On today's Morning Meeting, Dylan Ratigan brought on Senator Maria Cantwell (D-Wash.) to discuss the ongoing attempts to achieve a measure of financial reform, so that the widespread systemic failures of "too big to fail" banking institutions that cratered the economy maybe don't happen again. Cantwell went off: "The shenanigans just began here in Washington." Cantwell continued, "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."
At issue were some specific holes in the Defense against Wall Street's Dark Arts. First: no government oversight of which derivatives get traded on open, transparent exchanges. Instead of the SEC or other regulators making decisions on what goes on the exchange, the exchange would be overseen by banks, who are strongly incentivized to keep derivatives off of exchanges, where they make less money.
Rob Johnson, former managing director at Soros Fund Management and chief economist of the US Senate Banking Committee, called it a "form of Wall Street protectionism" that would not "address the fault lines that OTC derivatives represent."
The second major loophole is the exclusion of foreign currency swaps, which would create a strong incentive for U.S. businesses to go offshore and avoid regulatory supervision. Cantwell wryly noted that "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," said Cantwell, "they have blessed this deal." Johnson added that the whole idea that the proposed legislation would ameliorate the problem was "a mirage." "It's an act of commission," Johnson said, "that's very, very dangerous for the future of our financial system." Great!