Yesterday, Rep. Ed Royce (R-CA) announced that he is going to challenge Rep. Spencer Bachus (R-AL) for the chairmanship of the House Financial Services Committee. “I think we need a strong chairman in this position,” Royce told Bloomberg News. “I discussed this earlier today with Spencer Bachus and I shared with him that this is nothing personal.”
The prospect of a challenge to his committee leadership may explain why Bachus has been going gangbusters with his rhetoric regarding dismantling the Dodd-Frank financial reform law. And he kept it up yesterday, sending a letter to the newly created Financial Stability Oversight Council scaremongering about the effects of the Volcker rule, which is meant to prevent banks from engaging in risky trading with federally insured dollars:
Bachus says that a ban on proprietary trading — known as the Volcker rule — that was included in the new Dodd-Frank financial reform law will “impose substantial costs on the American economy and market participants” with “doubtful” benefits.” “Depending on how US regulators choose to implement it, the Volcker rule may spark a mass exodus of clients from US banks to banks based abroad.”
In the letter, Bachus casts doubt on the very notion that risky trading had anything to do with the financial mentldown of 2008. But as the Political Economy Research Institute at the University of Massachusetts pointed out “risky proprietary investments by investment banks, along with trading for clients whose decisions were influenced by these banks, was one of the main forces that sustained upward pressure on securities prices in the bubble…Indeed, by running large trading books, banks had inside information on client trading patterns and could use that information to front-run, and thereby help sustain market trends.”
Royce, for his part, is no more sympathetic towards the Dodd-Frank law. Last week, in fact, he said that he would allow bank regulators to have direct veto power over the newly created Consumer Financial Protection Bureau. During the financial reform debate, he was also one of the foremost promulgators of the myth that Fannie Mae and Freddie Mac caused the housing bubble. It should come as no surprise that he has raised far more money from the finance industry than any other business sector during his career.
Even the likely Speaker of the House, Rep. John Boehner (R-OH), is getting into the anti-financial reform game, saying that under his watch, “not only will the Congress understand, but the American people will understand, just what this bill will do to our financial services industry.” So, no matter who takes over the Financial Services Committee, as Barry Ritholz wrote, we should expect “new hearings, new subpoenas, and general harassment of regulators by the House of Representatives.”