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January 15, 2014

Congress Beats Down the Wall Street Cops in Budget Deal

Once again, Wall Street lobbyists have crippled the CFTC’s efforts and harmed the SEC’s ability to police Wall Street and protect Main Street. The budget bill approved by the House Monday night shamefully underfunds the two agencies charged with policing reckless and criminal behavior on Wall Street and preventing another financial crash.
The last crisis was invisibly incubated and spread throughout the world by the biggest Wall Street banks gambling in the unregulated $700 trillion derivatives markets, which the CFTC has now been charged with policing. Added to that, the SEC mostly stopped enforcing the law and regulating the securities markets, leading to an unprecedented crime spree on Wall Street that continues to this day. As a result, the financial crash of 2008 was the worst since 1929 and it caused the worst economy since the Great Depression of the 1930s.
That crash and crisis is going to cost the United States more than $13 trillion, which doesn’t reflect the human suffering caused by massive unemployment, destroyed businesses, lost retirement savings and foreclosed or under-water homes. The SEC and the CFTC are two key regulators charged with making sure this never happens again, but they are being grossly underfunded. This serves no one other than Wall Street, which wants to continue to cash in on markets that are unpoliced and unregulated. Wall Street and its allies in Congress are really only motivated to protect Wall Street profits, bonuses and reckless trading.
In addition to being dumb because it fails to protect the American people from another crash, underfunding the agencies is also stupid. The CFTC and the SEC are money makers for the US taxpayer! They actually generate enormous revenue for the federal government. In the five years since the financial crisis, the CFTC and SEC have collected $7 billion in fines, which have all gone to the Treasury Department for the benefit of taxpayers. In addition, they recover funds for ripped off investors from crooks, scammers and criminals. That amounted to $11 billion over the last five years, most of which were returned to the victims.
These facts show that these agencies have vital responsibilities to protect the public, chase lawbreakers, make money for taxpayers and get money back to victims, but they could do so much more if they were properly funded.
The CFTC budget is particularly egregious. The agency used to regulate only the $45 trillion futures market, with a budget in 2008 of $118 million. Since the crash and ensuing crisis, it now also has responsibility for policing and regulating the $400 trillion U.S. swaps markets. This has increased the size of the markets the CFTC police by 900%. How much has their budget increased? By less than 50%, or just $215 million this year. That’s right: $215 million to police a market of about $450 trillion. The number of staff at the CFTC, meanwhile, is “just 7% larger than it was 20 years ago.” There is no way they can protect the American people with that budget and staff size. That’s just the way Wall Street, its allies and the Congressional recipients of campaign cash like it. 
To put those numbers in perspective, the vote to underfund Wall Street’s regulators came just one day before the largest bank in the U.S., JP Morgan Chase, announced annual earnings: more than $5 billion, which is 23,000% more than just the CFTC’s budget. And, in that one year this one-bank crime spree paid more than $20 billion in legal fees to settle allegations of criminal wrongdoing, which is more than 92,000% more than the CFTC’s budget. JP Morgan’s 2013 employee compensation was $10.8 billion, about 47,000% more than the CFTC budget. Tellingly, JP Morgan’s 2013 total employee compensation was $225 million higher than in 2012. That’s right. The increase in just one bank’s compensation ($225 million) was more than the entire budget of the CFTC ($215 million) for the entire year.
If Congress refuses to fully fund the CFTC, it should propose a small user fee to fund the CFTC, a common practice at federal agencies including all other financial regulators. Better Markets has analyzed the derivatives market and found that a CFTC user fee paid by market participants would be so small that it would scarcely be perceptible to market participants. Yet a fully funded CFTC would be a huge benefit to the taxpayer and would make another financial crisis less likely.
The SEC and CFTC are almost all that stand between Wall Street’s reckless conduct and Main Street’s pockets. If Congress is serious about protecting its constituents from the Wall Street crime spree, it must support full funding for the financial regulators to get enough cops back on the beat. It could be done at no cost to the taxpayer, it would increase revenue to the Treasury and it would help repay more victims who have been or will be ripped off by Wall Street. 


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