Financial Reform Friday Newsletter

December 6, 2013

Better Markets applauds Secretary Lew’s speech on strong financial reform. In remarks delivered Thursday, Treasury Secretary Jack Lew called for strong financial reform, full funding for financial regulators and a global “race to the top” to protect taxpayers from excessive risk taking by the world’s largest banks. Better Markets applauds Secretary Lew’s speech as “a ringing endorsement of the vital need for strong financial reform to protect the American people, the financial system and the economy from another devastating crash.” The importance of his leadership and commitment cannot be overstated. Better Markets looks forward to working with Secretary Lew and his colleagues to transform his words into actions.

Finally, here comes the Volcker Rule. Five years after the financial crash and more than three years since the financial reform law was passed, regulators are expected to approve the Volcker Rule on December 10. If done right, the ban on high-risk proprietary trading at the biggest Wall Street banks should protect taxpayers from more bailouts and the financial system from Wall Street’s reckless gambling. As we have long argued, the Volcker Rule doesn’t have to be complicated, but it must be strong, clear and enforceable. If regulators do approve such a rule, they should be commended. But they will have to remain vigilant that the ban is working and that Wall Street’s attempts to evade the rule fail. An FT article on the impending vote quoted a letter Better Markets recently sent to financial regulators rebutting bogus claims by Wall Street’s allies at the Chamber of Commerce:”The Volcker Rule is an essential measure to stop large, too-big-to-fail [Wall Street banks] from making huge, highly-leveraged, swing-for-the-fences bets to inflate their bonuses, while shifting the risk of catastrophic loss to the public.”

Wall Street’s latest attack on financial reform. Three industry trade groups filed a law suit this week asking the DC District Court to throw out the CFTC’s July cross-border derivatives guidance. The suit is merely the latest effort by Wall Street to evade regulation of the cross-border derivatives market, where the $12.8 trillion 2008 financial crisis was invisibly incubated and spread around the globe before U.S. taxpayers got stuck with the bill. Strong rules are needed to protect the American people from the very type of unregulated derivatives dealing that caused the financial crash. In a statement, Better Markets CEO Dennis Kelleher called the suit “meritless”and said that “it should be thrown out.”

What the public still does not know about the JP Morgan Chase settlement. Lost amid all the noise over the Department of Justice’s record-shattering settlement with JP Morgan Chase is the simple fact that the American public still does not know much about the settlement. We know that the $13 billion settlement is the largest on record and that JP Morgan settled a very long list of illegal, systematic business practices without admitting wrongdoing, and that the DOJ plans to use it as a template for future settlements with other big banks for their illegal practices ripping off customers, clients and counterparties, possibly as soon as next January. Until DOJ discloses specific details about the investigation and the settlement, it is impossible to conclude anything other than that it is using the attention-grabbing dollar amount to conceal what must be an indefensible settlement. Bragging about the $13 billion cannot be a substitute for informing the public of the facts so they can independently judge the settlement for themselves. The American people deserve no less.

Early glimmers asset managers are joining financial reform debate. After watching the too-big-to-fail Wall Street banks dominate discussions and facing new regulatory scrutiny, asset managers appear poised to play a larger role in the financial reform debate. Better Markets Senior Fellow Robert Jenkins is part of the effort to mobilize the investment community to stand up and speak out on financial reform. The Better Markets website has a comprehensive archive of Mr. Jenkins’ perspective on the critical issue of strong, sensible regulation of the financial markets.

Some other things that might interest you: 

What Good Is Wall Street?: The New Yorker by John Cassidy 11/29/2013

How to Know When We’ve Ended the $83 Billion Bank Subsidy: Bloomberg 12/2/2013

Mortgages Without Risk, at Least for the Banks: The New York Times by Floyd Norris 11/28/2013

Volcker-Rule Critic Raskin Seen as a Voice for Consumers: Bloomberg by Kasia Klimasinska and Ian Katz 12/6/2013

Are commodities traders ‘too big to fail’?: Financial Times by Neil Hume 12/6/2013

Court Weighs Penalty in Bank of America ‘Hustle’ Case: The Wall Street Journal by Shayndi Raice 12/5/2013

The `GE Three’ Go Free: Bloomberg by Jonathan Weil 12/5/2013