Wall Street is dismantling financial reform piece by piece while Federal Reserve Chair Janet Yellen and Congress look the other way, according to New Republic contributor David Dayen
Last week the Fed delayed by two years the Volcker rule, a prohibition on banks' proprietary trading in funds that are federally insured.
That followed by a few days Congress' "Christmas gift" to Wall Street with the elimination of Dodd-Frank Section 716, which required banks to put their riskiest swaps — the kinds of synthetic trades that helped prompt the 2008 financial meltdown — into separate subsidiaries to wall them off from the potential need for more taxpayer bailouts.
"Banks already have had four years since the passage of Dodd-Frank to comply with the Volcker rule; with the multiple Federal Reserve extensions, they now have nearly seven years to unwind investments in entities like private equity firms and hedge funds," Dayen wrote.
"The Fed also confirmed a previous announcement that banks need not exit their investments in collateralized loan obligations until 2017. This gives financial institutions nearly three more years of exposure to investments that could easily go sour."
He noted the Fed acted without even requiring the big banks to apply for the extension they were granted, which could have brought the matter to the public.
"You have to believe that it's less a case of not being able to exit investments, and more a case of simply not wanting to. Banks lobbied the Federal Reserve for the extension because of the possibility of taking losses if they had to get out of the investments by next July, as scheduled," Dayen wrote.
"This 'right to profit' doesn't actually exist in any formal sense, but it often gets trotted out as a justification for a light regulatory touch on the banks."
In Dayen's view, the fact the Fed kowtowed to Wall Street "shows exactly why you don't want Congress to start eliminating Dodd-Frank rules willy-nilly."
"Killing pieces of Dodd-Frank just allows Wall Street lobbyist to focus on the implementation of what's left, and secure changes favorable to their interests… The result is a financial sector that looks quite a bit like it did before the financial crisis."
Paul Volcker, the former Fed chairman for whom the trading rule was named, responded by to the Fed's action by questioning the banks' claims that they weren't able to sell their investments before the July 2015 deadline, The New York Times
"It is striking that the world's leading investment bankers, noted for their cleverness and agility in advising clients on how to restructure companies and even industries however complicated, apparently can't manage the orderly reorganization of their own activities in more than five years," Volcker said in a statement. "Or, do I understand that lobbying is eternal, and by 2017 or beyond, the expectation can be fostered that the law itself can be changed?"
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