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.

The 15 freshmen Republican representatives in the House Tea Party Caucus each ran in 2010 on a populist anti-Wall Street message, highlighting their opposition to bank bailouts like the 2008 Troubled Asset Relief Program (TARP) and criticizing Washington for enabling the banking sector as it became “Too Big to Fail.” After winning, all fifteen received significant PAC contributions from the banking industry — and have become a reliable vote and mouthpiece for the financial industry, a ThinkProgress analysis of campaign contributions, voting records and public statements reveals.

Rather than campaigning on a typical pro-business platform, the Tea Party freshmen tapped into public resentment of big banks and bailouts. For example, then-candidate Sandy Adams (R-FL) said on her campaign website that she “opposes government bailouts” and “would have voted against TARP and the auto bailout.” Jeff Landry (R-LA) said bailouts of private businesses had “corrupted our free market system by rewarding the irresponsible and penalizing the responsible,” blasting “bank bailouts, which led to taxpayer money directly or indirectly going into multi-million dollar bonuses.”

But in Congress, the Tea Party has toed the line for big banks. Eleven of the 15 have become co-sponsors of H.R. 3461, a top priority for the ABA. According to Americans for Financial Reform, the legislation would “tilt the playing field further in the direction of excessive deference to industry interests and tie the hands of regulators attempting to protect the public interest.” The bill would make it harder for bank examiners to do their job, giving regulatory responsibilities to an industry that’s already shown it can’t police itself.

Here is what happened:

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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.

JPMorgan Chase CEO Jamie Dimon announced on a conference call yesterday that the bank suffered $2 billion in losses from a risky trade that turned sour. The trade dents Dimon’s case that Wall Street can responsibly manage itself and yet again proves the need for a strong Volcker Rule, which could largely ban such risky trades at federally-insured institutions.

“There were many errors, sloppiness and bad judgment,” Dimon said as the company’s stock fell in extended trading. “These were egregious mistakes, they were self-inflicted.” Those errors, however, could have been prevented were it not for extensive lobbying efforts from banks like JPMorgan, which has spent nearly $10 million on lobbying since the beginning of 2011 (including nearly $2 million already this year). Dimon, in fact, was in Washington just last week to personally lobby the Federal Reserve to weaken the Volcker Rule.

Those lobbying efforts have worked. Dimon insists that the trade-gone-wrong was a hedge, not a proprietary bet, and as such would not be banned under Volcker. The only reason that’s true, however, is because Dimon is referring to the trade as a “hedge” to exploit a loophole Wall Street banks and their Republican allies helped insert into the watered-down version of the Volcker Rule that was included in the Dodd-Frank Wall Street Reform Act. That’s a loophole Sens. Carl Levin (D-MI) and Jeff Merkley (D-OR) have been trying — unsuccessfully — to close, as Bloomberg notes:

Levin and Merkley, in their February comment letter, pushed regulators to tighten the exemption for hedging, calling some of what may be allowed a “major weakness” in the rule.

Dimon acknowledged that the losses would lead to scrutiny and calls for a tougher Volcker Rule yesterday, saying the blunder “plays right into the hands of a bunch of pundits out there.” What Dimon ignores, though, is that yesterday’s massive loss — big even by JPMorgan’s lofty standards — does in fact exemplify the need for such a rule. For years, banks have made billions in profits from risky bets like this one, but when too many of the deals went bad in 2008, they turned to taxpayers for a bailout.

Thursday’s events prove that Wall Street hasn’t learned its lesson from the last crisis, and that America’s “too big to fail” institutions are too irresponsible to avoid failure. The Volcker Rule, watered down as it may be, is aimed at preventing that. Unfortunately, Dimon and his Wall Street colleagues remain committed to making sure it won’t.

MOUNT PLEASANT, Wisconsin — Rep. Paul Ryan (R-WI) made a surprising policy assertion late last week, seemingly telling a Wisconsin town hall that he supports a key financial regulation pushed by President Obama and progressives in Congress.

“If you’re a bank and you want to operate like some non-bank entity like a hedge fund, then don’t be a bank,” Ryan told constituents on Friday. “Don’t let banks use their customers money to do anything other than traditional banking”:

RYAN: I think we should have the same rules apply to everybody else. We should make sure you can’t get too big where you’re going to become too big to fail and trigger a bailout, and if you take risky behavior then you go into bankruptcy and we open up the bankruptcy laws to allow them to go into bankruptcy. And more importantly if you’re a bank and you want to operate like some non-bank entity like a hedge fund, then don’t be a bank. Don’t let banks use their customers money to do anything other than traditional banking. Those to me are the key tenets of reform which we did not see happen.

