Nevada Congressman Mark Amodei (R-NV2) is pleased with the Republican version of the House Financial Services Committee and Appropriations Committee 2015 version of a budget for the Department of Justice, the SEC, and the Department of the Treasury. The Big Banks and Wall Street Players are pleased with it too. They should be, part of the bill is straight out of the Financial Sector Playbook, one being implemented by Eugene Scalia’s law firm to gut the Dodd Frank Act for financial regulation. A little background is in order.
The Back Story
The recovery from the latest Recession has been impressive, but perhaps not what it could have been had not some Austerianism crept into the mixture. Public sector employment (teachers, social worker, firefighters, law enforcement….) is trailing or declining in some areas. Private sector employment has done well.
The Department of Labor issued its “employment situation report” six days ago, in which we discovered 288,000 jobs were created, and the unemployment rate is now 6.1%. [DoL]
About the same time, the St. Louis Federal Reserve tracked corporate profits (after tax) currently at $1,906.8 billion. [FRED] The graph looks like this:
The data points indicate a recovery for the private sector which took a pounding during the Recession but have bounced back quite nicely. Even during the Recession, corporate profits did not fall below levels seen during the period from 1980 to 2000.
The good news is, obviously, that the economy has generated private sector jobs in positive territory for the last 52 months, which should be tempered by watching corporate activities very closely — given the propensity of the financial sector to create booms/busts of increasingly volatile proportions. There is also the no-so-small question of corporate hoarding. (A matter for another day.)
What’s happened since those days, not so long ago, when ‘irrational exuberance for asset classes and insane valuations” ran amok an crashed the U.S. economy? When Wall Street creates new vocabulary like “Quantum Entanglement Trading,” some ears need to perk up. The argument that faster trading combined with new technologies is nothing new under the Sun is perfectly plausible, what is less comprehensible are terms like Dark Pools, upon which some light cast upon Barclay’s transactions is less than pleasing. [BusWeek]
Even less pleasing was the moment when Goldman Sachs “lost control” of its Dark Pool, and Goldman “lost oversight of what was happening in their dark pool and it ended up that a number of people had trades settled at less than best national price.” [Forbes]
The Dodd Frank Act was supposed to rein in some of these excesses, and to give investors more power to insure they were trading “at the best national price.” It was also supposed to put the brakes on some of the more egregious activities in derivative trading. The Wall Street boys figured out a way around that too:
“…traders have recently forged a path around these so-called margin requirements in order to allow them to harvest larger profits via larger bets: They are repackaging some derivatives known as swaps into another financial product known as futures. Futures are less stringently regulated, meaning investors can stake out larger positions while reserving smaller amounts of cash.” [HuffPo]
The GOP Big Bank Pacification Program
What do we know so far? First, that the private sector recovery could be stronger (especially if we’d ever decide to DO something about our crumbling infrastructure and backlog of maintenance). Secondly, that Wall Street will be Wall Street, and with the advent of the financialists new ways to generate ‘wealth’ will be created even if these don’t actually add up to any real expansion of manufacturing or commercial activities. On the corporate side there’s the stock buy back strategy which can be combined with the offshore parking ploy; on the financial end there’s the newly discovered joys of playing in dark pools and renaming your Swaps as Futures. What could possibly go wrong?
And now we come back to the point wherein Representative Amodei tells us how pleased he is with the House Financial Services Committee rendition of an FY 2015 budget providing for those departments and agencies which regulate financial behavior in this country.
Here’s Representative Amodei’s gush over the budget provisions for the Security and Exchange Commission:
“Included in the bill is $1.4 billion for the Securities and Exchange Commission (SEC), which is $50 million above the fiscal year 2014 enacted level and $300 million below the President’s budget request. The increase in funds is targeted specifically toward critical information technology initiatives. (1) The legislation also includes a prohibition on the SEC spending any money out of its “reserve fund” – essentially a slush fund for the SEC to use without any congressional oversight. In addition, the legislation contains requirements for the (2) Administration to report to Congress on the cost and regulatory burdens of the Dodd-Frank Act, and a (3) prohibition on funding to require political donation information in SEC filings.” (numbering, emphasis added)
Let us Parse: (1) What’s so wrong about that SEC Reserve Fund? It was established in the Dodd Frank Act:
“The Dodd-Frank Act established a Reserve Fund for the SEC and gives the agency authority to use the Fund for expenses that are necessary to carry out the agency’s functions. Each year, starting with FY 2012, the SEC is required to deposit into the Fund up to $50 million a year in registration fees, while the remainder is deposited into the Treasury as general revenue. The balance of the Fund cannot exceed $100 million.” [SEC pdf]
And what will the Reserve Fund be used to do? We know that most of the FY 2013 Reserve Fund money went to upgrade EDGAR and other information technology, and then there was the remainder:
“The remainder of the Reserve Fund in FY 2013 will be used on a number of IT projects, including development of Market Oversight and Watch Systems that will provide the SEC with automated analytical tools to review and analyze market events, complex trading patterns, and relationships; development of fraud analysis and fraud prediction analytical models; and deployment of natural speech, text, and word search tools to assist our fraud detection efforts. Additionally, the SEC plans to develop analytical environment, databases, and intake systems for market data, mathematical algorithms, and financial data.” [SEC pdf]
Then the SEC added another project in its FY 2014 budget justification, the Consolidated Audit Trail.
