Financial Reform Bids Collapse Into Farce

Word from the White House is that Rahm Emanuel is still fishing around for a lucrative berth in the financial industry (“money first, then the deal” he reportedly barked at a recent industry caller discussing business possibilities in the private sector) so we needn’t hold our breath too hard waiting for the administration to bring law enforcement, or even its emasculated sibling “regulation reform,”  to Wall Street anytime soon.  Not that the banks have ever really felt threatened, given the contemptuous ease, which I described here last December,  with which they were able to gut the reform bill spawned last in the House of Representatives.

The retiring and long since neutered Senate Banking Committee Chairman Christopher Dodd has his own meek version of a financial reform program currently  before the Senate, but this came pre-gutted on the issue of a Consumer Finance Protection Agency dedicated to protecting us from banker loan-sharks.  Dodd’s proposed legislation consigns the putative CPFA  to the bowels of the Federal Reserve, with a right of veto over any unappealing consumerist initiatives granted to a “Financial Stability Oversight Council” made up of banker-friendly regulators.

Dodd’s bill does at the moment enjoin that OTC (Over the Counter) derivatives trading be forced onto exchanges, where trades and prices will be open for all to see.  But there is little prospect of that happening – certainly not as long as lawyer-lobbyist Edward J. Rosen, of Cleary, Gottlieb, is at his well-rewarded post, keeping Washington safe  for the derivatives industry.  (Admirers point to his masterful work ensuring that the interests of his principal clients, the Credit Default Swap Dealers Consortium, have been faithfully reflected in administration policy.)

Just to remind everyone what’s at stake here, Moody’s recently reported that the big derivatives-trading banks would simply not allow their  OTC trades to be forced  onto exchanges, where prices would be public, because that would eat into their profits. “Exchange-based trading could improve the efficiency of the OTC market, but this would almost necessarily be done at the expense of dealers’ currently substantial profits: JPMorgan Chase, for example, has disclosed that it generated fully a third of its overall investment banking profits from OTC  derivatives in 2006-2008.  Such a permanent reduction in profitability would be a credit negative,” warned the credit rating agency.

That there is even a discussion over whether or not to clean up the derivatives racket, not to mention all the other instances of crookedness that have brought us to the current ongoing catastrophe (one in  every five Americans now unemployed or forced to work part time) is laughable.  Further transmuting tragedy into farce is the spectacle of the Financial Crisis Inquiry Commission, supposedly bent on uncovering the causes of the meltdown.  Once upon a time, investigative hearings were worthwhile spectacles.  The Watergate committee, after all, had its moments, while the Pecora Commission of New Deal days probing Wall Street machinations certainly made a few swindlers squirm.  But the “inquiry commission” holds out no such promise.  (Once they opted for  “crisis” rather than “crimes” we knew it was all over.)

Under the flaccid chairmanship of Pelosi crony Phil Angelides, the FCIC hearings have been built around empty exchanges.  Angelides set the tone in the opening session, when he thanked the CEOs of Goldman Sachs, JP Morgan, Morgan Stanley and Bank of America for their “thoughtful” written statements and then went on to ask Goldman boss Lloyd Blankfein  to name “the two most significant things” for which he might apologize.  Try as he might, Blankfein couldn’t really think of anything very serious.

Yesterday, Angelides was at it again, letting the despicable Alan Greenspan ramble, prevaricate, and mumble his way through what felt like hours of listless testimony (some of it in the dark thanks to a power failure.)  Greenspan was not even seriously challenged on his assertion that the financial markets are now so complicated that any attempt at regulation is futile, as if Lehman Brothers’ crude cooking of its books via the recently exposed “Repo 105” maneuver was anything other than straightforward fraud,  or the scam of packaging worthless mortgage loans into “AAA” CDO securities and selling them to pension funds was anything  other than a simple confidence trick, or that tricking poor people into extortionate loans – the basis of the housing bubble – merited anything more than a speedy trial, with stiff sentences to follow.

ANDREW COCKBURN is the co-producer of the feature documentary on the financial catastrophe American Casino.  He can be reached at


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  The Spoils of War: Power, Profit and the American War Machine. (Verso.)