It just so happens I have both a “trick” and a “treat” for you today.
First, the “trick.”
Yesterday the House passed a bill titled The Swaps Regulatory Improvement Act.
The trick is, it’s not about improving the who-really-knows-how-many trillions of dollars swaps (derivatives) market.
Instead, the bill aims to reduce restrictions under section 716 of the Dodd-Frank Act. Section 716 requires banks to spin off risky swaps out of depository institutions to subsidiaries and affiliates.
Here’s what Rep. Jeb Hensarling (R-Tex.), chairman of the House Financial Services Committee, said on the House floor yesterday: “Section 716 requires financial institutions to ‘push out’ almost all of their derivatives business into separate entities, this not only increases transaction costs, which are ultimately paid by the consumers, it also makes our financial system less secure by forcing swap trading out of regulated institutions.”
WHAT? Now that’s tricky!
Transaction costs? Those are borne by the traders at the banks and hedge funds that trade those financial weapons of mass destruction, not “CONSUMERS.” Consumers don’t trade this crap; these are not consumer products. Consumers will only pay for these weapons of mass destruction if the banks that taxpayers – the consumers of the crap banks spew out when they fail – have to bail out the banks that trade this stuff!
But it passed.
The House measure passed by a bipartisan vote of 292-122, including 70 Democrats.
The trick was neatly exposed by Rep. Maxine Waters (D-Calif.), the top Democrat on the banking panel. She fumed, “This legislation will effectively allow banks to undertake derivatives trading with depositors’ money. If the banks lose money on this sophisticated trading, systemic risk could creep back into our financial system, once again putting the economy – and the American taxpayers – at risk.”
Now that’s scary.