"Dropping a roofie in legislative drinks"

[kalm]

Another outstanding expose by Matt Taibbi, this time about the financial reform bill and the Democratic leadership and Obama administration's role in gutting most of the real reform out of it. Here's a few blurbs but the whole article is a good read:

During an other-wise deathly boring year spent covering this debate, I learned to derive some entertainment from watching politicians scramble to give floor speeches about financial reform without disclosing the fact that they didn't have the first fucking clue what a credit-default swap is, or how a derivative works. This was certainly true of Democrats, but the Republicans were way, way better at it. Their strategy was brilliant in its simplicity: Don't even bother trying to figure out the math-y stuff, and instead just blame the entire crisis on government efforts to make homeowners of lazy black people. "Private enterprise mixed with social engineering" was how Sen. Richard Shelby of Alabama put it, with a straight face, not long before the bill passed.

The argument favored by Wall Street lobbyists and Obama's team of triangulating pro-business Democrats was more subtle. In this strangely metaphysical version of recent history, the economy was ­ruined by bad luck and a few bad actors, not by any particular law or policy. It was the "guns don't kill people, people kill people" argument expanded to cover global financial fraud. "There is an assumption that math is evil," insisted Keith Hennessey, a member of the Financial Crisis Inquiry Commission, at a hearing in June. "Credit-default swaps are things, and things can't be culprits."

Both of these takes were engineered to avoid an uncomfortable political truth: The huge profits that Wall Street earned in the past decade were driven in large part by a single, far-reaching scheme, one in which bankers, home lenders and other players exploited loopholes in the system to magically transform subprime home borrowers into AAA investments, sell them off to unsuspecting pension funds and foreign trade unions and other suckers, then multiply their score by leveraging their phony-baloney deals over and over. It was pure ­financial alchemy – turning ­manure into gold, then spinning it Rumpelstiltskin-style into vast profits using complex, mostly unregulated new instruments that almost no one outside of a few experts in the field really understood. With the government borrowing mountains of Chinese and Saudi cash to fight two crazy wars, and the domestic manufacturing base mostly vanished overseas, this massive fraud for all intents and purposes was the American economy in the 2000s; we were a nation subsisting on an elaborate check-­bouncing scheme.

And it was all made possible by two major deregulatory moves from the Clinton era: the Gramm-Leach-Bliley Act of 1999, which allowed investment banks, insurance companies and commercial banks to merge, and the Commodity Futures Modernization Act of 2000, which ­exempted the entire derivatives market from federal regulation. Together, these two laws transformed Wall Street into a giant casino, allowing commercial banks to act like high-risk hedge funds, with a whole new galaxy of derivative bets to lay action on. In fact, the laws made Wall Street even crazier than a casino, because in a casino you have to put up actual money to make bets. But thanks to deregulation, financial companies like AIG could bet billions, if not trillions, without having any money at all to back up their gambles...



Still, during the last round of negotiations, Merkley and Levin managed to pare back some of the worst of the exemptions. In one victory, they eliminated a proposal by Geithner that would have allowed banks to make unlimited trades "in facilitation of customer relations" – a loophole so laughably broad that it would cover, in the words of one Senate aide, "pretty much everything" that banks wanted to do. By June 25th, when the bill headed to its final meeting of the conference committee, it looked like Merkley and Levin would ­finally get their vote.

But that was before the senator from Wall Street showed up. In the final hours of negotiations, a congressional delegation from New York, led by Sen. Chuck Schumer, decided to take one last run at gutting the Volcker rule. It was as though someone had sent the scrubs off the court and called in the varsity. Schumer, a platitudinous champion of liberal social ­issues, moonlights as a pillbox-hat bellhop to Wall Street on economic matters. The self-­aggrandizing New Yorker has not only fought to keep taxes low on hedge-fund billionaires, he got up onstage with Goldman Sachs CEO Lloyd Blankfein at a Democratic fundraiser in 2006 and performed "nostalgic furniture-store jingles."

This bears repeating: The person in whose hands America had placed its hopes for finance reform was someone who once sang furniture jingles onstage with Lloyd Blankfein...

If the volcker rule was a regulatory Godzilla threatening to stomp out Wall Street's self-serving investments, the proposal to shut down derivatives was nothing short of a planet-smashing asteroid headed straight at the heart of the financial industry's most reckless abuses. The key battle involved the so-called "Lincoln rule," put forward by Sen. Blanche Lincoln of Arkansas, which would have forced big banks to spin off their derivatives desks in the same way the Volcker rule would have forced them to give up proprietary trading. Banks would have to make a choice: Either forgo access to the cheap cash of the Federal Reserve, or give up gambling with dangerous instruments like credit-default swaps. Banks, in short, would have to go back to making money the old-fashioned way – making smart loans, underwriting new businesses, earning simple fees on customer trades. No more leveraged gambling on whacked-out acid-trip derivatives deals, no more walking around with torches and taking out fire insurance on other people's houses, no more running up huge markers on the taxpayer's dime.



Illustration by Victor JuhaszThis, obviously, could not be permitted. Thanks to Clinton-era deregulation, the market for derivatives is now 100 times larger than the federal budget, and five of the country's biggest banks control more than 90 percent of the business. So the leadership of both parties pulled out all the stops to ensure that the Lincoln rule would be Swiss-cheesed to death before it ever saw the light of day.

The effort began with an extraordinary scene on the floor of the Senate – one that testifies to the nearly unanimous respect that senators hold for the human loophole machine known as Chris Dodd. In late May, the week the Senate voted on its version of the bill, Dodd came up with a hastily composed, five-page substitute to the Lincoln rule that would create a "financial stability" council with the power to unilaterally kill the rule. Faced with opposition from members of his own party, Dodd agreed to withdraw his substitute two days before the Senate vote – but given his track record of legislative maneuvering on behalf of big banks, his fellow Democrats weren't about to take him at his word. A group of senators from Dodd's own party – including Maria Cantwell of Washington – arranged to stay on the Senate floor in shifts, ensuring that there would be someone there to object in case Dodd tried to push his substitute through ­during one of those quiet, empty-hall, C-SPAN moments when no one was looking.

The fact that a group of Democrats had to come up with a scheme to prevent one of their own leaders from dropping a ­roofie in their legislative drinks pretty much sums up the state of affairs in Congress. "Yeah, that's the way it went down," says a Senate aide familiar with the Dodd Watch maneuver.

http://www.rollingstone.com/politics/ne ... how_page=0" onclick="window.open(this.href);return false;

[OL FU]

I need the reader's digest version

[Ivytalk]

Taibbi sure can dish it out! Schumer: "platitudinous champion of liberal social issues." Dodd: "human loophole machine." Not hard to tell where Matt is coming from.

[YoUDeeMan]

Thanks for the chuckles, kalm! That was a good read.