December 17, 2014 archive
Dec 17 2014
Dec 17 2014
Inside Wall Street’s new heist: How big banks exploited a broken Democratic caucus
David Dayen, Salon
Tuesday, Dec 16, 2014 02:45 PM EST
The so-called swaps push-out provision of Dodd-Frank, Section 716, forced commercial banks that trade certain risky types of derivatives to split them off into a separately capitalized subsidiary, uncovered by FDIC deposit insurance. Those attempting to downplay Section 716’s importance, like Paul Krugman, highlight the fact that uninsured institutions like Lehman Brothers played a critical role in the last crisis, and that risk can cascade through an interconnected financial system no matter where those risks are initially housed. This theory actually made it easier to get the rider through Congress, giving lawmakers a plausible story that the provision wasn’t central to reform.
But this overlooks how 716 didn’t just limit taxpayer bailouts, but removed a lucrative subsidy for the four major banks – Citigroup, JPMorgan Chase, Bank of America and Goldman Sachs – that control almost all of the derivatives market. By holding derivatives inside their depository units, these banks benefit from an implicit FDIC guarantee for its counter-parties should those units fail. Keeping them in separately capitalized entities costs the banks more in short-term borrowing. As the Wall Street Journal’s John Carney points out, the banks’ parent companies have lower credit ratings than the depository units, which affects the price banks can ask for derivatives.
So in the end, removing 716 just gives four banks a giant subsidy they would lose by splitting out the derivatives books, no different than the other CRomnibus riders that aid the bottom lines of wealthy benefactors. That has implications for safety as well – if risky derivatives are cheaper to fund and more profitable to trade, banks will increase their production. Furthermore, banks’ concerns about possible energy swap losses related to the crash in oil prices added a sense of urgency.
The origins of eliminating Section 716 go back to the writing of Dodd-Frank itself. Blanche Lincoln, author of the derivatives regulations in the bill, initially included practically all swaps. A combination of lobbyists, Wall Street-friendly “New Democrats” and the Treasury Department significantly rolled that back, limiting it to the riskiest bits, like credit default swaps that don’t go through a clearinghouse.
After wounding the provision, the banks employed their allies in Congress to disappear it entirely. A bipartisan coalition, including Jim Himes, D-Conn., a former vice president at Goldman Sachs, introduced a host of bills to weaken derivatives rules as far back as 2011. HR 992, the “Swaps Regulatory Improvement Act,” sailed through the House Financial Services Committee 53-6 in spring 2013. The language of this bill, written by Citigroup lobbyists, is virtually identical to what passed in the CRomnibus. Rep. Maxine Waters, the ranking member on the Democratic side, waged a fairly lonely battle to limit Democratic support. On the House floor, 70 Democrats voted for the final bill, far fewer than was initially expected. This enabled Senate Democrats to ignore the bill as a stand-alone entity.
House Republicans, egged on by Wall Street lobbyists, tried another tactic. Kevin Yoder, R-Kan., a two-term member of the House Appropriations subcommittee overseeing financial services, stuck HR 992 into the financial services appropriations bill without a formal vote, pitching it as an aid to “the farmer in your district who wants to get a loan,” rather than Jamie Dimon or Lloyd Blankfein. Nobody ever tried to strip it out, and the rider easily advanced through the process.
Stuffing the rollback into a must-pass bill turned out to be a genius move. Lawmakers on the Appropriations committees have less understanding of complex bank maneuvers like derivatives than those on the banking committees. Furthermore, because all parties expected a year-end omnibus bill anyway, it didn’t make as much sense to fight every little provision, when a negotiated process would cover that down the road.
Barbara Mikulski, D-Md., the outgoing chairwoman of the Senate Appropriations Committee, negotiated the CRomnibus with her House counterpart Hal Rogers, R-Ky. She ultimately signed off on the rider, in exchange for modest additional funding for the Commodity Futures Trading Commission and the Securities and Exchange Commission, two Wall Street regulators.
Bank reform groups and sympathetic lawmakers didn’t consider it a good trade to give a couple of regulators a bit more money in exchange for limiting what they can regulate.
Senate leaders had to know that this swaps provision, for example, would cause plenty of consternation among colleagues like Elizabeth Warren, D-Mass. But they gave Mikulski all the space she needed to negotiate, and then pronounced themselves satisfied with the results. This stands in sharp contrast to Ron Wyden on the Senate Finance Committee, who watched Harry Reid go completely over his head in trying to negotiate a year-end tax deal.
Why did Mikulski get the hands-off treatment? For one, she’s earned respect as a longtime senator. Also, the leadership probably welcomed keeping their fingerprints off the final product, which was bound to be ugly. Establishment Democrats, including the White House, never really liked Section 716 to begin with, so they weren’t too displeased with watching it go, regardless of the blueprint it provided for repealing regulatory actions inside budget bills.
(T)his shows real dysfunction in how Democrats work. Giving Mikulski carte blanche led to an embarrassing deal that revealed real fissures within the party caucus. The leadership should have seen this coming, but either let it happen or actively participated in the rollback (a claim from the Wall Street Journal editorial board that Chuck Schumer “engineered” the swaps provision had to be retracted within hours).
More important, the leadership failed to listen to the liberal wing, who were loudly and publicly opposed to the swaps rider. This is a familiar refrain from liberal congressional aides; their side of the argument never gets represented at the negotiating table.
The hardening conventional wisdom is that Wall Street lost more than it won with its power play on the CRomnibus, because it revealed itself as a giant liberal target. Mainstream Democrats definitely underestimated the strength liberal reformers brought to the fight, so maybe future actions will be undertaken with that in mind.
But it’s just as likely that the establishment didn’t mind the outcome, letting them look like the sensible centrists “getting something done.” That was probably the motivation behind President Obama ultimately endorsing and even whipping for the bill.
