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December 17, 2014

Why rift on derivatives is blocking US budget bill

“At the heart of the impasse in Congress over a must-pass spending bill is a provision involving the sorts of high-risk investments that ignited the 2008 financial crisis.

“The dispute occurred after Republicans inserted into the bill a provision to relax the regulation of investments known as derivatives. Democrats, led by their House leader, Nancy Pelosi, have demanded that the provision be removed. They argue that it would let big banks gamble with depositors’ federally insured money and could make it likelier that banks, if undone by their risky bets, would need another taxpayer bailout.

“The provision is part of a broader Republican drive to erode the Dodd-Frank financial regulation law, which Congress enacted in 2010 to try to tighten regulation and prevent another crisis. Republicans have denounced Dodd-Frank as an excessive expansion of regulatory authority that’s stifling the competitiveness of the U.S. financial industry.”

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“In a sign of just how much influence the banking industry wields in Washington, the language in the provision at issue was written mainly by lobbyists for Citigroup, one of the five mega-banks that together account for 90 percent of derivatives contracts.

“The four other banks are JPMorgan Chase, Goldman Sachs, Bank of America and Morgan Stanley.

“Indeed, lobbying for the provision has been vigorous. This is an opportunity for Wall Street banks to target a threat to its lucrative derivatives business in the framework of must-pass legislation.

“An army of high-priced lobbyists working Washington day and night,” as Dennis Kelleher, president of pro-regulation group Better Markets, sees it.”

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Read the full Associated Press Article here.

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