The regulation debate still simmers
Chairman of the Federal Reserve Ben Bernanke listens during a meeting at the Federal Reserve in Washington, D.C. (June 29, 2011) Credit: Getty Images
To an optimist, electoral politics might embody the art of the possible, bringing balance to legitimate interests.
To someone of a darker mindset, legislative practice might resemble more closely the crafting of a performance to please a paying audience.
Last month, with little fanfare, both of New York's U.S. senators and 16 of its House members signed a letter to federal officials warning that proposed rules governing derivative sales could give U.S. banks a competitive disadvantage.
"As you know," the missive states, "rewriting the regulatory framework for derivatives trading in the U.S. is an important step in making our financial system more resilient and more transparent.
"But absent harmonization between new rules here and abroad, disparate treatment of U.S. firms will only encourage participants in the derivatives markets to do business with non-U.S. firms."
The new regulations stem from legislation signed a year ago and titled Dodd-Frank for its sponsors, ex-Sen. Chris Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.).
The derivatives letter was signed by, among others, Democratic Sens. Charles Schumer and Kirsten Gillibrand. From Long Island, the signatures included Democratic Reps. Steve Israel, Carolyn McCarthy and Gary Ackerman, and Republican Peter King. The letter went to Federal Reserve Chairman Ben Bernanke and others.
The sight of members of New York's congressional delegation showing concern for Wall Street firms might be as predictable as Texan representatives responding to the agendas of oil companies. Regional jobs and revenue are at stake. Politically, there are also big campaign contributions in the mix.
As first reported by Politico, Sen. Richard Shelby (R-Ala.) said he and GOP staff raised similar arguments during the drafting of Dodd-Frank -- but were ignored by Democrats. "Their failure to act has now put our markets and economy at the mercy of the regulators," Shelby claimed. But in recent years, many New York representatives seemed quite willing to work in tandem with what you might call the financial deregulation community.
Foreign competition was a driving rationale for Schumer and others when in 1999 Congress voted to repeal the Glass-Steagall Act of 1933. That action removed the legal wall between Wall Street investment banks and depository banks. Debate has since persisted over the role of this landmark deregulation in the financial crisis of recent years.
Schumer spokesman Michael Morey said Tuesday the delegation wrote the Bernanke letter "to remind the regulators of the true congressional intent, which was openness and transparency in the trading of derivatives. . . . The regulators are going beyond the intent of Congress in this interpretation and would cause thousands of jobs to leave the New York metro region and migrate to London and other places."
Competitive concerns were also underscored in a 2007 report that Schumer and Mayor Michael Bloomberg commissioned from McKinsey and Co., a management consulting firm. One of the areas addressed: How New York might fare in the future in the market for securitized mortgages. Like derivatives, many such "bundled" mortgages would soon be declared "toxic" and a major factor in the financial collapses of 2008.
