Wall Street Rules; the Saga Continues

If you haven’t figured it out by now, folks who can make the biggest campaign contributions – now rocket-powered under the unlimited spending rules promulgated in the Supreme Court’s misdirected Citizens United vs Federal Election Commission Super Pac enabling decision – govern the country. Doesn’t seem to matter whether Republicans or Democrats are in power, Wall Street makes the key decisions, gets bailed out when they screw up, have no liability (criminal or civil) for the economic damage they have heaped on the world, abides by a rule system that would still most certainly allow another over-leveraged and under-regulated global meltdown and given the “carried interest” rule actually pays its taxes as a significantly lower rate than applied to working stiffs. Sure Republicans are more clearly in the rich guys’ camp, but Democrats are hardly pristine on the issues either.

And although people argue that such deregulation and lower taxes are necessary for job growth, nobody, and I do mean nobody, has produced any credible statistical correlation between lower taxes or reduced financial regulation for the power elites, on the one hand, and job creation, on the other. Jobs are a product of consumer/business demand and consumer confidence and not much else. It’s just raw power getting what they want because they want it and can afford to buy the necessary influence and control to implement it.

Despite the hue and cry over reigning in Wall Street excesses, what we really got was a very watered-down Dodd-Frank financial reform bill, which itself was marginalized by the fact that Congress didn’t really provide the funding necessary to implement even these minor changes. The result is virtually no new regulations on the Street, and the few rules that do squeak by are laughable by any standards.

One of the most pernicious practices on the Street allowed lenders to take, for example, all their mortgage loans, bundle and sell them to speculators so that they could write a whole pile of new loans and start the cycle again. This over-supplied debt to the home-buying market and spurred the subprime business that literally collapsed the house of cards. This idea of “bundling” or betting on changes in market variables without actually investing in those variables directly is the derivative trade, and while there have been a few minor tweaks to the system, the ability to make and market such seemingly dangerous financial products appears to continue with little in the way of fundamental regulation.

The trading insurance business – where trading risks are often swapped to other investors in exchange for a piece of the upside (as in credit default swaps) – is also part of the financial industry that has lead to unjustified risk-taking, a process that has functioned with support from the debt rating agencies that seem to have overvalued many derivatives just to get more business from the companies that issue such instruments.

Want to see how completely unregulated this derivatives/swap market remains in the United States? “As federal regulators put the finishing touches on an overhaul of the $700 trillion derivatives market, a major provision has been tempered in the face of industry pressure… On [April 18^th], the Securities and Exchange Commission and the Commodity Futures Trading Commission [approved] a rule that would exempt broad swaths of energy companies, hedge funds and banks from oversight. Firms would not face scrutiny if they annually arrange less than $8 billion worth of swaps, the derivative contracts tied to interest rates and commodities like oil and gas… The threshold is a not-insignificant sum. By one limited set of regulatory data, 85 percent of companies would not be subject to oversight. After five years, the threshold would reset to $3 billion; it is the same amount suggested by a group of energy companies in a February 2011 letter, according to regulatory records.

“When regulators first proposed the rules in late 2010, they set the exemption at $100 million. At that level, only 30 percent of the players would have been excused from the oversight, which was mandated by the Dodd-Frank financial overhaul law.” New York Times, April 17^th. Yup, you read it right. $700 trillion market sector. Virtually unregulated. Our tax dollars rescued these financial miscreants from near-certain doom even though their greed-driven, ethics-lacking activities – with little or no concern for the consequences of their actions – brought down the global economy… and still they get preferential treatment. And remember, this rule-making has occurred in a Democratic administration with a Democrat-appointed majority at the SEC.

Even corporate shareholders are railing at the excesses they see within their own companies. Citigroup needed a bailout to survive, and with that taxpayer support, it struggled back to profitability. Its track record is littered with unsound risk-taking, playing fast and loose with consumer mortgages and resulting foreclosures, but with government help, CEO Vikram Pandit (who worked for a $1 when his leadership was generating massive losses), dragged this financial institution back to profitability. When his board wanted to overpay him, giving him and a few senior managers single-handed credit for the return to profitability (overlooking the bailout that was necessitated by his decision-making), the shareholders finally sent a message: “At Citigroup's annual meeting [April 16^th], 55% of the bank's shareholders voted against the pay packages granted to Citigroup's top executives, including Chief Executive Vikram Pandit's nearly $15 million for last year and $10 million in retention pay. The vote is advisory and won't force the bank to change its pay practices, but it did send a powerful message of discontent to Citi's leadership...

“‘This vote is historic,’ said Eleanor Bloxham, CEO of the Value Alliance, a board advisory firm. ‘None of the Wall Street firms have received this kind of a review yet.’ … Wall Street's massive compensation packages have raised the ire of shareholders for years, especially when they appear to have little relation to the performance of specific executives. Bonuses became a flash point of public outrage after the 2008 financial meltdown, which was caused in large part by those same Wall Street firms.” Los Angeles Times, April 18^th.

Our government has ceded governing authority over the sector of our nation that caused the greatest economic damage in recent memory to the people who caused the problem. It does not represent or protect the vast majority of Americans – the very taxpayers who provided the bailout support – from the excesses of Wall Street. History is unkind to such machinations, since governments that cater only to small elites at the expense of the vast majority always collapse and fail. It is only a question of time. By ignoring the people in this country, our government seems to have taken some giant steps towards our own demise.

I’m Peter Dekom, and living at a time when the seeds of our self-destruction are being sown, seeing them clearly, is really hard to take.