A Bit Of Bipartisanship Breaks Out On Financial Regulatory Reform

Michael, why did Grassley cross the aisle? What’s in it for him? Farm futures already have a transparent market, thus protecting his residents. Banking derivatives need one, or at least regulate swaps like insurance policies (since they are). And what’s with the R’s easing up on stonewalling? No doubt many real people know that bad banking / trading practices tanked housing mkt. and caused the recession. Do some R’s get this and that filibustering for Wall St. is NOT so smart? (Not a rhetorical q. – if lovely Jay was here instead of over there, she’d ask some of them and make them lie for the record, but I digress.)

Next all we will hear is what a traitor Grassley is and how the Republicans will think twice before supporting him in his next reelection campaign. This is how you know the GOP is not series about bi-partisan support, despite what they claim. The minute one of their members actually jumps across the aisle, they get skewered. You need look no further then Scott Brown. Just a couple of months ago he was hailed as the second coming, now all we hear about is all the second thoughts his conservative backers are feeling.

And the take from the LA Times here.

Sen. Susan Collins, a moderate Republican from Maine, was the last to sign the letter and did so only after the language was softened to drop filibuster threats in favor of substantive criticism of the legislation.

“I felt it was important to accomplish two goals in the letter: to send a signal that Republicans are in opposition to the bill, and to indicate that we were for a financial reform bill,” Collins said.

It’s a sad state when historically rational GOPers like Collins are forced by their party leadership into a state of cognitive dissonance; in this case, both opposing and supporting financial reform legislation.

Significant parts of the farm futures market, which is heavily regulated, would like better regulation of swaps, which can allow speculators into the commodities markets to drive up prices. This makes several farm state senators rather skeptical of unregulated derivatives. But i do not yet know Grassley’s reasoning. At the hearing, he spoke out in favor of Lincoln’s whistleblower language.

Will try to find out more. . .

Now when do they try to primary Grassley?

I can’t believe those stupid Charlie Brown dems are falling for “Lucy’s” schtick again!

From wiki: “A classic running gag in the strip involved Lucy taunting Charlie Brown by holding a football and promising to let Charlie Brown kick it. Initially, Charlie Brown claimed that he would not trust her because she has tricked him this way many times, but Lucy then gave some reasons why Charlie Brown should give her credence. For example, to give him a signed document stating that she would not pull the ball away from him (later to reveal that the document had never been notarized). His doubt undermined, Charlie Brown then sprints toward Lucy to execute the place kick. At the last possible second, Lucy snatched the ball out of Charlie Brown’s path, causing him to be flung up into the air and land hard on his back.”

http://en.wikipedia.org/wiki/Charlie_Brown

incandenzah,
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Were you reading another blog?
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Democrats: reform which most likely will include a loophole which will spell future danger.
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Republicans: no reform and, therefore, continued abuse.
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Democrats, especially liberal Democrats, have spent at least 30 years eager to see just a fraction of what we want in legislation rather than having the exact opposite happen at the hands of Republicans. So, for those who want more transparency, this is a victory.
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Even our two most regular vehement right wingers Newfreedomblog and Freeinpa both like this legislation far better than not having any.
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Also, to the credit of all reformers, every time congress creates legislation, Wall Street starts inventing a new, often, more dangerous financial tool and keep the donations coming to silence the sound of yet another ticking time bomb.

The longer Republicans hold out against Wall Street reform, the more the chances Democrats retain Congress this fall go up.

http://www.political-buzz.com/

Well thank goodness we might at last have some bipartisanship in Washington. If that happens however, the tea party will lose one raison d’etre.

@patricksartor… *several* other blogs, actually. But not about this topic. It’s just standard ops for the GOP, these days. Pretend bipartisanship until the last second… then pull the bipartisan “football” away. Maybe I’m just jaded, but I have seen it too often to trust it’s *not* happening this time, too. To quote yet another blogger from wayback: “Fool me 3000 times, shame on me!”

