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While You Were Sleeping ...Congress Regulates the $600 Trillion Derivatives Market

June 25, 2010 - by Donny Shaw

The conference committee worked through the night until 6 a.m. this morning to finalize their financial reform bill and, in particular, its critical language regulating the huge and risky over-the-counter derivatives market. I stayed awake until about 3:00 a.m., following along to the extent possible on C-Span and providing updates on Twitter, but I was asleep before any good info or analysis was really available. Now that we have some day-after reporting on what happened in those delirious early morning hours, after all but a handful of people had turned off C-Span, here’s what it looks like went down.

Volcker Rule — This ban on banks investing their own money for profit rather than investing for their clients, so-called proprietary trading, wasn’t in either the House or Senate versions of the bill. But the conference committee inserted it into the final bill last night, albeit with an exception designed to win the support of Sen. Scott Brown [R, MA] allowing banks to invest up to 3% of their Tier-1 capital in hedge funds. The inclusion of this language in the bill is a big victory for reform advocates, and one that was not at all expected just a few weeks ago.

Lincoln 716 — This is a section from the Senate version of the bill designed to stop banks from getting taxpayer subsidies for their risky derivatives trades. It’s practical effect would be to force banks to spin off their derivatives desks in to separate entities that would not have access to federal assistance via the Fed discount window and the FDIC. This section made it into the final bill, but with a gigantic loophole in it. Under a late night deal brokered by Rep. Collin Peterson [D, MN-7], banks would be allowed to continue receiving federal subsidies for all interest-rate swaps, foreign-exchange swaps, investment-grade credit default swaps, gold and silver swaps, and anything deigned to hedge risk. Interest rates swaps alone make up well more than half of the derivatives marketplace. And with the ambiguity implicit in trading fro risk hedging, probably somewhere around 90% of all derivatives trades will still get federal backing from the Fed and FDIC. The chart on the right (provided by Ilan Moscovitz at Fool.com) shows the extent to which this was gutted. The green is interest rate swaps and the orange is foreign exchange contracts.

Bank Tax — Since Republicans managed to kill the idea of a pre-funded orderly liquidation fund in the Senate by falsely labeling it a bailout fund, the conference committee had to find some revenue in order to make the financial reform bill be budget neutral and comply with pay-go rules. They settled on a risk-based assessment on the largest banks, which is expected to raise $19 billion over the next ten years.

Clearing and Exchange Trading — It appears that the majority of derivatives would have to be approved by clearinghouses and traded on exchanges with margin requirements and pricing transparency in the final bill. These requirements from the Senate version appear to have remained pretty solid without any of the giant loopholes from the House version influencing the final bill.

The final text of the bill is not available yet, so you can expect a lot more detailed analysis in the near future as soon as folks are able to dig into the actual language. The Democrats have pledged to have the text online for 72 hours before it gets its final votes in the Senate and the House.

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Comments

Chris51 06/27/2010 9:43pm
in reply to Cyrano Jun 25, 2010 1:35pm

http://www.change.org/petitions/view/we_demand_an_immediate_passage_of_bill_hr_4213_extension_of_unemployment_benefits

12 Democrats joining a UNANIMOUS REPUBLICAN bloc, against the bill for extended unemployment benefits. Congress that rushed through a $700 BILLION bailout of Wall Street in Oct2008. Congress 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.
The Wall Street Journal reported that American 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 that could put millions back to work. 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… change.org

Chris51 06/29/2010 11:17am

President Obama gets it. The GOP who are busy watching out for Wall Street/Corporations. Shame on Congress for not coming up with a solution for all its unemployed americans.

Watch President Obama discussion on this earlier today, go to CSPAN.
http://cspan.org/Watch/Media/2010/06/29/HP/A/34826/Pres+Obama+Remarks+on+the+Economy.aspx

Then go to wwww.change.org
http://www.change.org/petitions/view/we_demand_an_immediate_passage_of_bill_hr_4213_extension_of_unemployment_benefits

Chris51 07/10/2010 10:32pm
in reply to Chris51 Jul 10, 2010 10:30pm

Republicans only care about one thing, their own job preservation. Reps are working hard to win November’s election with the help of Tea Party Movement (FreedomWorks) and their BIG CONTRIBUTIONS FROM SPECIAL INTEREST.

Oil&Gas Industry Contribution 2009-2010
Koch Industries $724,300 14% Dems, 86% Repubs

Kosh has made big contributions to FreedomWorks, a non-profit that funds Tea Party. These 2 organizations are putting a great deal of pressure on Senators to not support UI Ext. with stimulus that require corporations to help pay back through taxes.

Most big CORPORATIONS have made RECORD PROFITS this year by cutting jobs long-term. They started layoffs in 2007, and putting millions of Americans on unemployment.

They created the business mantra of “DO MORE, WITH LESS”, causing today’s workforce to do more job responsibilities with no more pay. 55% American workforce are working reduced hours, reduction in pay, leave without pay, forced to take part-time to keep job.

Chris51 07/08/2010 7:13pm
in reply to Chris51 Jul 08, 2010 7:13pm

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 06/30/2010 10:41pm
in reply to Chris51 Jun 29, 2010 11:17am

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 07/08/2010 7:13pm
in reply to Chris51 Jun 27, 2010 9:43pm

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

Cyrano 06/25/2010 1:35pm

The fact that no attempt to rein in both Freddie Mac and Fannie Mae was made, renders this law a pathetic joke. The root cause of out economic malaise is left entirely intact. The Republicans should have stood solidly against this damn bill.

