First up: Michael Hudson’ ‘Playing the Pension Funds’. (By the by, if you can identify the painter of the piece behind him, I’d love to know.) This isn’t as long as it looks…okay, maybe it is…
If you’d prefer to read the transcript, it’s here. The spoiler: the explanation of the calumny created originally is a bit long, but here’s the upshot for the impatient ones among us:
‘So they’re going to privatize all of the pension funds. And by making your own choice, what this really means is the individual employees are going to have to turn over their funds to the same Wall Street companies–Goldman Sachs and Northern Trust–that have managed the–mismanaged the corporate pension funds and the union pension funds. And so the whole idea is that all of a sudden, now that employment is not growing, now that wages are not growing, instead of making profits by underpaying labor, Wall Street’s going to make profits just by siphoning off all of the savings that have been put aside in advance to pay the pensions. The argument will be, I’m sorry, folks, there’s not enough to pay the pensions, or the Wall Street calculators who made these forecasts made a terrible mistake. Unfortunately for you, under the law that Congress has just rewritten, not only do they get paid before you, but we’ve just canceled the government’s responsibility to insure you. We’ve taken away your insurance. That’s going to be the fight that we’re seeing.’
Lambert Strether of Correntewire cross-posting at Naked Capitalism brings news and views on who could be adversely affected by the Kline-Miller amendment. The bottom line:
‘What could go wrong? The bottom line here is that the legalities and the contractual relations and whatever moral commitments were made don’t really matter. What does matter is that whenever there’s a big pot of money lying around that theoreticallly should go to working people — say, retirement funds, but it could be anything — Congress can retrade whatever deal put the money into the pot, and years after the fact, too. Oh, and workers lose the right to challenge the cuts in court. Nice!’
He also rightly asks why neither Elizabeth Warren nor any other democrats railed against the amendment as they did against the push-out on derivatives section 317. (more about that soon)
From the Real News Network: ‘Federal Budget Guts Most Significant Financial Regulation Since 2008’ (with video and transcript; the video’s too tinny to embed).
The bill is a horror for us, not only for the many nasty ways that our tax dollars are being allocated until September, including being a prime example of a Christmas Tree ‘must pass (ha) bill’, but because it actually acts as financial deregulatory legislation, without the usual debate, hearings, public input, etc. This nightmare of a ‘continuing resolution’ budget repeals some key parts of the weak tea Dodd-Frank bill, which contained all that Obama and his capitalist mega-profit-seeking cronies would allow to be in the final bill. You’ll remember that one of the claims was that it would guarantee that Too Big to Fail banks would never be bailed out again. Well, guess what was written into it? Section 317, (the Lincoln amendment) which Matt Taibbi explains the simplest way I’ve seen it:
‘All the Dodd-Frank rule says is that if you’re a federally-insured depository institution – if you’re an FDIC-guaranteed bank, where real people have real bank accounts that are guaranteed by the federal government – you can’t also be gambling with swaps and other dangerous derivative instruments.’
Section 317 required banks to ‘push out’ many derivatives to their subsidiaries that weren’t protected by government backstopping, although many of the exceptions were risky as well, including to the counterparties; see: post 2008 interest rate swaps across the nation and around the world, and OTC commodities derivatives, which the CFMA made illegal to regulate. Oh, such modernization! More on that soon…
The amendment, written by Citigroup, wasn’t new, but given that a group of heavily-endowed by Wall Street Republicans once again said that unless their favorite amendments weren’t included in the bill, they’d bloody well ‘shut down the government’.
As Taibbi says, the process story far over-shadowed what was in the amendment, as Elizabeth Warren and Maxine Waters (a heavy Obama supporter, apparently) fought the bill in many fine speeches, causing beltway pundits to posit that Warren’s fervent speeches were by way of announcing her Presidential run. ‘Her star is rising!’
