The Financial Reform Bill that is currently in the process of being merged by the House and Senate risks being a near abrogation of our government's responsibility to reform the financial industry. It appears, as presently crafted, that the financial industry will continue to present systemic risk to our economy. Wall Street lobbyists, sympathetic and beholden lawmakers, and their media allies (please see "the New York Times' Whitewash of Goldman Sachs") are, according to a report in the New York Times, "pushing to undercut a central pillar of the legislation known as the Volcker Rule." The fate of changes that would water down the bill will be subject to intense negotiations being held this week, negotiations that already have the support of Senator Christopher J. Dodd and Representative Barney Frank, chairs of the Senate and House committees respectfully.
The full weight of all that Wall Street can muster -- money, influence and rote power -- is being activated at a fevered pitch to do away with any serious and substantive change that would negatively impact the money-making machines that have now become the core mission of Wall Street and its bank holding companies. It is a mission oblivious to the risk it presents to the nation's financial infrastructure. It is a financial industry that has become dangerously reliant, irrespective of risk or cost to the economy, to the gambling pit. This from an industry that once was the core of the financial system, nurturing the nation's industries and investments and through which the nation built a sound, enterprising and enviable economic destiny.
The arrogance of the major Wall Street players and their self perception of control over the workings of the nation's Congress is stunning. They are absolutely confident that they will either defeat or emasculate the core provisions of the bill, which is meant to terminate their investment in hedge funds, private equity firms and most significantly in proprietary trading -- that is speculatively risky trading for their own account, trading not only with the banking system's resources and guarantees, that simultaneously and too frequently increase the prices of commodities being traded and in turn that of consumer end products (Please see "As Banks Win, We Lose Twice: The Urgent Need For a Tough Volcker Rule")
Their confidence is such that concurrent to the ongoing negotiations between House and Senate they have made extensive commitments that fly in the face of the core provisions of the bill as initially construed, and well before it has landed on President Obama's desk for signature. They have made extensive commitments toward extending their reach in proprietary trading and private equity funds. For example:
- JPMorgan Chase: In January, days after the president castigated the banks for their ongoing proprietary trading having nearly destroyed the financial system, JP Morgan Chase entered into exclusive negotiations with the Royal Bank of Scotland to purchase RBS Sempra, the Royal Bank of Scotland's commodity trading operations, eventually agreeing to purchase its European division (please see "JPMorgan Chase Throws Down the Gauntlet at President Obama"). In addition, JPMorgan is currently moving ahead to buy Brazil's Gavea Investments, a significant asset management company.
- Goldman Sachs: Not to be deterred, barely a month ago Goldman Sachs' commodity trading arm, J.Aron & Co., purchased the gas trading operations of Calgary based Nexen Energy, a trading portfolio trading some 6 billion cubic feet of gas a day and managing 50 million cubic feet of gas storage
- Citigroup: Not to be outdone, as Congress is in the process of weighing restrictions on banks owning private equity firms Citigroup is barreling ahead with its plans to raise some $3 billion for just such a venture.
The banks are also calling for a seven year delay before any substantive changes are to be implemented. They would have us believe that taking naked trading positions on oil, natural gas, copper, wheat, corn -- in which the banks are not "commercials" (that is to say, in which they have no interest other than playing casino) -- could not be stopped by halting the next trade, today.
The anger throughout the land at the conduct of Wall Street for their own profit and at the nation's expense is palpable. The Financial Reform Bill, in a sense, has become a litmus test as to whether we still have a government by and for the people or simply a runaway entity responsive only to special interests. Better by far that we have no Financial Reform Bill than a bill promising financial reform with no teeth nor an element of seriousness. The country is not in a mood to be taken on this issue.
President Obama could set the tone, not only on Financial Reform but in large measure of his presidency if he would make it fully clear that if a compromised, ineffective, watered down bill lands on his desk he will veto it. Certainly the nation would feel that they regained a government responsive to them, and even if no bill is passed at this time, at least they have not been held as fools.