Gettin’ Dogged: Blue Dog Dems Blocking Real Financial Reform

The Nation’s William Greider makes no bones about the fact that the legislation approved by the House Financial Services Committee won’t do much to disarm financial weapons of mass destruction, aka derivatives ( “The Money Man’s Best Friend”). Greider cites the recent testimony of Rob Johnson, Director of Financial Reform at the Roosevelt Institute (the hard-hitting testimony Barney Frank didn’t want you to see):

“The ‘entanglements of derivatives exposures’ among oversize banks ‘is the equivalent of the San Andreas Fault of our financial system,’ veteran financier Robert Johnson testified at an October 7 hearing on the draft bill. If Congress does not disarm derivatives, he warned, it could lead to another cascade of failure that would give regulators no choice but once again to rush to the rescue of the banks dubbed ‘too big to fail.’”

Greider notes that Goldman Sachs is plotting to market a nasty new instrument that will allow banks to reduce the capital requirements for holding risky assets on their balance sheets. How innovative! This is just the sort of monkey business Johnson has been warning about on this blog:

“We hear that getting in the way of new technique may cause more problems than it solves.  Or that the innovators can always outrun the regulators.  Or, and this is my favorite, that nothing you do to stifle these new derivative products like credit default swaps will (ominous music in the background) lead to “systemic risk.”  Systemic risk is the new stun-gun phrase to impart dread to those who would tamper with this delicate machine.

Malarky.  This is all code for defer to the wishes of those who make money from these techniques.”

Greider goes on to quote Michael Greenberger, a veteran federal regulator, who believes that the House legislation is so exquisitely riddled with loopholes and exceptions that it appears to have been written by Wall Street lawyers. A Congressional source actually told Greider that the original language was indeed penned  financial-industry experts, probably JP Morgan and Goldman, and maybe the Chicago Mercantile Exchange.

Who is behind this travesty? Blue Dog Democrats, fifteen of whom serve on the committee. As Greider puts it, they are “the tail wagging the committe’s older, liberal dogs.” But people who actually want reform are starting to bark, including Richard Trumka, the new prez of the AFL-CIO, who opposes Obama’s plan to make the Fed a super-regulator. He has been articulating what an outraged public senses — that the Fed is a corrupt mess and should not be in charge of anything until it has had a thorough housecleaning.

Click here to read full text of Greider’s piece.