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Sec. 608 -- No Proxy Bailouits for Derivatives Affiliates

June 18, 2010 - by Donny Shaw

For those willing to step into the weeds and follow what the financial reform conference committee is going to do next week on derivatives reform, this from Zach Carter at Alternet is an important addition to what we should be paying attention to:

To kill off the subsidies, Lincoln’s plan—known as “Section 716″ on Capitol Hill—would force banks to move their derivatives dealing operations into an independently capitalized affiliate company. That affiliate would have no access to taxpayer perks, and would not be able to use cheap Fed loans and deposits to book artificially inflated profits—and by extension, bonuses—on inherently risky derivatives deals.

But for this plan to work, the bank—a company with access to taxpayer perks—can’t be able to simply bail out its derivatives affiliate when it gets into trouble. Those bailouts would ultimately be financed by taxpayer subsidies, rendering the whole point of the Lincoln plan meaningless. There are already laws on the book that limit transactions between banks and their affiliates (for wonks: Sections 23A and 23B of the Federal Reserve Act), but the laws are weak. Fortunately, Section 608 of the Wall Street overhaul that cleared the Senate significantly strengthens those rules.

Current law only keeps banks from bailing out their affiliates with traditional loans. If they want to use a more complicated transaction, like, say, a derivative, to salvage the affiliate, they can. The Senate bill tightens this language, barring banks from bailing out their affiliates with both securities lending and derivatives operations.

Thanks to lots of grassroots action and some big endorsements from regional Fed chiefs and the like, Sec. 716, the “prohibition against federal government bailouts of swap entities,” actually stands a chance of making it into the final bill. 716’s biggest opponent at this point is the White House, which, publicly, is saying that the section is “not a priority,” while privately lobbying conferees to have it removed. With the momentum behind 716, it’s important to watch for any compromises or other corresponding actions form the conference committee that would effectively gut it while letting 716 technically stay in the bill. This 608 issue sets up a perfect opportunity for any conferees who want to craft a 716 loophole.

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Comments

Chris51 07/08/2010 7:25pm
in reply to Chris51 Jul 01, 2010 9:46am

GOP are determined to bloc everything the President is trying to do for the USA right now. He has a vested interest, and seems to take pride in doing the best job he can while in office.
We are in trouble as long as Republican politicians continue favoring their special interest.
How can any CEO or Owner of business get anything done if half of his managers or executives stand in his way just to be defiant.

President Obama speech on CSPAN today, while in Kansas City, MO to support a future candidate. Was right on.
If you are an unemployed American, and are thinking no one understands the difficulties of being jobless. Obama speech articulated the financial and emotional struggles well. Hat’s off to the President for saying what needed to be said.

http://cspan.org/Watch/Media/2010/07/08/HP/A/35248/Pres+Obama+Remarks+at+Fundraiser+for+Missouri+Senate+Candidate+Robin

Chris51 07/08/2010 7:26pm
in reply to Chris51 Jul 08, 2010 7:25pm

Senator’s excuse for not passing is a false statement.
Read all about it:
The funding argument is even harder to swallow. I’d be more sympathetic with these new converts to fiscal responsibility if they were as enthusiastic about paying for extending $32 billion worth of special interest tax breaks as they are about funding the unemployment extension. If I understand correctly, these lawmakers insist that Congress fund every dime of added jobless aid, which nearly all analysts agree will help boost the economy. But they feel no need to pay for continuing these special interest tax breaks, which will not.
Full Story:
http://www.csmonitor.com/Money/Tax-VOX/2010/0707/Senate-struggles-with-unemployment-benefits

Chris51 07/03/2010 10:10pm

REPUBLICAN FILIBUSTER ON UI EXT BILLS!
Why don’t our Senators get that there is a great need?

The job market is broken.
The corporate executives are not going to give up their year-end profit bonus by adding jobs/payroll to their companies.

Here are a few stories on our jobless nation:

Job recovery hits a wall
http://money.cnn.com/2010/07/02/news/economy/jobs_june/index.htm

Job gloom at all time high
http://money.cnn.com/2010/07/03/news/economy/discouraged_workers/index.htm

7.9 million jobs lost- many forever
http://money.cnn.com/2010/07/02/news/economy/jobs_gone_forever/index.htm

Jobless claims spike
http://money.cnn.com/2010/07/01/news/economy/jobless_claims/index.htm

Thousands at risk for losing unemployment benefits
http://www.myfoxphoenix.com/dpp/money/job_news/unemployment-benefits-jeopardy-6-28-2010

Chris51 07/10/2010 7:15am

Republicans filibustered UI Ext bill! They’re asking for UI Ext be paid, while at the same time they’re fighting to give their Special Interest groups special tax stimulus. Rep are trying to look like they care about the deficit, but for 10 yrs (Bush Admin) they never spoke of concerns for the huge deficit they were digging us into as they approved large spending for Special Interest. The Rep debate on these UI Ext bills are like “broken record”. They want USA to use the stimulus money that is already committed to the agreed upon projects, programs, etc. Republicans want USA to “rob Peter to pay Paul”, so they can try to prolong the problem past November election. This is how they have operated for YEARS, and we’re in worse shape now because of their IRRESPONSIBLENESS. People should not be in Leadership positions if they cant make decision for the problems at hand.
Dont take my word for it. Please read links Donny Shaw and others have provided with accurate research and reporting.

Chris51 06/30/2010 10:54pm

The Senate needs to be held accountable for their incompetence and lack of integrity. Shame on them for not coming up with a 100% solution for all Americans who are forced to survive on their UI.

President Obama can’t sign a bill, if Congress doesn’t get it to him. President Obama’s discussed the economy, and the need to help the displaced unemployed with UI Extentions on Monday and Tuesday. CSPAN.ORG

As of today, we have 9.7% unemployed, 55% of the workforce have taken reduced work hours, pay-cuts, unpaid leave, forced to switch to part-time, and BP Oil Corporation’s IRRESPONSIBLENESS is adding to LOST JOBS and LOST LIVES.
1.2 million who will lose their Unemployment Insurance if Republicans get their way.

The GOP have no vested interest in hearing or helping jobless people. The only communication Republicans hear is $$$$$. That’s why they listen to and only support Oil Companies, Insurance Companies, Banks, Big Corporations, and Wall Street

Chris51 07/01/2010 9:46am

Corporations have increased their cash reserves to $1.84 TRILLION, THE HIGHEST FIGURE IN HISTORY! Big business and the banks, after an unprecedented bailout by the public treasury, are hoarding the funds (Americans pay this back on their IRS tax bill). BIG CORPORATIONS EXECUTIVES ARE MAKING BIG BONUSES AND GETTING SALARY INCREASES FOR SHOWING HUGE PROFITS. The cash reserves of major corporations have jumped 26 percent in one year, the largest percentage increase in nearly 60 years. The cash reserves of working people, and particularly the unemployed, have not been so fortunate.

REPUBLICANS bloc, the SENATE vote and defeat sevaral proposed extension of unemployment benefits for unemployed workers. Many of these same Senators rushed through a $700 BILLION bailout of Wall Street in 2008 in a matter of days, cannot bring itself to support even the most meager subsistence for the unemployed workers who are the victims, not the perpetrators, of the economic crisis.
WWW.CHANGE.ORG

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