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March 18, 2016

Financial Reform Newsletter: Speaking the truth to Wall Street's power, and More…

Watch this short video of Super-Tuesday voters talking about Wall Street’s too-big-to-fail banks crashing the financial system and how that effected them, their vote and their families: 
Speaking truth to Wall Street’s power is critical to a balanced, informed discussion and essential to good policy making that protects the economic security, opportunity and prosperity of the American people (which is Better Markets’ mission):  For too long, finance generally and Wall Street’s too-big-to-fail banks in particular were the only voice in Washington’s policy making process.  What they said was often accepted uncritically and no one dared challenge the “wisdom” of the markets or the masters of the universe.  The 2008 financial crash and the economic catastrophe it caused should have changed all that and, in some ways, it did.  People are standing up and speaking out.
That’s what Antonio Weiss, counselor to Treasury Secretary Jack Lew, did in a speech to the Chamber of Commerce this week.  While the title was banal (“Lessons from Recent Market Volatility”) and delivered in Treasury-speak phrasing, the message was, to this audience, radical if not apostasy: financial reform was necessary, it’s working and more needs to be done to finish the job.  The entire speech is worth reading, but here are a few highlights:
In light of many months of market turbulence, volatility and turmoil, “the U.S. economy and financial system have demonstrated resilience….  It is clear that the U.S. response to the [financial] crisis has built a more stable foundation for the economy.  Financial reform has been a buffer in volatile times.”
“Going forward, our priority must be to safeguard the gains we’ve made since the crisis….  Growing the economy and broadening the gains to all Americans will provide a bulwark against future economic shocks.  Completing and protecting financial reform will reduce both the frequency and severity of future financial shocks.”
“An important element of sustainable growth is a financial system that works to support the broader economy and avoids excessive risk taking.  Financial crisis are particularly damaging, as they have the capacity not only to cause sudden and deep recessions, but also to inflict lasting harm on the economy.  The Administration is working with regulators to implement all remaining material elements of Dodd-Frank by the end of this year, including derivatives and executive compensation rules.”
While JP Morgan’s CEO Jamie DimonGoldman Sachs’ COO Gary Cohn and a few other Wall Street titans have passingly acknowledged that financial reform has been the reason the too-big-to-fail banks have weathered the recent turmoil so well, none have admitted that which they fought (and continue to fight) so mightily has in fact served them very well, as pointed out in this Op Ed also:  “Financial Reform is Working.”  

No one speaks truth to Wall Street power better than Senator Warren, who also gave a must read speech on the corruption of the Washington rule making process: Senator Warren delivered a speech on excessive corporate influence in the rulemaking process and argued for not only increased transparency, but a call to “balance the scales” between public and private interests.  Better Markets has filed more than 200 comment letters and participates extensively in the rulemaking process at all the financial regulatory agencies and can confirm based on firsthand experience that Senator Warrens’ critique of the rulemaking process is as accurate as it is compelling:
“[C]orporate influence works its magic even better in the shadows – and that’s where rulemaking occurs.”
“[W]hen it comes to undue industry influence, our rule-making process is broken from start to finish. At every stage – from the months before a rule is proposed to the final decision of a court hearing a challenge to that rule – the existing process is loaded with opportunities for powerful industry groups to tilt the scales in their favor.”
“Corporate players are savvy…. [They] bury agencies in detailed, self-serving comments [that] slows the process massively, and their overall dominance of the notice-and-comment process results in rules that are longer, more complicated, and more to the liking of the most powerful players in the game.” 
“Even if the agency manages to jump through all the hoops and withstands all the pressures and actually issues a final rule, companies sue….  But, here again, the rules governing judicial review favor those who would stop the agency from acting in the public interest.”
“[O]ver time, bludgeoning agencies into submission undercuts the public interest.  The goal should be to have a system where influence over new rules is measured not by the size of the bankroll, but by the strength of the argument.”
Sen. Warren has several suggestions for improving the rulemaking process that should be adopted, but she also has a very important warning about what some call “regulatory reform,” which is really a Trojan Horse that greatly benefits industries fighting the public interest:
“Regulatory reform is a popular idea, but too many proposals are supported by the industries to be regulated precisely because those proposals would create even more opportunities for them to block regulations they don’t like. [Genuine] [r]egulatory reform is badly needed, but the reforms must address the central problem-a tilted playing field that benefits the rich and powerful. It won’t be easy. These folks won’t willingly give up its power and influence. But this is about building a government that works not just for those at the top, but for all of us.” 

Better Markets applauds Ty Slocum from Public Citizen for shining light on the corruption of advisory committees at financial regulatory agencies: As the only non-industry affiliated member of the CFTC’s Energy and Environmental Markets Advisory Committee (EEMAC), Ty Slocum from Public Citizen blew the whistle on a secret attack by the Committee Chairman and his carefully selected allies  on a much needed and long overdue position limits rule.  Sen. Warren promptly sent a letter  to the CFTC that detailed conflicts of interest, highly unusual and suspicious conduct, and potentially illegal actions by the committee (and she sent an equally important follow up letter you can read here). 
In an amazingly quick victory, the Chairman of the EEMAC withdrew the “report” calling for killing the position limit rule (in typical Washington fashion by announcing it at 3:30PM on a Friday). It is, however, important to recognize that the victory wasn’t the withdrawal of the report.  It was shining a bright light on the way industry corrupts the rulemaking process and advisory committees generally, which isn’t limited to the CFTC, as we stated in our press release:
“The CFTC’s repudiation today of a report by its biased industry-stacked advisory committee is good news for consumers, transparency, oversight and accountability.  Such advisory committees are often little more than vehicles for secret backdoor industry influence at the financial rulemaking agencies, causing the public interest to be subordinated to industry profits.
“Unfortunately, a corrupted CFTC advisory committee isn’t an isolated event. Such practices are common as can be seen at the SEC with the Equity Market Structure Advisory Committee, which is also stacked with industry insiders seeking to protect their profits rather than investors.  Advisory committees should be balanced and prohibit industry domination, which enables private interests to hijack rulemaking priorities and improperly influence these key agencies.  We call on the CFTC, the SEC and other rulemaking agencies to clean house and put their advisory committees on the side of the public interest where they belong.”


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