In the days before the vote was scheduled, not only my heart-throb Jamie Dimon lobbied Congress hardhardhard…for it, but Barack Obama ‘whipped it’, and undoubtedly all the Democrats who lovedlovedloved the section. (If you have the stomach for it, you can watch the President of Some comment on it here at the Young Turks.) “It’s not perfect.” And of course the TBTF banks believe that gambling with depositors’ money is far more fun than staking their own, and by Jove, if their derivatives bets are guaranteed by the FDIC, their credit ratings are higher, and their loans come at even lower percentages! It all makes sense when you think about it. How much money might be at risk for taxpayers via bailouts soon? Well, according to Tyler Durden (Zero Hedge), and his guestimate is the highest I’ve seen)
‘Presenting The $303 Trillion In Derivatives That US Taxpayers Are Now On The Hook For’:
‘Courtesy of the Cronybus (sic) last minute passage, government was provided a quid-pro-quo $1.1 trillion spending allowance with Wall Street’s blessing in exchange for assuring banks that taxpayers would be on the hook for yet another bailout, as a result of the swaps push-out provision, after incorporating explicit Citigroup language that allows financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp, explicitly putting taxpayers on the hook for losses caused by these contracts.
At least we now know with certainty that to a clear majority in Congress – one consisting of republicans and democrats – the future viability of Wall Street is far more important than the well-being of their constituents. Which also, implicitly, was made clear when Hank Paulson was waving a three-page “blank check” term sheet, and when Congress voted through the biggest bailout of banks in US history back in 2008.
The only question is when the next multi-trillion (or perhaps quadrillion now that all global central banks are all in?) bailout takes place.’
He also compares the Citigroup language to what made it into the bill, has a few click-to-enlarge charts to show that the banks really do run the place, which we already knew, as well as their exposures. But it was indeed ‘a relaxation of the Volcker Rule, and a rather significant one, at that. That banks were only expected to be in full compliance with The Rule by July 21, 2015 makes one wonder if any of them ever played by the New Rulez. This from Taibbi before the budget vote:
‘Once they cave on the swaps issue, it won’t be long before the whole bill vanishes, and we can go all the way back to our pre-2008 regulatory Nirvana.
If the Democrats actually stood for anything other than sounding as progressive as possible without offending their financial backers, then they would do what Republicans always do in these situations: force a shutdown to save their legislation. How many times did Republicans hold the budget hostage to rescue the Bush tax cuts?
But the Democrats won’t do that here, because they’re not a real party. They’re a marketing phenomenon, a big chunk of oligarchical Blob cleverly sold to voters as the more reasonable and less nakedly corrupt wing of a two-headed political establishment.’
It seems that the time wasn’t quite right yet, though, and this ‘Republican’ bill delaying the Volcker Rule was turned down by the House on Dec. 7; it concerned CLOs, or collateralized loan obligations, and would have been an amazing gift to Wall Street, ‘delaying’ more of the Volcker Rule’s prvisions. “Democrats assail bill!’ and all that jazz and theatrics. Only 35 Dems supported it this time.
On the other hand, this is how the vote on the Crime-nibus 72-26 budget went, underscoring Matt Taibbi’s point about ‘Democrats are stuffed suits’. Hint: All 26 “nay” votes came from Republicans. Two Republicans, Sens. Saxby Chambliss (Ga.) and Tom Coburn (Okla.), did not vote.
Ah yes, there’s so much more nefarious stuff packed into the bill that it’s scarcely believable that people aren’t out with their pitchforks already. Oh, right: Obama told them that he’s all that’s standing between The Pitchfork Rabble and the banks, hahahohoheehee. I wonder how many lifetime sinecures on bank boards and defense contractor boards he’s been offered already?
In his ‘CRomnibus Disaster Signals a Sad New Normal in D.C.’, David Dayen exposes many of them; let me borrow a few. Beyond the roll-back of derivatives ‘reform’, he mentions:
‘…a nearly ten-fold increase in the donation limits for party committees, cuts of $60 million to the EPA, government back-stopping of ‘terrorism insurance’,…and:
‘But there’s so much more to the CRomnibus than just those two riders. Under the bill, trustees would be enabled to cut pension benefits to current retirees, reversing a 40-year bond with workers who earned their retirement packages. Voters in the District of Columbia who approved legalized marijuana will see their initiative vaporized, with local government prohibited from taxing or regulating the drug’s sale. Trucking companies can make roads less safe by giving their employees 82-hour work weeks without sufficient rest breaks. Pell grants for college students will be cut, with the money diverted to private student loan contractors who have actively harmed borrowers. Government financiers of overseas projects will be prevented from stopping funding for coal-fired power plants. Blue Cross and Blue Shield will be allowed to count “quality improvement” measures toward their mandatory health spending under Obamacare’s “medical loss ratio” provision, a windfall saving them millions of dollars.
