Wall Streets War
Breaking News June 15, 2010
http://www.rollingstone.com/politics/news/17390/96712
Congress
looked serious about finance reform – until America's biggest banks unleashed
an army of 2,000 paid lobbyists
This article originally appeared in RS
1106 from June 10, 2010.
It's early May in Washington, and something
very weird is in the air. As Chris Dodd, Harry Reid and the rest of the
compulsive dealmakers in the Senate barrel toward the finish line of the
Restoring American Financial Stability Act – the massive, year-in-the-making
effort to clean up the Wall Street crime swamp – word starts to spread on
Capitol Hill that somebody forgot to kill the important reforms in the bill. As
of the first week in May, the legislation still contains aggressive measures
that could cost once-
indomitable behemoths like Goldman Sachs and JP Morgan Chase tens of billions
of dollars. Somehow, the bill has escaped the usual Senate-whorehouse orgy of
mutual back-scratching, fine-print compromises and freeway-wide loopholes that
screw any chance of meaningful change.
The real shocker is a thing known among
Senate insiders as "716." This section of an amendment would force
America's banking giants to either forgo their access to the public teat they
receive through the Federal Reserve's discount window, or give up the insanely
risky, casino-style bets they've been making on derivatives. That means no more
pawning off predatory interest-rate swaps on suckers in Greece, no more
gathering balls of subprime shit into incomprehensible debt deals, no more
getting idiot bookies like AIG to wrap the crappy mortgages in phony insurance.
In short, 716 would take a chain saw to one of Wall Street's most lucrative
profit centers: Five of America's biggest banks (Goldman, JP Morgan, Bank of
America, Morgan Stanley and Citigroup) raked in some $30 billion in
over-the-counter derivatives last year. By some estimates, more than half
of JP Morgan's trading revenue between 2006 and 2008 came from such
derivatives. If 716 goes through, it would be a veritable Hiroshima to the era
of greed.
Get
more Matt Taibbi on the Taibblog.
"When I first heard about 716, I thought,
'This is never gonna fly,'" says Adam White, a derivatives expert who has
been among the most vocal advocates for reform. When I speak to him early in
May, he sounds slightly befuddled, like he can't believe his good fortune.
"It's funny," he says. "We keep waiting for the watering-down to
take place – but we keep getting to the next hurdle, and it's still staying
strong."
In the weeks leading up to the vote on the
reform bill, I hear one variation or another on this same theme from Senate
insiders: that the usual process of chipping away at key legislation is not
taking place with its customary dispatch, despite a full-court press by Wall
Street. The financial-services industry has reportedly flooded the Capitol with
more than 2,000 paid lobbyists; even veteran members are stunned by the
intensity of the blitz. "They're trying everything," says Sen.
Sherrod Brown, a Democrat from Ohio. Wall Street's army is especially imposing
given that the main (really, the only) progressive coalition working the other
side of the aisle, Americans for Financial Reform, has been in existence less
than a year – and has just 60 unpaid "volunteer" lobbyists working
the Senate halls.
Read
Taibbi's original scathing Wall Street investigation, "The Great Bubble
Machine."
The companies with the most at stake are
particularly well-connected. The lobbying campaign for Goldman Sachs, for
instance, is being headed up by a former top staffer for Rep. Barney Frank,
Michael Paese, who is coordinating some 14 different lobbying firms to fight on
Goldman's behalf. The bank is also represented by Capitol Hill heavyweights
like former House majority leader Dick Gephardt and former Reagan chief of
staff Ken Duberstein. All told, there are at least 40 ex-staffers of the Senate
Banking Committee – and even one former senator, Trent Lott – lobbying on
behalf of Wall Street. Until the final weeks of the reform debate, however, it
seemed that all these insiders were facing the prospect of a rare defeat – and
they weren't pleased. One lobbyist even complained to The Washington Post
that the bill was being debated out in the open, on the Senate floor, instead
of in a smoky backroom. "They've got to get this thing off the floor and
into a reasonable, behind-the-scenes" discussion, he groused. "Let's
have a few wise fathers sit around the table in some quiet room" to work
it out.
As it neared the finish line, the Restoring
American Financial Stability Act was almost unprecedentedly broad in scope, in
some ways surpassing even the health care bill in size and societal impact. It
would rein in $600 trillion in derivatives, create a giant new federal agency
to protect financial consumers, open up the books of the Federal Reserve for
the first time in history and perhaps even break up the so-called "Too Big
to Fail" giants on Wall Street. The recent history of the U.S. Congress
suggests that it was almost a given that they would fuck up this one real shot
at slaying the dragon of corruption that has been slowly devouring not just our
economy but our whole way of life over the past 20 years. Yet with just weeks
left in the nearly year-long process at hammering out this huge new law, the
bad guys were still on the run. Even the senators themselves seemed surprised
at what assholes they weren't being. This new baby of theirs, finance reform,
was going to be that one rare kid who made it out of the filth and the crime of
the hood for everybody to be proud of.
Then reality set in.
Picture the Restoring American Financial
Stability Act as a vast conflict being fought on multiple fronts, with the tiny
but enormously influential Wall Street lobby on one side and pretty much
everyone else on the planet on the other. To be precise, think World War II –
with some battles won by long marches and brutal campaigns of attrition, others
by blitzkrieg attacks, still more decided by espionage and clandestine
movements. Time after time, at the last moment, the Wall Street axis has turned
seemingly lost positions into surprise victories or, at worst, bitterly fought
stalemates. The only way to accurately convey the scale of Wall Street's
ingenious comeback is to sketch out all the crazy, last-minute shifts on each
of the war's four major fronts.
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