Whatever the outcome, we know that Wall Street exploited a fractured Democratic caucus to restore a big subsidy to its profits. And if Democrats don’t contend with that – or worse, if they don’t want to – you can expect many more congressional victories for the financial sector.
Dec 17 2014
Hanukkah starts at sundown this Tuesday evening, along with the lighting of the first candle and spinning dreidels, Potato Latkes are a must. Here is my favorite recipe Reposted from December 4, 2010
It isn’t Hanukkah without Potato Latkes, those wonderful, crispy pancakes of shredded potato and onion served with apple sauce. It’s lot easier than when I was growing up in the 50’s. Back then we had to shred them with a metal grater that often resulted in some shredded knuckles, too. Food processors have saved a lot of knuckles and teary eye from shredding the onion.
This recipe is really simple. The trick to getting latkes that hold together and aren’t “oily” is the potato. Idaho’s win, hands down.
Traditionally, according to kosher law, when latkes are served with a fish meal they are fried in oil and served with sour cream. If they are served with meat, they are fried in chicken fat and served with apple sauce. Since, I haven’t kept a kosher kitchen in over 40 years, I fry the latkes in oil and serve both apple sauce and sour cream.
Because this recipe has no flour or egg, the latkes are more delicate and lacy. These are best served when they are fresh from the pan, so, we take turns making them all during the meal. It can actually be fun.
Pure Potato Latkes
- 4 large Idaho potatoes, about 2 1/4 lbs.
- 1 large onion, peeled
- 1/2 teaspoon of salt
- 1/4 teaspoon fresh ground black pepper
- 1/4 cup canola oil
In a food processor with a coarse shredding disc or o the large shredding hole of a hand grater, shred the potatoes. Squeeze them well to rid them of as much water as possible and place them in a bowl. I use a cotton dish towel to squeeze the water out. it gets them really dry. Shred the onion and add to the bowl. Add the salt and pepper. Mix well. More water will be exuded and should be squeezed and drained thoroughly.
In a large heavy frying pan (a 12 inch iron pan works best), over medium heat, heat 2 tablespoons until a slight haze appears on the surace of the oil. Drop about 1/4 cup of the mixture into the oil, flattening slightly with the back of a spoon Leave a little pace between the pancakes for ease in turning. They should be about 2 1/2 inches in diameter and will flatten as they cook.
Cook about 7 minutes or until the edges turn golden brown. Flip and cook another 5 to 7 minutes or until the other side is golden brown. If the oil starts smoking or the latkes brown too quickly, reduce the heat and briefly remove the pan from the heat. Remove the latkes and drain on layers of paper towels Continue with remaining mixture adding 2 tablespoons of oil with each batch.
Serve with apple sauce and sour cream.
Bon Appetite and Happy Hanukkah!
Dec 17 2014
In Autumn, the appearance in grocery stores of stacks of candied fruit and mountains of nuts in all their wonderful variety is a sure sign of the approach of the holidays. As the days grow short and the nights grow cool preparations for a joyous time of baking begins.
My daughter is the bread baker but Sugarplum Bread is the one I enjoy making, too. This sweet bread studded with candied fruit is not as heavy as fruit cake. It is topped with a white icing glaze and decorated with red and green cherries to look like clusters of berries. It is a treat for breakfast or in the afternoon with tea. I make small ones baked in large muffin tins, decorated and wrapped in colored plastic wrap tied with ribbon as gifts for guests.
The following recipe is a rich dough flavored with nutmeg, candied fruit and peel, and raisins
Candied fruit would have melted in the summer heat and its sweetness would attract ants but it keeps well in the freezer. After the holidays, when the price is reduced for clearance, if you have space in your freezer buy a supply. It assures that you’ll have candied fruit on hand in the months when it can’t be found in the market.
Dec 17 2014
Welcome to The Breakfast Club! We’re a disorganized group of rebel lefties who hang out and chat if and when
we’re not too hungover we’ve been bailed out we’re not too exhausted from last night’s (CENSORED) the caffeine kicks in. Join us every weekday morning at 9am (ET) and weekend morning at 10:30am (ET) to talk about current news and our boring lives and to make fun of LaEscapee! If we are ever running late, it’s PhilJD’s fault.
This Day in History
Wright brothers conduct the first successful manned, powered flight of the airplane. U.S. test-fires the Atlas intercontinental ballistic missile; Simon Bolivar dies in Colombia; television’s Tiny Tim marries his fiancee, Miss Vicky.
Something to Think about over
I don’t think most of us are torturers, but the great number of people who delight in simply being assholes is still disturbing.
Try being excellent to each other. Takes a bit of work, I know, but it isn’t that hard.
Dec 17 2014
This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.
Find the past “On This Day in History” here.
December 17 is the 351st day of the year (352nd in leap years) in the Gregorian calendar. There are 14 days remaining until the end of the year
On this day on 1865, the first two movements of Franz Schubert’s “Unfinished Symphony”, Symphony No. 8 in B minor, is performed in Vienna, Austria.
(The symphony) was started in 1822 but left with only two movements known to be complete, even though Schubert would live for another six years. A scherzo, nearly completed in piano score but with only two pages orchestrated, also survives. It has long been theorized that Schubert may have sketched a finale which instead became the big B minor entr’acte from his incidental music to Rosamunde, but all the evidence for this is circumstantial. One possible reason for Schubert’s leaving the symphony incomplete is the predominance of the same meter (three-in-a-bar). The first movement is in 3/4, the second in 3/8 and the third (an incomplete scherzo) also in 3/4. Three consecutive movements in exactly the same meter rarely occur in the symphonies, sonatas or chamber works of the great Viennese composers (one notable exception being Haydn’s Farewell Symphony).