Perhaps he simply decided that Frank Luntz’s new lie wasn’t going to give him any more cred than “pulling the plug on Grandma”. He’s not the only Republican who appears to be discovering that regulating Wall Street = “bailing out” Wall Street may only be believed by the farthest of the right wing lunatic fringe.
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Matt Yglesias may have this one wrong:
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http://www.washingtonmonthly.com/archives/individual/2010_04/023443.php

Let’s see the cynical left is saying that any attempt at bipartisanship is a joke basically, and the Tea Party movement will not have an issue to stand on. Is that basically what you are saying IvyB?
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Perhaps you are seeing more bipartisanship because of the Tea Party Movement. Ever think of that senario?
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Yes, regulation is good to the point that when an investor invests their money they do not need to worry about ponzi schemes and Goldman Sachs bait and switches. It keeps honest players involved and discourages the riff raft from offering the “too good to be true deals that you always end up losing money on. But, too much regulation is also equally bad for investors. Too much government involvement will stiffle businesses and investments. Part of the capitalist system is built upon “risk taking” in the market. You are rewarded when you take a risk, invest, and the investment gives a decent return. Democrats want a market that is basically risk free, but that will never allow the market to freely allow business ventures to thrive. The lower the risk in most cases the lower the return is on your investment as well.
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If you are not able to absorb the risk, then you should invest in more risk-free investments like CD’s, bonds or money markets. But, let’s not regulate ourselves out of a market, and have those who do want to offer more riskier investments go someplace else to offer their business investments.

Michael Scherer:
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Why exactly are the Democrats combining credit derivatives’ (e.g. credit default swaps, CDO insurance instruments) regulations overhaul with farm futures?
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Doesn’t this immediately set off gigantic alarm bells in your mind (as a journalist)?
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Abuses in the farm futures market didn’t bring the world economy to its knees, the credit derivatives market was the huge factor in all of this.
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Isn’t it just a bit odd that these completely different topics are being addressed in this fashion? You don’t see anything strange about handing this over to Blanche Lincoln’s committee for “tough line on Wall Street” markup just in time for her primary, even though credit derivatives have enough complexity in and of themselves to make this legislation inscrutable?
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This would be like having the Senate Energy Committee throw the vehicle emissions ball over to, I don’t know, the Senate Sailing Vessel committee, because the proposed legislation would affect “transportation.” It’s ridiculous –obviously suspect. Don’t you smell politics in this?
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What in God’s name do Blanche Lincoln, Chuck Grassley and the Ag Committee have to do with credit derivatives, Michael Scherer? Any ideas?

I can agree somewhat with assertion that the existence of Tea Partiers fosters bipartisanship… on the Republican side at least. They’re afraid of having the conservative vote split between Republican and Tea Party candidates. They would thus rather come to the table on a populist issue like financial reform than continue to perpetuate their objectionism. A few Republicans are coming out in support of the current bill – stronger than anything conservatives would probably want by far.
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Also, the bill isn’t about removing risk from the market. It’s about eliminating dishonest practices and regulating those financial products that pose the greatest danger to the economy. We don’t want another depression do we? Because that’s almost what we bought.
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Removing risk from the market would effectively dismantle the market. That’s obviously not what this is about.

“Perhaps you are seeing more bipartisanship because of the Tea Party Movement. Ever think of that senario?”
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Sure. Any minute they’ll be begging Republicans to stop their obstruction of the socialist takeover of America by the illegitimate Kenyan president and his fellow terrorist pals at ACORN who want only to destroy the country.

Thanks so much for responding to commentary, Michael Scherer.

The first derivatives were futures, starting as far back as the Civil War. Only in the 1980s did banks figure out how to take the technology and apply it to other things, like interest rates, or mortgage defaults.

The Ag committee still handles this because it has the historical authority. This is not a decision by the treasury or by the White House. This is just Congressional tradition which is hard to change, and I don’t think it means much in and of itself.

Thanks you for responding to commentary, Michael Scherer, it is greatly appreciated.
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That said, not to argue with you, but this seemingly arbitrary “historical authority” might just serve to muddy the waters, if journalists take their eyes off of the credit derivatives ball.
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Maybe it would make sense to really focus on making the differences between “derivatives” and credit derivatives (obviously a more recent phenomenon in the US, given that the repeal of Glass-Steagall was engineered by Larry Summers in 1999) crystal clear to your readers, Michael Scherer.
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Surely we wouldn’t want archaic Senate practices (aren’t they all?) to confuse the issue for average Americans trying to understand what’s really being addressed (in what way) in the proposed legislation, right?

Stuart, Now I’m confused. I thought that Lincoln’s bill addressed all derivatives.

Chris Bowers notes that Gillibrand and Casey made some bad amendments.

http://www.openleft.com/diary/18368/senate-dems-decide-blanche-lincoln-went-too-far-in-regulating-derivatives-weaken-her-bill

Hey!
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Even NewRusty knows which side of the bandwagon his butter is on!