I’m not done. The bill eliminates a bipartisan measure to end “backdoor” searches by the NSA of Americans’ private communications. It blocks the EPA from regulating certain water sources for farmers. It adds an exception to allow the U.S. to continue to fund Egypt’s military leadership. In a giveaway to potato growers, it reduces nutrition standards in school lunches and the Women, Infant and Children food aid program. It halts the listing of new endangered species. It stops the regulation of lead in hunting ammunition or fishing equipment. It limits contributions to the Green Climate Fund to compensate poor countries ravaged by climate change. I could go on. And even if the offending measures on derivatives and campaign finance were removed, all of that dreck would remain.’
(Sorry that I can’t seem to get his hyperlinks to show; see them here.)
Why the big hurry, then, given that Republicans just took over Congress? Some are speculating that part of the hurry because the bottom is dropping out of the oil market.
Director of the Public Banking Institute Ellen Brown’s ‘Russian Roulette: Taxpayers Could Be on the Hook for Trillions in Oil Derivatives’ offers a lot of analysis that leads one to believe that it’s so. Her section on ‘bail-ins’ I’ll leave alone for now, but after a clip from a Forbes article low-balling the effects of the derivatives roll-back on the Big Banks she says this:
‘A fraction, but a critical fraction, as it included the banks’ bets on commodities. Five percent of $280 trillion is $14 trillion in derivatives exposure – close to the size of the existing federal debt. And as financial blogger Michael Snyder points out, $3.9 trillion of this speculation is on the price of commodities, including oil.
As Snyder observes, the recent drop in the price of oil by over $50 a barrel – a drop of nearly 50% since June – was completely unanticipated and outside the predictions covered by the banks’ computer models. And with repeal of the Lincoln Amendment, the hefty bill could be imposed on taxpayers in a bailout or on depositors in a bail-in.
Financial expert Yves Smith suggests other derivative-related reasons the banks are likely to be concerned over the oil crisis, which are too complicated to explain in this article, but the link is here.
When Markets Cannot Be Manipulated
Interest rate swaps compose 82% of the derivatives market. Interest rates are predictable and can be controlled, since the Federal Reserve sets the prime rate. The Fed’s mandate includes maintaining the stability of the banking system, which means protecting the interests of the largest banks. The Fed obliged after the 2008 credit crisis by dropping the prime rate nearly to zero, a major windfall for the derivatives banks – and a major loss for their counterparties, including state and local governments.
Manipulating markets anywhere is illegal – unless you are a central bank or a federal government, in which case you can apparently do it with impunity.
In this case, the shocking $50 drop in the price of oil was not due merely to the forces of supply and demand, which are predictable and can be hedged against. According to an article by Larry Elliott in the UK Guardian titled “Stakes Are High as US Plays the Oil Card Against Iran and Russia,” the unanticipated drop was an act of geopolitical warfare administered by the Saudis. History, he says, is repeating itself…’
(Read more here)
Had enough? Are you feeling pissed, not just sad? Yes, ‘resigned’ might equal ‘sad’ in this case… But wait! Ellen Brown has the dope on what really happened at the G-20 in Brisbane in November behind closed doors. The theme the public heard was: PutinHilter! of course. She explains at length what happened here and more recently here. She may be considered hyperbolic on the issue, but given what we’ve seen lately, who wants to call her so? She ends the recent article with this:
‘The Commitments Mandated by the Financial Stability Board Constitute a Commercial Treaty Requiring a Two-thirds Vote of the Senate
Are these commitments legally binding? Adoption of the FSB was never voted on by the public, either individually or through their legislators. The G20 Summit has been called “a New Bretton Woods,” referring to agreements entered into in 1944 establishing new rules for international trade. But Bretton Woods was put in place by Congressional Executive Agreement, requiring a majority vote of the legislature; and it more properly should have been done by treaty, requiring a two-thirds vote of the Senate, since it was an international agreement binding on the nation.
“Bail-in” is not the law yet, but the G20 governments will be called upon to adopt the FSB’s resolution measures when the proposal is finalized after taking comments in 2015. The authority of the G20 has been challenged, but mainly over whether important countries were left out of the mix. The omitted countries may prove to be the lucky ones, having avoided the FSB’s net.
Note that she mentions ‘hits on pension funds’ as did Michael Hudson.
For further information: ‘Santa Fe Public Banking Conference on video; upcoming events’.
(cross-posted at My.firedoglake.com)