It's becoming an annual tradition: Spring rolls around, and while nobody is looking, Wall Street quietly lays siege to Washington and reaches a hand out to yank the last remaining teeth out of the government's financial regulatory head.
In the last two weeks, we've seen two major developments here. There was a wave of deregulatory bills that snuck through the House with surprisingly bipartisan support, and a series of regulatory decisions by the Commodity Futures Trading Commission that will seriously weaken the already-weak Dodd-Frank reform legislation, particularly with regard to derivatives trades.
If a story about a wave of bills designed to prevent the meager derivatives reforms passed in Dodd-Frank from being enacted sounds familiar, that's because it is. I wrote almost exactly the same story a year ago, in the middle of May, 2012, when a herd of Wall Street-friendly congresshumans teamed up in the House Financial Services Committee to push through a wave of nine ambitious bills targeting derivatives reform. This is from last spring:
The nine bills being contemplated by Congress take a variety of approaches to gutting Dodd-Frank. Two bills, H.R. 1840 and H.R. 2308, are essentially stalling tactics, requiring regulators to undertake more of those sweeping cost-benefit analyses that result in lengthy delays. Another bill, H.R. 3283, is more substantive: Sponsored by Connecticut Democrat and hedge-fund industry BFF Jim Himes, it exempts foreign affiliates of U.S. swaps dealers from all Dodd-Frank oversight.
The rule, if implemented, would make the next AIG possible, given that AIG was undone by half a trillion dollars in derivative bets produced by such a foreign affiliate – its London-based financial products outfit, AIGFP. If passed, says Rep. Brad Miller, a Democrat from North Carolina, H.R. 3283 would leave a "massive, gaping hole" in Dodd-Frank. "It would be very easy to move those trades to whatever the most indulgent country would be," Miller explains.
After those bills escaped the House, most of them stalled on the way to the Senate, where of course the Democrats still hold a majority and are reluctant to openly scrap Dodd-Frank just yet.
But this is the key to understanding how financial lobbyists succeed in getting what it wants on the regulatory front: They never stop. It's not a war of ideas, it's a war of resources. You march up the Hill with some crazy idea about overturning a bill prohibiting bailouts of companies that engage in risky derivative trades, you get knocked down, and you march up again, then you march up again, and again . . .
With each successive attempt, you peel off a few more Committee members in the House, slowly but surely weakening resolve. And while you're attacking on the legislative front, you also file a series of lawsuits that tie up the process by targeting reforms in court, and then you also send armies of lobbyists to sit in the laps of regulators during the rule-making process, so that key new laws (like the Volcker rule, designed to separate risky trading from federally-insured depository banking) are either written in reams of industry-friendly language, or delayed altogether.