FacebookTwitterRedditEmail

The Crafting of a Loophole

Those who respect the law and love sausage should watch neither being made.

–Mark Twain.

AMENDMENT TO THE PETERSON SUBSTITUTE FOR H.R. 3795 (a) OFFERED BY MR. PETERSON OF MINNESOTA (b) Page 21, after line 25, insert the following:

(19) by adding at the end the following:

‘‘(50) ALTERNATIVESWAP EXECUTIONFACILITY. (c).—The term ‘alternative swap execution facility’ means a service that facilitates (d) the execution ortrading of swaps between two persons through any means of interstate commerce, but which is not a designated contract market (e), including any electronic trade execution or confirmation facility (f) or any voice brokerage facility (g).’’

Now let’s see what went into this legislative sausage.

(a) Everyone agrees that the unregulated “dark markets” of  Wall Street’s trading in over-the-counter derivatives such as credit default swaps moved the financial crisis from major problem to total disaster.  Currently, most trades in these “products” are privately negotiated on the phone, dealer to dealer.  It’s appallingly risky – that’s why we have a multi-trillion dollar  bailout.  But because the dealers at major banks can quote different prices to different customers, with huge spreads between buy and sell quotes, the banks are making huge profits and want to keep it that way.

So while congress is busy working on reform legislation, Wall Street’s  lawyer-lobbyists in Washington are working hard to neutralize such efforts.

Who’s winning?  Over lunch across town from Capitol Hill,  I recently asked that question of a very smart attorney endowed with deep experience in keeping Washington safe for Wall Street.  In answer, he pointed to this seven-line paragraph buried in a 26-page amendment to “HR 3795, Over-The-Counter Derivatives Markets Act of 2009,” passed in a voice vote by the House Agriculture Committee the night before. Following the vote, the committee had issued a press release hailing their vote for  “strengthening” regulation.

On the contrary, said my friend, “I guarantee you that not a single member, and almost certainly no one else, apart from the traders on Wall Street and the lobbyist who inserted it on their behalf,  understood the significance of this paragraph.  It means that nothing will change.”

(b)   Colin Peterson (D-MN) is the Chairman of the House Committee on Agriculture.  He is on record as asserting “The banks run this place…It’s huge the amount they put into politics.”

(c) An  “alternative swap execution facility” is intended by the original drafters of the bill to be a new, fully regulated market for trading over-the-counter derivatives – a technologically enhanced version of the various futures exchanges currently operating, such as the Chicago Mercantile Exchange, where transactions and prices are open for all to see.

(d)    A beautiful word.  Now the “execution” facility doesn’t have to be an actual exchange. It has just been redefined as merely something that “facilitates” the execution of a swap trade.

(e)   Reinforces the point that a “facility” does not have to be one of those transparent exchanges.  But wasn’t that what the bill is meant to make happen?

(f)    In 2005 the major swaps dealers, under pressure from the New York Fed, set up an electronic “confirmation facility”  to keep track of trades, which the dealers control.  Not much openness here.

(g)    “Voice brokerage.”  This means a telephone, as used by a dealer setting prices that are not publicly disclosed.  That’s what the dealers were doing the last time they led our financial system over a cliff, and that’s the system that is preserved by this one little paragraph.

ANDREW COCKBURN is the co-producer of the 2009 documentary American Casino. He can be reached at: amcockburn@gmail.com

 

More articles by:

Andrew Cockburn is the Washington editor of Harper’s Magazine.  An Irishman, he has covered national security topics in this country for many years.  In addition to publishing numerous books, he co-produced the 1997 feature film The Peacemaker and the 2009 documentary on the financial crisis American Casino.  His latest book is Kill Chain: The Rise of the High-Tech Assassins (Henry Holt).

bernie-the-sandernistas-cover-344x550
December 11, 2019
Vijay Prashad
Why the Afghanistan Papers Are an Eerie Reminder of Vietnam
Kenneth Surin
Australia’s Big Smoke
Sameer Dossani
Ideology or Popularity: How Will Britain Vote?
John W. Whitehead
Who Will Protect Us From an Unpatriotic Patriot Act?
Binoy Kampmark
Interference Paranoia: Russia, Reddit and the British Election
Scott Tucker
Sure, Impeach Trump, But Let’s be Honest
Nyla Ali Khan
Homogenizing India: the Citizenship Debate
Thomas Knapp
Congress: The Snail’s Pace Race
Shawn Fremstad
Modern Family Progressivism
Joseph Essertier
Julian Assange, Thanks for Warning Japanese About Washington
William Minter
How Africa Could Power a Green Revolution
December 10, 2019
Tony McKenna
The Demonization of Jeremy Corbyn
John Grant
American Culture Loves a Good Killer
Jacob Hornberger
Afghanistan: a Pentagon Paradise Built on Lies
Nick Licata
Was Trump Looking for Corruption or a Personal Favor?
Thomas M. Magstadt
What’s the Matter With America?
Brian Tokar
Climate Talks in Madrid: What Will It Take to Prevent Climate Collapse?
Ron Jacobs
Where Justice is a Game: Impeachment Hearings Redux
Jack Rasmus
Trump vs. Democracy
Walden Bello
Capitalism with Chinese Characteristics
Binoy Kampmark
A Troubled Family: NATO Turns 70
Brian Horejsi
Citizens Are Never Trusted
Michael Barker
Self-Defense in the Civil Rights Movement: the Lessons of Birmingham, 1963
John Feffer
Soldiers Who Fight War
Howie Wolke
Willingness to Compromise Puts Wilderness at Risk
December 09, 2019
Jefferson Morley
Trump’s Hand-Picked Prosecutor John Durham Cleared the CIA Once, Will He Again?
Kirkpatrick Sale
Political Collapse: The Center Cannot Hold
Ishmael Reed
Bloomberg Condoned Sexual Assault by NYPD 
W. T. Whitney
Hitting at Cuban Doctors and at Human Solidarity
Louisa Willcox
The Grizzly Cost of Coexistence
Thomas Knapp
Meet Virgil Griffith: America’s Newest Political Prisoner
John Feffer
How the New Right Went Global — and How to Stop It
Ralph Nader
Why Not Also Go With “The Kitchen Table” Impeachable Offenses for Removal?
Robert Fisk
Meet the Controversial Actor and Businessman Standing Up Against Egypt’s el-Sisi
M. K. Bhadrakumar
Sri Lanka Continues Its Delicate Dance With India
Dahr Jamail
Savoring What Remains: Dealing With Climate PTSD
George Wuerthner
Bison Slaughter in Yellowstone…Again
Scott Tucker
Premature Democratic Socialists: Reasons for Hope and Change
Julian Rose
Polish Minister of Health Proposes Carcinogenic 5G Emission Levels as National Norm
Dean Baker
Coal and the Regions Left Behind
Robert Koehler
Envisioning a United World
Weekend Edition
December 06, 2019
Friday - Sunday
Jeffrey St. Clair
Eat an Impeachment
Matthew Hoh
Authorizations for Madness; The Effects and Consequences of Congress’ Endless Permissions for War
Jefferson Morley
Why the Douma Chemical Attack Wasn’t a ‘Managed Massacre’
Andrew Levine
Whatever Happened to the Obama Coalition?
FacebookTwitterRedditEmail