And it’s shepherdwong for the win

Anyone else having trouble getting updates to comments?
I am getting updates of new postings. However, the option for RSS updates to comments has already been implemented on all of today’s new postings for some reason and I am still not getting updates on comments.

Ivy:
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My point is that it’s crazy to address all derivatives in a financial reform package mean to remedy the harm that an unregulated credit derivatives market can wreak upon the economy.
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It’s an unfortunate (Scherer says arbitrary) byproduct of how the Senate is going about this, i.e. that the Ag Committee has anything to do with regulating things like AIG’s Financial Products division.
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All derivatives aren’t the problem with collapsing financial markets –credit derivatives are, just like all modes of human transportation aren’t the problem with catastrophic CO2 emissions –internal-combustion engines are.
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That the Ag Committee is involved is like having the Senate Sailing Vessel Committee or the Senate Dromedary Committee handle regulating vehicle emissions standards. Yes, Gillibrand’s exemptions completely undo Lincoln’s seeming attempts at a firewall between FDIC-insured banks and credit derivatives-trafficking (not that this would stop AIG’s Financial Products Division), but the entire process seems to be bizarrely designed to run the entire special-interest gauntlet.
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It seems more and more likely that Lincoln’s half-way “efforts” (efforts that can only seem to be “taking a stand” if one’s premise is that market fundamentalism is the ruling ideology of the earth, despite the near-depression it caused) won’t survive fellow Democrats on that venal committee lined up to provide all the loopholes in the world large enough to drive an aircraft carrier through –although Blanche can now run ads proclaiming her to be a friend of Main Street with the minimum of credibility needed to pass muster in the Village.
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Bottom line: Addressing any other derivatives regulation than credit derivatives in this package is awful, awful policy that isn’t required in any way by a sane process.

…and I wonder if it’s time to dust off Greenwald’s “rotating villains” theory again?

Also, we need to differentiate between exchange traded derivatives and derivaties traded on the back streets of Wall street between shadow banks and hedge funds.

Commodity derivatives and derivatives based on company shares are traded on the exhange with clear rules established (no insider trading etc). The difference is equivalent to that of a casino and an illegal betting syndicate.

You didn’t make it that obvious if you were saying Democratic voters were being deceived by Democratic members of congress or what.
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Well, in the last few major issues, Republicans have done the opposite: actively seek to do the opposite of what Democrats go for just to win over points at home with bogyman stories of “government takeovers”, “death panels” and everything else.
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At least we can expect one or more Republican votes on this when it is completed even if their goal is to neuter it.

Stuart,
Thanks for the education on derivatives. It was very helpful is trying to understand this complex subject.
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I truly believe there is an opportunity for a good Bipartisan financial regulation bill.
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This will require some good old fashion working together and some give and take by both parties. The administration and the democrats need to realize that they must accept the republicans as a full partner in drafting this legislation. So far the Democrats, like on the HCR, feel they do not need the republicans. Major successful legislation has always been bipartisan.
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Democrats keep saying the Republicans are obstructionist but refuse to let them truly be a partner in the process.
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Both sides may be at fault but for a truly good Financial reform bill the Democrats must let the Republicans inside the tent to help write the bill.

I’ve had exactly the same problem the last 24 hours.

Newfreedom,
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“But, too much regulation is also equally bad for investors. Too much government involvement will stiffle businesses and investments. Part of the capitalist system is built upon “risk taking” in the market. You are rewarded when you take a risk, invest, and the investment gives a decent return. Democrats want a market that is basically risk free, but that will never allow the market to freely allow business ventures to thrive. The lower the risk in most cases the lower the return is on your investment as well.”
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I do find it funny that you would still be bringing up economics after so many times you have been corrected.
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Investors can expect a risk premium.
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http://en.wikipedia.org/wiki/Risk_premium
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Along with liquidity and other factors determine the risk of an investment.
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However, basically everything proposed is about making sure that those who can not afford the risk do not have unethical or, worse yet, uninformed stock brokers invest their money in high risk investments.
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If you are thirty years from retirement, you can afford to place your money in a diversified group of high risk investments. By the time it is ten years before retirement, is has to be very, very low risk investments.
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This meltdown was all about how risk was hidden from investors such that they had little or no idea that they were likely to loose it all.
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Nobody expects or even wants a limitation on highly informed investors willingly make high risk investments. It is just a matter of misinformation being spread by conservative deities, corporations.
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One major difference in worldview is that Republicans seem to view the government as having horns on their heads and corporations with halos over their heads. Well, we know that their aren’t many halos in the world of finance.

