The U.S. House just passed a bill called H.R. 992 – the Swaps Regulatory Improvement Act – that was literally written by mega-bank lobbyists. It repeals the laws passed in 2010 to prevent another meltdown like the one that crashed our economy in 2008. The repeal was co-sponsored by a former Goldman Sachs executive and passed with bipartisan support from some of the House’s largest recipients of Wall Street cash. It’s so appalling… so unbelievable… so blatantly corrupt… that you’ve got to see it to believe it:

In 2010, Congress passed the “Dodd-Frank” law to clamp down on risky “derivatives trading” that led to the financial collapse of 2008. Dodd-Frank was weakened by banking lobbyists from the start and has been under attack by those lobbyists [11] ever since. Now a new law written by Citigroup lobbyists (we couldn’t make this stuff up if we tried) exempts derivatives trading from regulation, and was passed this week by the House of Representatives with broad bipartisan support.

It sounds bad… but don’t worry, it gets much, much worse:

• The New York Times reports [12] that 70 of the 85 lines in the new House bill were literally written by Citigroup lobbyists (Citigroup was one of the mega-banks that brought our economy to its knees in 2008 and received billions in taxpayer money.)
• The same report also revealed “two crucial paragraphs…were copied nearly word for word.” You can even view the original documents [13] and see how Citigroup’s lobbyists redrafted the House Bill, striking out ideas they didn’t like and replacing them with ones they did.
• The bills are sponsored by Randy Hultgren (R – IL), and co-sponsored by Rep. Jim Himes (D-CT) and others. Himes is a former Goldman Sachs executive, and chief fundraiser for the Democratic Congressional Campaign Committee.
• Maplight [14] reports that the financial industry is the top source of campaign funding for 6 of the bills’ 8 cosponsors.
• Maplight’s data [14] shows that members of the House received $22,425,740 million from interest groups that support the bill — that’s 5.8 times more than it received from interest groups opposed.
• “House aides, when asked why Democrats would vote for this proposal even though the Obama administration opposes it, offered a political explanation. Republicans have enough votes to pass it themselves, so vulnerable House Democrats might as well join them, and collect industry money for their campaigns.” — New York Times

Yep, it’s actually that bad. For the full story, check out this revealing piece [15] by Represent.Us Communications Director Mansur Gidfar. You can also find out if your Rep. voted for H.R.992 here [16].

We elect Representatives to the House to represent us, the people — but both parties now refuse to do the job we elected them to do. And they won’t until we force them to. The American Anti-Corruption Act would stop this corruption, and Represent.Us is the movement behind the Act. Together, we can make blatant corruption illegal with simple reforms. It’s common sense that elected officials should be barred from collecting money from the industries they regulate.

Originally posted at Represent.us blog [10],

There is a close relationship between Washington and Wall Street.  It could be said that any industry with significant lobby interests as an interest in Wall Street, but the difference here being that Wall Street is not an industry per se, and it’s completely virtual.  Laws and regulations that regulate the financial markets directly determine how Wall Street firms do business.  This directly impacts the markets, and thus the real economy.  It has been said that major changes such as Glass Steagall have been the major cause of financial crisis.  Certainly if the Federal Reserve Act had not been passed we would not have the financial system we have today.  What this implies in the case of Wall Street, the relationship between Congress and Wall Street is uber conflict of interest.  Congress is one entity in the world (but not the only one) that has the power to effect real positive change for the markets, and by positive it means economically speaking.

Another point of note, macro traders and analysts can gauge future market activities from significant regulations, i.e. Basel 2 when coming into effect will cause banks to de-leverage thus putting pressure on the bond markets widening spreads, etc.  (This was used as example because some who predicted the Credit Crunch of 07/08 used this as the basis for their analysis).

The role of Basel II, both before and after the global financial crisis, has been discussed widely. While some argue that the crisis demonstrated weaknesses in the framework,^[14] others have criticized it for actually increasing the effect of the crisis.^[15] In response to the financial crisis, the Basel Committee on Banking Supervision published revised global standards, popularly known as Basel III.^[16] The Committee claimed that the new standards would lead to a better quality of capital, increased coverage of risk for capital market activities and better liquidity standards among other benefits.

Nout Wellink, former Chairman of the BCBS, wrote an article in September 2009 outlining some of the strategic responses which the Committee should take as response to the crisis.^[17] He proposed a stronger regulatory framework which comprises five key components: (a) better quality of regulatory capital, (b) better liquidity management and supervision, (c) better risk management and supervision including enhanced Pillar 2 guidelines, (d) enhanced Pillar 3 disclosures related to securitization, off-balance sheet exposures and trading activities which would promote transparency, and (e) cross-border supervisory cooperation. Given one of the major factors which drove the crisis was the evaporation of liquidity in the financial markets,^[18] the BCBS also published principles for better liquidity management and supervision in September 2008.^[19]

A recent OECD study^[20] suggest that bank regulation based on the Basel accords encourage unconventional business practices and contributed to or even reinforced adverse systemic shocks that materialised during the financial crisis. According to the study, capital regulation based on risk-weighted assets encourages innovation designed to circumvent regulatory requirements and shifts banks’ focus away from their core economic functions. Tighter capital requirements based on risk-weighted assets, introduced in the Basel III, may further contribute to these skewed incentives. New liquidity regulation, notwithstanding its good intentions, is another likely candidate to increase bank incentives to exploit regulation.

Think-tanks such as the World Pensions Council (WPC) have also argued that European legislators have pushed dogmatically and naively for the adoption of the Basel II recommendations, adopted in 2005, transposed in European Union law through the Capital Requirements Directive (CRD), effective since 2008. In essence, they forced private banks, central banks, and bank regulators to rely more on assessments of credit risk by private rating agencies. Thus, part of the regulatory authority was abdicated in favor of private rating agencies.^[21]