative alternatives” to the Volcker Rule, which is aimed at reining in banks’ risky trading:

A top Republican lawmaker on Tuesday asked the financial industry to suggest alternatives to the hotly debated Volcker rule in advance of a planned fall hearing.

Representative Spencer Bachus urged investors and market players to submit ideas to the House of Representatives Financial Services Committee before September 7, saying that the rule as currently proposed would have a “devastating” impact on the U.S. economy.

“We must consider legislative alternatives that will not stifle economic growth and job creation,” Bachus, who is the committee chairman, said in a statement.

Bachus is looking for input on the rule from “investors, industry professionals and the public.” But it’s not like the banks haven’t had their views on the Volcker Rule heard up to this point.

In fact, CEOs of Wall Street’s major banks, led by JP Morgan Chase CEO Jamie Dimon, participated in “a closed-door meeting to personally lobby the Federal Reserve about softening proposed reforms that might crimp their profits.” Bloomberg News described the banks’ campaign against the Volcker Rule as a “lobbying blitz.” Shortly thereafter, JP Morgan Chase lost billions of dollars in a trading debacle.

Last month, a top Federal Reserve official called for a stronger Volcker Rule, saying, “I feel it is very important that the guard rails be strong and be set very close to the road because of the potentially severe dangers of, and costs associated with, proprietary trading by institutions that have access to the federal safety net.” But Bachus would evidently prefer that the financial industry write its own rules of the road.

House Republicans on the Appropriations Committee today voted to cut funding for the Commodity Futures Trading Commission, the regulator charged with overseeing Wall Street derivatives and commodities trading. The Obama administration has asked for $300 million for the agency for fiscal year 2013, but the GOP only approved $180 million, which is less than the $205 million that the agency received last year.

This funding cut would come just as the CFTC is attempting to implement huge portions of the Dodd-Frank financial reform law, including a new regulatory regime for derivatives, the complex financial instruments that were at the heart of the financial crisis. And Rep. Spencer Bachus (R-AL), chairman of the House Financial Services Committee, acknowledged today that the CFTC, along with the Securities and Exchange Commission, do not have the budgets to keep up with the tasks they’ve been given:

Let me say that there is agreement, I think, among all the panel that your agencies are all functioning under an increased workload, a greatly increased workload, and that you are facing many challenges with not only the economy, but with adopting new rules and increased supervision. And that you are functioning under a budgetary restraint, particularly, I think, the SEC and the CFTC. Your workload has greatly increased and your budget doesn’t reflect this.

Watch it:

Bachus, who has said that Washington’s role should be to “serve the banks,” has led the charge to cut funding for Wall Street regulators, backed up by Senate Minority Leader Mitch McConnell (R-KY), who believes America is better off the less money regulators have.

CFTC Chairman Gary Gensler has said that the result of the House’s effort will be “to effectively put the interests of Wall Street ahead of those of the American public.” Rep. Barny Frank (D-MA) has added, “At a time when JPMorgan Chase has reported the loss of $3 billion or more in the derivatives markets, the Republicans are refusing to appropriate a small percentage of that amount to provide the protections we need against a return to financial chaos.”

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.

The Office of Rep. Spencer Bachus (R-AL) gleefully announced yesterday that the outside Office of Congressional Ethics (OCE) board voted 6-0 against recommending an Ethics Committee investigation into allegations that Bachus engaged in insider trading. But the unanimous vote may say more about the permissive House rules than about Bachus’s ethical compass.

Last November, CBS’s 60 Minutes aired a report — based on Peter Schweizer’s book Throw Them All Out — accusing several members of Congress of profiting from stock trades made after receiving private briefings. In that report, the news program said that in 2008, one day after receiving a private briefing from the nation’s chief economic officials on the extent of the financial crisis, Bachus bet that the stock market would tank:

While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts.

Bachus, now chairman of the powerful House Financial Services committee that oversees Wall Street, apparently made a $30,000 profit. But, as the report noted, members of Congress have long been considered exempt from anti-insider trading laws. Despite the exemption, the OCE opened an investigation into whether the Bachus trades violated any rule.

While the investigation was in progress, Congress passed the Stop Trading on Congressional Knowledge (STOCK) Act. The bill tightened some of the rules, but thanks to significant Wall Street lobbying, House Republicans successfully watered down the stronger Senate version. The final product left significant loopholes. Members of Congress can still own stocks in the industries they regulate and can still sell secret “political intelligence” to investors.

Friday, the OCE ended the inquiry. In a press release Bachus celebratedthe end of what he called a “destructive and disruptive, media generated assault,” saying:

It has been a long, painful, and frustrating experience to have a reputation built over many years sullied by untrue accusations. I also appreciate former SEC Chairmen Harvey Pitt and Roderick Hills and Federal Judge Stanley Sporkin for reviewing the allegations, determining they were false and meritless, and publicly coming to my defense. Perhaps the most gratifying aspect is that my constituents who know me best recently reaffirmed their faith in my character and my ability to serve their interests, and my personal commitment to them is to continue to serve with the highest level of effectiveness and accountability. Finally, I want to thank the OCE staff for their professionalism and the OCE Board for unanimously coming to the right conclusion. While their review and report should never have been necessary, I am pleased that they have helped clear my name.

Given that the rules in 2008 were not even the slightly tougher STOCK Act provisions, it is little surprise that the OCE found there was “not substantial reason to believe that a violation of House Rules and Standards of Conduct occurred.” Even if it did not violate the House’s permissive rules — and even if, as he claims, his behavior was not technically insider trading — the OCE’s action hardly has cleared his name. Significant questions remain about whether his dealings were ethical.

