Latest Lobbyist Attack on Derivatives Reform

Sometimes I feel like I live in economic Palestine. The bill we are talking about being gutted is H.R. 4173: Wall Street Reform and Consumer Protection Act of 2009.

Baseline Scenario has the latest on the attempts to thwart derivatives reform legislation. In How to Kill OTC Derivatives Reform in Two Sentences, it appears Barney Frank (notice the House Financial Services Committee Chair's name pops up over and over on attempts to thwart reform), along with yet another committee chair, Colin Peterson (D-MN), Chairman of the House Committee on Agriculture, have introduced an amendment...again (after the last one was ripped asunder by public outcry).

Colin Peterson (D-MN), Chairman of the House Committee on Agriculture, along with Barney Frank, has added an amendment to the OTC Bill (opens large pdf). There are two relevant sentences for reformers from the long document. The first is on page 32:
49) SWAP EXECUTION FACILITY.—The term ‘swap execution facility’ means a person or entity that facilitates the execution or trading of swaps between two persons through any means of interstate commerce, but which is not a designated contract market, including any electronic trade execution or voice brokerage facility.

This replaces other language in the original bill (opens even larger pdf), on page 546:
(A) No person may operate a swap execution facility unless the facility is registered under this section.
(B) The term ‘swap execution facility’ means an entity that facilitates the execution of swaps between two persons through any means of interstate commerce but which is not a designated contract market.

Now on page 89 of the amendment:
(2) RULES FOR TRADING THROUGH THE FACILITY.—Not later than 1 year after the date of the enactment of the Derivative Markets transparency and Accountability Act of 2009, the Commission shall adopt rules to allow a swap to be traded through the facilities of a designated contract market or a swap execution facility. Such rules shall permit an intermediary, acting as principal or agent, to enter into or execute a swap, not withstanding section 2(k), if the swap is executed, reported, recorded, or confirmed in accordance with the rules of the designated contract market or swap execution facility.

The second sentence here allows an intermediary to execute a swap, ignoring the section 2(k) which is the meat of the reform, as long as the swap is recorded somewhere.

Now we already have, from above, that a swap execution facility can be something other than the exchange. This is a rule that guts the regulation right out the door, and for no apparent benefit to reform. Many of these alternative swap facilities will be owned by the banks, so it won’t necessarily force the price transparency that has been promised. To trust regulators to simply do the right thing is naive at best when the ability to follow fixed rules is available.

While Baseline Scenario tries to give Frank a break and claim he might not know this has snuck into the bill, they note the legislation is moving very quickly and should be wrapped up tomorrow.

That's what happens. Amendments move rapidly so people will not catch the modifications and the lobbyists amendments and demands in a quickly, at the last minute, gutted piece of legislation.

With that, to watchdog review the latest amendments, click here for the list. Folks, I frankly haven't gotten to this and as you can see from the obfuscation of the above, lobbyists are quite clever in how they gut bills. They have it down to an art.

So please click this link and review the other amendments. If you post a comment on what you find I'll update this post. Also note the flooding of amendments. This is another technique so the public must wade through volumes in order to discover the loopholes in a matter of a few hours.

My understanding of the most important (possible to pass) gutting amendments are:
Colin Peterson’s amendment on derivatives, here, the combined Frank/Peterson amendment, here. Kanjorski's amendment on exemptions from Sarbanes-Oxley, and this one on mortgage cramdowns.

Please help with the hunt or if you see other blog posts who have discovered something, post in a comment so I may update.

This is a group effort.

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New Democrats have shut down the House

According to Huffpost: Bank-Friendly Dems Shut Down House, Threaten to Kill Wall Street Reform.

A group of Democrats friendly to Wall Street interests forced a delay in consideration of the landmark financial regulatory reform bill scheduled to hit the House floor on Wednesday, Financial Services Committee Chairman Barney Frank (D-Mass.) told reporters in the Speaker's lobby.

Frank accused the New Democrat Coalition of blocking the bill because its members are being prodded by big banks to abolish the Consumer Financial Protection Agency and to allow major financial institutions to avoid state laws tougher than federal regulations.

Wow, the party that loves Wall Street does it again. Amazing, story yesterday was that GOP was meeting behind closed doors planning how to kill reform. It looks like these Robert Rubin Dems beat them to the punch. - Financial Information for the Rest of Us.

Melissa Bean should be censured

Of the obvious corporate Congressional puppets out there, her strings show in bright colors.

But if this is true, there is a delay, it can give us some time to read through the latest amendments, legislation and post.

We need a video feed to watch this real time. Problem is usually an unmarked, not public amendment is put in by "voice vote" at the last minute so no one, including congressional staffers or Reps. know what's in it and it...kills the bill.

Uprate this post would ya? We've been writing on derivatives and reforms for months and if we don't go read the legislation now we've really dropped our Populist ball here.

According to article the House in now in recess.

The Barney Frank---Michael Paese Connection

Barney Frank's former staffer, Micheal Paese, left his employ a little while back to take up the Goldman Sachs' lobbyist position vacated by Mark Patterson (who left to become Timothy Geithner's chief of staff at Treasury).

It has been reported several places that he was the one who handed Frank Goldman Sachs' proposed changes which became Franks' amendments.

Sounds like business as usual (I'll try to persue those new amendments, but my eyes are really shot from reading all those voluminous drafts on the so-called "healthcare reform" --- never could find that mythical "public option".)

request and NYTimes

New York Times reporting delay, but doesn't state how long.

Now bear in mind the insurance company lobbyists just won to get their own personal pig fest health care bill....

Here is the request: Don't focus on people so much, read the legislation and look for the loopholes. Sometimes they are brazen, often they are not as Baseline Scenario, doing their homework found a major one.

Read them this evening because odds are they will ramrod the lobbyists demands through in the dead of night, in some strange hold "manager's amendment", there are all sorts of tricks to create yet another corporate lobbyist's legislative wet dream.

there are certain sponsors which cue us in to know it's crap, so we can just say "defeat" any of those amendments, such as Melissa Bean. But others you have to read them.


I suspect the part on the swap execution facility is to steer them towards MarkitWire and the newly launeched markitSERV.


Gotta link?


Just the standard links:

First link, second link, and third link.

The pattern is similar as to how they set up MarkIt Group, Swaps Wire (renamed Markit Wire), ICE, and ICE US Trust.

The new variation is getting the taxpayer to finance their latest exchange (those soon-to-be insurance exchanges).


According to Reuters and Congress Matters the house will continue to debate H.R. 4173 with a possible vote on Friday. Check this out from Reuters:

An army of lobbyists from banks and Wall Street have worked for months to block, water down and delay the bill, which would threaten the profits of many financial services firms. - Financial Information for the Rest of Us.