SpiritualNetwork 06/25/2010 9:57pm

Non-partisan approach is sadly missing. The result? Bad legislation follows noble intentions (at least on part of some lawmakers). One can only guess the amount of money spent by the financial sector of lobbying and favors…
A bit of spiritual wholeness wouldn’t hurt either party.

Chris51 06/29/2010 11:13pm

To the 1.2 million jobless americans I thought you would be glad to know that the Republicans let the Democrates get the Small Business Bill through.

How many Small Business loans will be approved to the jobless workers who are looking at the option of doing a business start up? NONE
-Poor credit and/or unemployed need not apply.

Everyone knows that banks, retailers, small or big businesses have the legal right to not interview or hire applicants if they have had any negative information on their credit history report. So on top of everything else the unemployed are trying to keep up with they must be sure to keep a high credit score standing while they are unemployed, in order to have at least a chance to get interviewed after completing MOST companies on-line application and required background information checks.
- It’s not always about experience, but about the criteria businesses/agencies use to screen applications for employment.
GOP WILL ONLY BAILOUT WALL STREET

Chris51 06/30/2010 6:51am

• It’s the Republican party who is busy watching out for Wall Street/Corporations.
Shame on Congress for not coming up with a solution for ALL its’ displaced hard working Americans.
• 9.7% unemployed = 1.2 million Americans, and 55% of the workforce have taken reduced work hours, pay-cuts, unpaid leave, forced to switch to part-time. The BP Oil Corporation’s irresponsibleness is adding to lost jobs and lost lives.

Yesterday, President Obama’s discussed what was happening with corporations, the economy, and the need to help the displaced unemployed. Watch his entire interview on CSPAN. He gets it.

CNN and FOX only report on self-interested, with their main story and topics cycling 24 hours. Go to CSPAN
CSPAN: http://www.c-span.org/Watch/Media/2010/06/29/HP/A/34826/Pres+Obama+Remarks+on+the+Economy.aspx

wwww.change.org

Chris51 07/07/2010 9:14pm

CNN has actually screened and blocked several comments/blogs that expose the truth about the Republican Senators in regards to the UI Ext bills.

Here are some stories written with very accurate reporting of the UI Ext Crisis.

The unemployment emergency
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/05/AR2010070502658.html?hpid=opinionsbox1

Senate struggles with unemployment benefits
http://www.csmonitor.com/Money/Tax-VOX/2010/0707/Senate-struggles-with-unemployment-benefits

Calls to Suicide Hotlines Skyrocket Along with Unemployment
http://uspoverty.change.org/blog/view/calls_to_suicide_hotlines_skyrocket_along_with_unemployment

Chris51 07/03/2010 10:03pm

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 6:59am

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 07/10/2010 10:29pm
in reply to Chris51 Jul 10, 2010 10:29pm

Letter was written to Senators:
On behalf of hundreds of thousands of FreedomWorks members nationwide, I urge you to carefully consider all aspects of H.R. 4213…

If the bill comes to a vote as currently formulated, we encourage you to vote NO, and will track the vote on our Economic Scorecard….

Signed FreedomWorks President and CEO
(FreedomWorks funds Tea Party ;)

http://www.freedomworks.org/publications/freedomworks-to-senate-remove-job-killing-taxes-fr

Chris51 07/10/2010 10:29pm
in reply to Chris51 Jul 10, 2010 10:28pm

Top 5 Contributions from Oil&Gas Industry 2009-2010:
1 Koch Industries $724,300 14% Dems, 86%Repubs
2 Exxon Mobil $548,214 13% Dems, 87% Repubs
3 Chevron Corp $516,891 18% Dems, 82% Repubs
4 Valero Energy $467,000 17% Dems, 83% Repubs
5 Marathon Oil $378,190 23% Dems, 76% Repubs

Tea Party Movement benefits from millions of dollars from conservative foundations that are derived from wealthy U.S. families and their business interests. Money flowing primarily through two conservative groups: Americans for Prosperity and FreedomWorks. FreedomWorks receives substantial funding from David Koch of Koch Industries, the largest privately-held energy company in the country, which make substantial annual donations to conservative org…
http://www.sourcewatch.org/index.php?title=Tea_Party_movement_funding

Chris51 07/10/2010 10:28pm
in reply to Chris51 Jul 10, 2010 6:59am

Oil & Gas Industry, history of strong influence in Washington. Individuals and political action committees affiliated with oil and gas companies have donated $238.7 MILLION to candidates and parties since the 1990 (Bush Senior term) election cycle, 75% of which has gone to REPUBLICANS…
Former oilmen George W. Bush and Dick Cheney occupied the White House for 8 yrs, the oil and gas industry could not win support for repealing bans on drilling in the Arctic National Wildlife Refuge. However, Congress voted in 2008 to lift a ban on offshore drilling… Read full story: http://www.opensecrets.org/industries/indus.php?ind=E0

Drilling bans were lifted during Bush’s last months in WhiteHouse in 2008. The After consumers & transportation industry & economy felt the pain of $1-$2 price hikes of gas, during Summer 2007. It was “the straw that broke the Camel’s backs”, PUTTING USA/AMERICANS INTO TAIL SPIN.

Chris51 07/10/2010 10:30pm
in reply to Chris51 Jul 10, 2010 10:29pm

Tea Party favorite Sharron Angle:
If you’ve been following the ongoing Senate campaign of Nevada hopeful Sharron Angle, you know that she’s sick and tired of the long-term unemployed taking home all of those cushy unemployment benefits. Angle’s angle is that these millions of Americans are just living large on the dole and need to have their unemployment benefits terminated so that they will be motivated to go out and get a job — one of the millions of magical jobs that exist in Sharron Angle’s mind!
http://www.huffingtonpost.com/2010/06/30/sharron-angles-unemployme_n_631350.html

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