3X,
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“The administration and the democrats need to realize that they must accept the republicans as a full partner in drafting this legislation. So far the Democrats, like on the HCR, feel they do not need the republicans. Major successful legislation has always been bipartisan.
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Democrats keep saying the Republicans are obstructionist but refuse to let them truly be a partner in the process.
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Both sides may be at fault but for a truly good Financial reform bill the Democrats must let the Republicans inside the tent to help write the bill.”
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You know, until that highly misinformed remark, it looked like all of our conservatives in the Swamp were joining with us.
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If this is like HCR, Republicans will have one word they will say over and over “No”.
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If not, then it would be Republicans who are maturing and learning how to play nicely rather than spreading lies and propaganda.
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Had HCR reform been lost, I can imagine that Fox news would be saying that this legislation involves armed SEC agents coming to your house and forcing you to invest in some investments and not others and a government takeover of the financial industry.
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Without that propaganda and those lies, we can have our 1970s and 1980s and pre-Gingrich Republicans back.
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There isn’t much participation when one side has nothing to add, but, instead, wish for total defeat for the entire concept. I am sure if they thought there were votes to be gained, Republicans would gladly tell you about the armed SEC agents in your living room watching your online trading with shoot-to-kill orders.

3xfire3:
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Thank you for having taken the time and effort to read my commentary.

Maybe Collins has finally figured out that she’s been a useful idiot, and has decided that if she wants bipartisan legislation, she cannot just be the 60th vote. Maybe she would rather be the 85th or 95th vote in a real bipartisan bill. And maybe she’s figured out that it’s better to have no bill at all than a bad one.

Why is a reform of Fannie Mae and Freddy Mac not a higher priority than this phony Wall Street-centric bill? Bashing the banks is often politically popular, but from what I’ve seen the Democrat’s bill is intended to hurt the banks but will actually hurt everyone — except foreign banks.
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But… when they are finished, the bigger banks will probably end up doing relatively well compared to the smaller regional banks. The big banks have many friends in the Obama administration and among congressional Democrats, but the smaller banks have less influence.

Stuart, you wrote: “My point is that it’s crazy to address all derivatives in a financial reform package mean to remedy the harm that an unregulated credit derivatives market can wreak upon the economy.
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It’s an unfortunate (Scherer says arbitrary) byproduct of how the Senate is going about this, i.e. that the Ag Committee has anything to do with regulating things like AIG’s Financial Products division. (end quote)
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The Ag committee has been charged with issues relating to the futures markets since the days when most commodities futures trading was in the agricultural products. That committee is as qualified as any to address futures and other financial instruments… which is to say, not very qualified but then the Banking, Housing, and Urban Affairs Committee is not either.
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Because so many people have lost so much money because they failed to do due diligence regarding the risks involved in derivatives, they are probably going to be very reluctant to buy into anything like this ever again. So they will be reluctant to buy anything that they cannot understand 100%, Therefore I do not think the government needs to get involved in protecting them; writing new regulations will only give false confidence, encouraging people to think something is not as risky as it really is. Caveat emptor really does work; when the government says something is safe, does that make it so? Some might think so, when the absense of regulation might encourage investors to be more careful with their money.

Thanks for responding Patrick. When there are system problems on this site, it is hard to get attention.

“So they will be reluctant to buy anything that they cannot understand 100%, Therefore I do not think the government needs to get involved in protecting them; writing new regulations will only give false confidence, encouraging people to think something is not as risky as it really is.”
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That is the argument against all regulations of the financial industry.
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Derivatives do balance risk and, therefore, are needed. So, the better the legislation the quicker markets pick up.
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Sure, the loopholes are going to be a problem, for whatever fits through the loophole, but, doing nothing will keep credit markets frozen as they are now and credit hard to get even for the most legitimate borrowers as it is now.
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Not letting Republican fear mongering shut down this reform is paramount.The biggest question I have is, are the Republicans going to march in lockstep as they did with HCR and try to prevent stronger and more obvious signs of a recovery and, therefore, faith in Democrats by November, or are they going save their individual seats by participating in good legislation.
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As a party, since this type of reform may liberate the credit markets and give the economy a kick, success will harm Republicans. So, we’ll see if Republicans love this country or if they only love their party with this vote.