Obama wins first financial reform victory in months

[ProSense]

Obama wins first financial reform victory in months

By Kevin Drawbaugh and Charles Abbott

WASHINGTON (Reuters) – The Obama administration scored its first financial regulation reform victory in months on Thursday when a U.S. congressional committee approved new rules for over-the-counter derivatives.

In a 43-26 decision, the House of Representatives Financial Services Committee voted in favor of slapping new rules on the largely unpoliced $450-trillion OTC derivatives market, widely blamed for amplifying last year's financial crisis.

The committee's bill strives to balance a desire to curb speculative market excess with preserving the market's useful role in helping corporations hedge against operational risks.

<...>

"Unregulated derivatives trading was a major cause of the economic crisis ... But the big Wall Street firms who make tens of billions of dollars from these trades -- and then left the taxpayers to clean up their mess -- want to continue with business as usual," Booth said in a statement.

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FRONTLINE Presents: The Warning (on the economic meltdown)

In the devastating aftermath of the economic meltdown, FRONTLINE sifts through the ashes for clues about why it happened and examines critical moments when it might have gone much differently.

In The Warning, airing Tuesday, Oct. 20, 2009, at 9 P.M. ET on PBS (check local listings), veteran FRONTLINE producer Michael Kirk (Inside the Meltdown, Breaking the Bank) unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multi-trillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.

[gratuitous]

1. Gummint interference in the free markets

Don't those Dummycrats know that the only role government has in the free market is to bail out the big boys when they step on their johnson?

[Engineer4Obama]

2. Did I read that right or did I see the number...

450 Trillion?!!!??

[tabatha]

4. Yep - they have gambled with more money than there is on planet earth.

[slipslidingaway]

5. Notional values and actual dollar values...

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=103&topic_id=351988&mesg_id=352021

[tblue]

3. I read somewhere that over 90% of banks won't have to comply.

I'd have to read up more on this. I've lost trust in this administration. Sorry, but fool me once....

[EFerrari]

7. Amy reported the small print in her headlines:

House Panel Reduces Power of Proposed Consumer Agency

In economic news, the House Financial Services Committee has agreed to weaken the power of the proposed Consumer Financial Protection Agency by exempting 98 percent of the nation’s banks from oversight by the agency. The agreement prevents the new agency from conducting annual examinations of the lending practices at more than 8,000 of the nation’s 8,200 banks, leaving only the largest banks and other lenders subject to the agency’s examiners.

[girl gone mad]

9. 98% of Banks Exempt From New Oversight Regulations

98% of Banks Exempt From New Oversight Regulations

Bowing to political pressure from community bankers, the House Financial Services Committee approved an exemption on Thursday for more than 98 percent of the nation’s banks from oversight by a new agency created to protect consumers from abusive or deceptive credit cards, mortgages and other loans.

The carve-out in legislation overhauling the regulatory system would prevent the new consumer financial protection agency from conducting annual examinations of the lending practices at more than 8,000 of the nation’s 8,200 banks, leaving only the largest banks and other lenders subject to the agency’s examiners.

Earlier in the day, the committee completed its work on a different contentious provision of the legislation when, on a nearly straight party-line vote of 43 to 26, it approved tougher regulations over the derivatives market. That provision, too, contained exemptions for many businesses.

Under the Miller-Moore amendment, the new agency would have the authority to write rules for all banks and other lenders, including lenders that have never faced significant regulation. But the banks with assets of less than $10 billion and credit unions smaller than $1.5 billion would not face regular exams by the agency.

While the administration quickly embraced the derivatives legislation, a top regulator appointed by President Obama indicated that compromises made to win the support of moderate Democrats led to problematic loopholes. The regulator, Gary G. Gensler, chairman of the Commodity Futures Trading Commission, vowed to try to strengthen the measure when it is considered by a second House committee next week.

[slipslidingaway]

6. Dylan Ratigan and Senator Cantwell on financial reform...

10/16/2009

Video
http://www.msnbc.msn.com/id/22425001/vp/33343788

http://www.zerohedge.com/article/senator-cantwell-congress-weakening-existing-derivatives-regulations

"Senator Cantwell said this today about the new derivatives legislation passed by the Financial Services Committee:

The shenanigans just began here in Washington.


