R.I.P. Dodd-Frank: Wall Street Is Unleashed — Again

Wall Street hated the Volcker Rule so much that it made sure the rule never came into being.

By Pam Martens and Russ Martens of Wall Street on Parade

Yesterday the Office of the Comptroller of the Currency, the regulator of national banks, and the FDIC, which provides the taxpayer-backstopped Federal insurance to deposits at these banks, announced that they were going to “simplify” the Volcker Rule. Under the Trump administration, “simplify” is code for “gut.”

The Volcker Rule was part of the 2010 financial reform legislation known as Dodd-Frank. It outlawed deposit-taking banks from using those deposits to make wild gambles for the house, known as proprietary trading. It also required the banks to end their ownership of hedge funds and private equity funds where the banks can secretly dump losing positions or hide enormous losses in hard to price instruments.

Wall Street hated the Volcker Rule so much that it made sure the rule never came into being. It has stonewalled the implementation of the rule for nine years and one month. Now the rule has been stripped of all of its meaningful components.

The gutting of the Volcker Rule was snuck through in the dog days of summer as families are busy getting kids ready to return to school. Five years ago, as families were busy preparing for the Christmas holidays, Citigroup’s lobbyists pushed through the repeal of the second most important aspect of Dodd-Frank. It was called the “push-out” rule which would have forced banks to move their tens of trillions of dollars in derivatives out of the Federally-insured bank unit into another unit that could be placed into bankruptcy or wound-down in the event of insolvency.

By keeping these dangerous derivatives in the Federally-insured bank, Wall Street effectively guaranteed itself another bailout if it blew up the U.S. economy again

Vox explained on December 17, 2014 how the dirty deal on the “push-out” rule went down:

“Not surprisingly, Citigroup, which was responsible for writing the bill, led the way with 30 lobbying reports mentioning H.R. 992, followed by the American Bankers Association at 17 reports, Principal Financial Group at 13, the U.S. Chamber of Commerce and the Securities Industry and Financial Markets Association (SIFMA) at 12, and JP Morgan and Bank of America at nine.

“Unions and diffuse interest groups like Public Citizen and Demos and the Leadership Conference on Civil Rights show up a few times. But they are simply dwarfed by the corporate lobbyists. By my count, the corporate lobbyists filed a total of 196 reports. The diffuse interests and unions combined filed only 13. That’s a ratio of 15 to 1.”

Citigroup had become insolvent in 2008 and had lied about its exposure to subprime debt. Instead of it being wound down by the government, it received the largest bailout in U.S. history with over $45 billion in taxpayer funds infused as equity and an additional $2.5 trillion in secret, low-cost loans from the Federal Reserve. What it did in 2014 was to effectively gut the very legislation that was designed to prevent it from going rogue again

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