Watch it:

A proposal doing almost exactly that — known as the Volcker Rule, after former Federal Reserve Chairman Paul Volcker — was part of the Dodd-Frank financial reform law and has been opposed by most Republicans in Congress. The Volcker Rule largely bans banks that are backed by taxpayers from engaging in risky proprietary trading, limiting such activity to hedge funds and institutions that are not federally insured. With the Volcker Rule in effect, banks would either give up the sort of trading that played a major role in the financial crisis or forfeit their access to the Federal Reserve’s emergency lending and the FDIC’s backing.

While Ryan talks like someone who wants to rein in Wall Street at town hall meetings, it isn’t always the game he plays in Washington. Ryan opposed Dodd-Frank, and his biggest backer is the financial industry, which has had so much success lobbying to water down the rule that not even Volcker himself is satisfied with it anymore.

Federal regulators in charge of writing the Volcker Rule, which would ban federally-insured financial institutions from risky proprietary trading, are moving at a faster pace than expected and could have the rule finalized by September.

Wall Street banks have been lobbying to weaken the rule since it was originally proposed by its namesake, former Federal Reserve Chairman Paul Volcker, and now that it is just months away from finalization, their efforts are getting stronger. The chief executives of six major Wall Street banks, led by JPMorgan Chase CEO Jamie Dimon, traveled to Washington yesterday to personally lobby the Federal Reserve on multiple issues — weakening the Volcker Rule chief among them — Bloomberg reports:

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon led Wall Street bosses in a closed-door meeting to personally lobby the Federal Reserve about softening proposed reforms that might crimp their profits.

The contingent, which included Bank of America Corp.’s Brian T. Moynihan, 52, and Goldman Sachs Group Inc.’s Lloyd C. Blankfein, 57, pressed the Fed on rules they said would overstate trading risks and harm financial markets, the central bank said yesterday in a statement. They also discussed what they see as flaws in Fed stress tests designed to gauge the strength of the nation’s largest lenders.

Wall Street banks, with the help of Massachusetts Sen. Scott Brown (R), were able to water down the Volcker Rule even before it became law as part of the 2010 Dodd-Frank Wall Street Reform Act. Since the law passed, they have pushed to make it even weaker, falsely arguing that it poses a major risk to the American economy. The banks have been so successful weakening the rule that Volcker himself was disappointed in its outcome.

Not all bankers oppose the rule. Greg Smith, the former Goldman Sachs trader who publicly resigned from the firm, unknowingly made the case for the rule in an editorial in the New York Times, and a former Merrill Lynch banker recently said the rule was “necessary to correct a mistake that poses a danger to our economy.”

Activists from the 99 Percent Movement took to the streets across America to mark May Day on Tuesday, but their campaign against Wall Street is just beginning. In the month of May, activist groups and religious leaders will again turn their focus to urging customers to move their money from Wall Street banks.

Last week, religious leaders and activists targeted Wells Fargo’s annual meeting, where they protested the bank’s predatory and often discriminatory practices and its lack of accountability for its role in the financial crisis that crippled the American economy. Next week, protesters will target Bank of America’s annual meeting, attempting to call attention to the same problems. Throughout the month, a diverse group of activists will push customers to move their money from Wall Street to community banks and credit unions, according to a press release from New Bottom Line, an organizing group that has dubbed May “Move Our Money Month”:

On May 9, thousands of people associated with the 99% Power Movement — families facing foreclosure, clergy, students, seniors, environmentalists, and others — will descend on Bank of America’s shareholder meeting in Charlotte, NC to urge the bank to keep families in their homes, pay its fair share of taxes, and stop choking democracy through massive campaign contributions. If Bank of America does not enact new policies that are more responsive to the communities it serves, large numbers of customers are expected to close their accounts. [...]

“The 99 percent are making their voices heard by moving their money out of the big banks that wrecked the economy and are doing nothing to fix it. This spring, there will be more people attending bank shareholders meetings than at any point in history and we will see more people severing their relationships with the big banks in favor of smaller institutions that are responsive to community concerns,” said Ilana Berger, Co-Director of The New Bottom Line.

The 99 Percent Movement has successfully targeted Wall Street banks with “Move Your Money” campaigns since last fall, when hundreds of thousands of people switched from large banks to credit unions in October and 40,000 more joined on a single day — known as “Bank Transfer Day” — in early November. Churches and faith leaders joined the cause, targeting banks for dodging taxes and unfair mortgage practices. Churches moved $55 million from Wall Street before Thanksgiving, and San Francisco faith leaders moved another $10 million from Wells Fargo in February.

Such campaigns are expected to have profound impacts on Wall Street’s bottom lines. A Wall Street consulting firm reported in November that the nation’s 10 largest banks could lose as much as $185 billion in deposits over the next year thanks to customer defections, and Bank of America — the activists’ next target — is the most vulnerable among them. According to the report, it could lose 10 percent of its customers and $42 billion by the end of 2012.

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.