What is moving through on the House side is a bill that supposedly has a new rule, but has so many loopholes that the loophole eats the rule. We want to say we have transparency and regulation, but it will continue to have loopholes

Current law with its loopholes would actually be better than these loopholes, which are just going to continue to promulgate the problem.


The Treasury Department should be ashamed of themselves. They have blessed this deal. a mirage. It's an act of commission, that's very, very dangerous for the future of our financial system.

An "act of commission" is a legal term for an unlawful action (as opposed to "an act of omission" which means breaking the law by unlawfully failing to act). If Cantwell understands the term, then she is saying that Congress is acting unlawfully by intentionally weakening derivatives regulations.

In any event, leading derivatives experts agree with Cantwell that the proposed legislation will do more harm than good..."

[slipslidingaway]

8. Bill Shields Most Banks From Review

http://www.nytimes.com/2009/10/16/business/16regulate.html?_r=1

"...The legislation’s chapter on derivatives would impose new regulations and capital requirements on dealers, and would force more trades onto exchanges or electronic platforms. But in a major concession to businesses, many trades intended to hedge risks by companies like airlines, manufacturers and energy interests would be exempt from trading through exchanges or clearinghouses.

While the administration quickly embraced the derivatives legislation, a top regulator appointed by President Obama indicated that compromises made to win the support of moderate Democrats led to problematic loopholes. The regulator, Gary G. Gensler, chairman of the Commodity Futures Trading Commission, vowed to try to strengthen the measure when it is considered by a second House committee next week.

“The committee’s bill is a significant step toward lowering risk and promoting transparency,” Mr. Gensler said. “Substantive challenges remain.” He added that he hoped a final bill “covers the entire marketplace without exception.”

Mr. Gensler did not spell out the specific problems with the legislation on Thursday, but last week he listed a host of exemptions and loopholes, a few of which have since been addressed.

The derivatives legislation was criticized by consumer groups as being too weak and by Wall Street interests as being too onerous..."

[ProSense]

10. Don’t Let Exceptions Kill the Rule

Don’t Let Exceptions Kill the Rule

By GRETCHEN MORGENSON
Published: October 17, 2009

CONGRESS began the work of reforming our troubled financial system last week, and a bill aimed at regulating derivatives passed the House Financial Services Committee on Thursday.

Derivatives — contracts that theoretically protect buyers from unforeseen financial calamities but more often are used to fuel raw speculation — were, lest we forget, at the heart of the banking crisis.

<...>

The best aspect of the House bill is that it requires many swaps to be traded on exchanges just like stocks, subjecting them for the first time to the light of day. But elsewhere in the bill, known as the Over-the-Counter Derivatives Market Act of 2009, exceptions to this exchange-trading rule undermine its regulatory power.

Derivatives regulation has been on the nation’s financial reform agenda for months. Undoing the Clinton-era law that exempted swaps from oversight is seen as imperative, except perhaps by big banks that deal in the contracts. It’s worth noting that many members of the Clinton economic team, including Lawrence Summers, Timothy Geithner and Gary Gensler, now hold pivotal policy-making positions in the Obama administration.

In August, the White House sent its derivatives proposal to Congress, recommending that all standardized contracts trade on an exchange. But big banks dealing in swaps don’t want exchange trading, where pricing and the identities of participants would be more publicly transparent. Savvier swaps customers would soon pay less on their transactions and bank profits would fall.

<...>

To be sure, the House bill is just the first step in what is likely to be a long road to reforming this huge and opaque market. And more oversight is surely better than none. The House Agriculture Committee, which oversees the Commodity Futures Trading Commission, will take up the matter now.

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(emphasis added)

[slipslidingaway]

11. kick nt

[ProSense]

12. Thanks n/t

[slipslidingaway]

14. You're welcome, if Dylan Ratigan and Senator Cantwell are correct...

this may not be such a victory.

Maybe Summers is working his magic again on derivatives regulation.

:shrug:

[spanone]

13. k&r...