There was a poll released the other day that showed most people believe that the policies that are being discussed in Washington only help the "elite". This is certainly not good news for the Obama Administration and Democrats. It's pretty obvious why people feel this way with the $12 trillion bail out of the financial sector that is quickly returning to its old ways while unemployment and foreclosures continue to rise.
But there are other things that are happening that people may not be following that would confirm the sentiments reflected in the poll. The gutting of regulatory reform is one of them. Harper's Magazine has a story that about what transpired at a House Financial Services Committee on October 7:
Everyone rational knows that there is an enormous need to seriously reform the derivatives market, but the committee, headed by Congressman Barney Frank (D-Wall Street), invited a panel of eight guests who were distinguished by their uniformly pro-industry positions. They included Jon Hixson of Cargill, James Hill of Morgan Stanley (on behalf of the Securities Industry and Financial Markets Association), Stuart Kaswell of the Managed Funds Association (which, through one of its lobbyists, has delivered significant “bundled” donations to Frank) and Christopher Ferreri of the Wholesale Markets Brokers Association.
In response to complaints from Americans for Financial Reform, which represents hundreds of consumer groups and labor unions, the committee issued an invitation—the night before the hearing was held — to Rob Johnson of the Roosevelt Institute. For the committee, the last minute inclusion of Johnson — a former managing director at Bankers Trust Company and former economist at the Senate Banking Committee and Senate Budget Committee — apparently constituted sufficient balance.
Democrats didn't even care to have a balanced debate about derivatives reform. Only after being called on the blatant and very apparent bias did the Chairman Frank respond. Could it be that it didn't rely matter because everyone knew what the outcome would be - a bill that did nothing but was called reform.
The treatment of Rob Johnson at the hearing, according to Harper's account, is absolutely despicable:
Johnson, who came last, offered the only serious critical viewpoint, saying that the American public had been “quite demoralized by…the bailouts that we experienced last fall.” After about five minutes of his testimony, Congresswoman Melissa Bean—another industry-funded committee member who chaired the hearing because Frank was absent—had heard enough. “I’m just going to ask you to wrap up because we’re running out of time,” she told Johnson.
Johnson gamely continued. “When I hear the testimony today that are largely financial institutions and end users, I believe that I represent a third group that comes to the table, which is the taxpayers, the working people of the United States,” he said.
“I do need a final comment,” Bean interjected seconds later.
But this despicable treatment continued:
About five days later Johnson submitted his full testimony to the committee, to be included on its website along with the statements of the other eight panelists. When it wasn’t posted, Johnson asked Lynn Parramore, editor of the Roosevelt Institute’s blog, to see what was up. Parramore emailed and spoke to staffers at the Financial Services Committee, and received a number of explanations for why Johnson’s testimony had not been posted: first she was told it hadn’t been received, then that it had to be submitted as a PDF, then that the committee was having IT problems. “I couldn’t decide whether it was incompetence or mischief, but I began to suspect the latter,” Parramore told me.
Finally, she was informed that the committee’s general counsel would not allow posting of the testimony because Johnson had not submitted it during the hearing. (Of course, since Johnson had been invited at the last minute it was impossible for him to fulfill this pointless requirement.)
The committee invites Mr. Johnson at the last minute, cuts off his testimony and then refuses to post his entire testimony on its website. How pathetic! At this pace, Democrats deserve to lose control of Congress next year.
Mr. Johnson's testimony can be read here.
Here is a little taste of Mr. Johnson's testimony:
I believe that the most important dimension of all of the needed financial reforms is the precise intersection between Too Big to Fail financial institutions and OTC unregulated derivatives. This intersection is the equivalent of the San Andreas Fault of our financial system. We are in a new era where the size of the capital markets, and their derivative instruments are a dominant dimension of the intermediation of credit. Derivatives transparency is essential to the safety and soundness of our financial system as a whole and it is essential to the protection of the public treasury. Without OTC derivatives reform enhanced resolution powers for dealing with insolvent institutions could well be rendered impotent and future crises in the credit allocation system will likely be longer and deeper than is necessary.
That sounds reasonable. Most people agree on that. The following is probably where Wall Street Defenders started getting nervous:
My understanding is that this discussion draft of the bill has been put forward in the spirit of protecting flexibility of use of derivate instruments by end users. In recent letters and testimony some end users have emphasized theimpact on jobs and the competitiveness of their firms if they were to lose access to customized derivatives and be forced to rely solely upon standardized contracts.
He is going to attack that old cannard - regulation means fewer jobs:
When an end user talks about how changing practices in the derivatives market will end up costing jobs at his firm one has to place this in that context. If a dysfunctional derivatives market has led to over use of derivatives throughout the system and has made them too cheap to use because provision for the integrity of the system was not built into the costs, then it is imperative to improve that system architecture and force the end use to incur the costs they rightfully represent that they will experience. The resulting system, fortified and more transparent and well regulated, would reduce the likelihood, and magnitude, of a recurrence of a financial calamity. Not only would society be better off with lower unemployment, but the end user in question would likely experience less disruption to demand for his/her product and not be forced to layoff as many employees in the event of a disruption. Reform would increase jobs and stability of employment in his/her own sector in the larger scheme of things. We have, in recent years, had a financial system where the private incentive to take risks exceeds the social value of those risky actions. We have subsidized financial speculation indirectly and underpriced insurance by not setting up proper market structures, particularly in the aftermath of the Commodities Futures Modernization Act. When a subsidy is diminished, those who benefit from it are forced to adjust, profits are curtailed, and employment diminished at the margin. Those effects are important to understand, but they do not constitute a reason to refrain from repairing a broken system. Society and the end users are each likely to be better off when the system's integrity is repaired. The kind of disruptions to commerce we have recently experienced are enormous, dreadful and unnecessary.
Probably at this point Mr. Johnson over stayed his welcome as far as Melissa Bean was concerned - she was chairing the hearing for Mr. Johnson's testimony. This is shameful how Mr. Johnson was treated. He is far from some "pinko liberal":
Rob Johnson is the director of the Economic Policy Initiative at the Franklin and Eleanor Roosevelt Institute and is a regular contributor to NewDeal 2.0. He serves on the United Nations Commission of Experts on Finance and International Monetary Reform. Previously, Dr. Johnson was a managing director at Soros Fund Management, where he managed a global currency, bond and equity portfolio specializing in emerging markets. He was also a managing director at the Bankers Trust Company. Dr. Johnson has served as chief economist of the U.S. Senate Banking Committee under the leadership of Chairman William Proxmire and was senior economist of the U.S. Senate Budget Committee under the leadership of Chairman Pete Domenici. Dr. Johnson was an executive producer of "Taxi to the Dark Side," an Oscar-winning documentary produced and directed by Alex Gibney. Dr. Johnson is a member of the Development Advisory Board of the Baseball Hall of Fame in Cooperstown, N.Y., and is the former president of the National Scholastic Chess Foundation. He currently sits on the Board of Directors of the Economic Policy Institute and the Institute for America's Future. Dr. Johnson received his Ph.D. and M.A. in Economics from Princeton University and a B.S. in both Electrical Engineering and Economics from the Massachusetts Institute of Technology.
There is no question in mind that Melissa Bean deserves a primary challenge.