“The SEC plans to invest Reserve Fund dollars to develop the SEC’s ability to intake CAT data and store it in the EDW, as well as to develop analytical tools and a single software platform that will allow the SEC to identify patterns, trends, and anomalies in the CAT data. The tools and platform will allow seamless searches of data sets to examine activity to reveal suspicious behavior in securities-related activities and quickly trace the origin.” [SEC pdf]
But what happened to these plans to monitor the financial markets with an eye toward reducing the instances of fraud and abuse?
“H.R. 3547, the omnibus 2014 spending bill passed by Congress and signed into law by President Obama last week, contains more bad news for the SEC than just the meager 2% increase it provides for the SEC’s budget. A provision in the new law quietly strips away half of a $50,000,000 Reserve Fund that the SEC uses to improve its technology resources.” [Securities Docket]
Not too put too fine a point to it, but — the Congress of the United States found a way to defund the very activities of the SEC which might allow the agency to technologically keep up with the high frequency traders, the dark pools, and the latest Wall Street tech. That should keep the Big Banks Pacified?
The Big Banks ought to be especially pleased by the label “slush fund” attached by Representative Amodei to their funds to improve the technological capacity of the agency. If Representative Amodei is displeased with the “lack of Congressional oversight” over the expenditures in the SEC Reserve Fund, then he may have missed the two documents readily available online wherein the SEC described for Congress precisely what they wanted the Reserve Fund to implement. See: SEC FY 2014 Budget Justification (pdf) the executive summary of the Reserve Fund is on page 10, and the SEC FY 2013 Budget Justification (pdf), the executive summary of the Reserve Fund is on page 9.
Why would anyone, facing the increasing speed and technicality of modern financial market operations, want to call the funds allocated to assist in the improvement of oversight and fraud detection a “slush fund?” Perhaps because they don’t want the SEC to keep up with the Big Banks, high flying hedge funds, and wealth management groups?
(2) Oh, those regulatory costs and burdens! This has a familiar ring to it. Here’s where Eugene Scalia, son of Antonin, enters the picture:
“Eugene Scalia is a lawyer of extraordinary skill. In less than five years, the 50-year-old son of Supreme Court Justice Antonin Scalia has become a one-man scourge to the reformers who won a hard-fought battle to pass the 2010 Dodd-Frank Act to rein in the out-of-control financial sector. So far, he’s prevailed in three of the six suits he’s filed against the law, single-handedly slowing its rollout to a snail’s pace. As of May, a little more than half of the nearly four-year-old law’s rules had been finalized and another 25 percent hadn’t even been drafted. Much of that breathing room for Wall Street is thanks to Scalia, who has deployed a hyperliteral, almost absurdist series of procedural challenges to unnerve the bureaucrats charged with giving the legislation teeth.” [MJ]
And what has the Scalia Scion done to create this successful stall ball strategy?
“Scalia’s legal challenges hinge on a simple, two-decade-old rule: Federal agencies monitoring financial markets must conduct a cost-benefit analysis whenever they write a new regulation. The idea is to weigh “efficiency, competition, and capital formation” so that businesses and investors can anticipate how their bottom line might be affected. Sounds reasonable. But by recognizing that the assumptions behind these hypothetical projections can be endlessly picked apart, Scalia has found a remarkably effective way to delay key parts of the law from going into effect.” [MJ]
So, when Representative Amodei says he wants the “Administration to report to Congress on the cost and regulatory burdens of the Dodd-Frank Act,” he’s chiming right in, cheerleading if you will, for the stall ball tactics of the Wall Street barons as practiced rather successfully by their Scalia Scion lawyer. That should help keep the Big Banks Pacified?
(3) And, Representative Amodei is only too pleased to help the corporations and Big Banks hide their political donations — because he doesn’t want the SEC to be able to require corporations and large banks to tell the public and their shareholders about their political activities!
Representative Amodei gives every appearance of being a major cheerleader for Team Wall Street, and its efforts to avoid regulation, supervision, and monitoring by the Securities and Exchange Commission — no doubt he, and other Republicans in Congress, will be delighted to participate in the GOP’s Big Bank Pacification Program.