This ruling serves as a reminder of the gaping holes in Congressional ethics rules. And with unseemly — but unpunished — trading practices all too common, it is little wonder that Congress currently sports an approval rating in the low teens.

House Financial Services Chairman Spencer Bachus (R-AL) — who said in an interview that he believes Washington’s role is to “serve the banks” — is facing one of the stiffest primary challenges of his long career. State Sen. Scott Beason (R) has been chasing Bachus ahead of today’s Alabama elections, helped by some hefty spending from a political action committee and ill-sentiment towards Bachus as a result of a 60 Minutes report showing that Bachus profited from information he received in private briefings during the 2008 economic crisis.

But Bachus has received a little last minute help, courtesy of the financial firms he thinks its his duty to assist:

Bachus’s coffers have been filled by a long list of financial firms whose interests are affected by the congressman’s committee. Over the past several days alone, he’s received donations from the likes of Citigroup, Barclays and RBS.

Bachus has relied on the financial industry for nearly half of his fundraising during this election cycle, receiving hundreds of thousands of dollars from commercial banks and securities firms. Over his career, the financial industry has been far and away Bachus’ biggest donor.

And it’s really no mystery why the financial industry is so keen on keeping Bachus around. As chairman, he has sought to water down and weaken the Dodd-Frank financial reform law, gut the budgets of financial markets regulators, and undermine foreclosure prevention programs.

Since a 60 Minutes report showed that Rep. Spencer Bachus (R-AL) profited from information he obtained in private economic briefings in 2008, Congress has moved quickly to pass a bill to ban insider trading by its members. The Senate passed its version by a vote of 96-3 on February 2nd. President Obama praised the vote and promised to sign the bill — he had called for insider trading legislation in his State of the Union address in January.

Before any of that can happen, however, the House needs to vote on its version, which could happen as early as this week. The House’s version of the bill, however, is shaping up to be considerably different than the Senate’s.

House Majority Leader Eric Cantor (R-VA) has made several changes to the legislation which appear intended to at least weaken the final product, if not to kill it outright. The government watchdog group Citizens for Responsibility and Ethics in Washington (CREW) laid out some of those changes:

CREW strongly supported the Senate approved version of the STOCK Act (S. 2038) passed by an overwhelming bipartisan vote of 96 to 3. S. 2038 goes well beyond merely prohibiting insider trading by, among other things, requiring registration by political intelligence consultants, stripping pension benefits from corrupt members of Congress and closing serious loopholes in the nation’s anti-corruption laws.

The bill Rep. Cantor is bringing to the floor removes several of these provisions. Although the House Judiciary Committee passed nearly identical legislation late last year, the new bill drops the Leahy-Cornyn amendment, which responds to court decisions that have undermined prosecutors’ efforts to target public corruption. It also excludes the Grassley Amendment, which would require political intelligence consultants to register with Congress.

Cantor had also tried to expand the legislation to ban other transactions, such as land deals. As UCLA law professor Stephen Bainbridge noted, “Cantor obviously hopes that including a vast array of economic activity within the bill, exposing members of Congress to disclosure obligations and other restrictions, as well as increasing their liability exposure, will make the bill sufficiently unpopular so as to prevent its passage.”

Despite Cantor’s public protestations that “it is unacceptable for anybody in this body to profit personally from non-public information,” his changes to the STOCK Act have unnecessarily made it weaker. As Rep. Louise Slaughter (D-NY), a chief sponsor of the bill, put it, “I think strengthening here is a euphemism for weakening.” It is also worth noting that, when Bachus proposed an insider trading bill to help repair his image, Cantor blocked it from going forward.

If the House passes a different piece of legislation than the Senate, they will need to be reconciled before they can be signed into law. As the statement from CREW notes, the sections which Cantor removed could still be added back to the final bill in conference, which is why they are still calling for members to vote for passage.

– Zachary Bernstein

During his State of the Union address, President Obama said “send me a bill that bans insider trading by members of Congress; I will sign it tomorrow. Let’s limit any elected official from owning stocks in industries they impact.” The remark stemmed from a 60 Minutes investigation showing that House Financial Services Chairman Spencer Bachus (R-AL) profited from information he received in private briefings during the economic crisis of 2008.

The Senate, in a rare display of bipartisanship, opened debate on an insider trading ban by a vote of 93-2. However, the bill has since become bogged down under a sea of unrelated amendments.

Over in the House, meanwhile, House Majority Leader Eric Cantor (R-VA) — who reportedly blocked Bachus from bringing up a ban on congressional insider trading in committee — wants to expand the legislation to include bans on other sorts of transactions, such as land deals. UCLA Law Prof. Stephen Bainbridge notes that this is likely an attempt by Cantor to kill the bill by making it so overly broad that no one will vote for it:

[Cantor's] now trying to extend the STOCK Act “so it includes land deals and other types of transactions and not just stock trades.” Classic taking a good idea too far. The problem is insider trading in stocks, not insider trading in land deals. Cantor obviously hopes that including a vast array of economic activity within the bill, exposing members of Congress to disclosure obligations and other restrictions, as well as increasing their liability exposure, will make the bill sufficiently unpopular so as to prevent its passage.

The Stop Trading on Congressional Knowledge (STOCK) Act has picked up 273 co-sponsors, after languishing for months with nearly no interest.