What Next on Financial Reform?

Since the Financial Reform bill passed the Senate, it will now go to conference committee to resolve the differences between the House and Senate versions. The New York Times has a graphic on the two bills, describing some of the differences and what is not in either version of the legislation, spreadsheet style.

Currently we do not know who the conferees are. They will be determined on Monday. Senator Kaufman:

The final Wall Street reform bill can't drift too far from the version passed Thursday night by the Senate, Sen. Ted Kaufman (D-Del.) warned Friday.

While there is no certainty in how conferees from the House and Senate might address differences between their two bills, Kaufman said, substantial changes could endanger the 60-vote majority needed to pass the bill in the upper chamber.

"There isn't a lot of wiggle room in the conference, in terms of changing what's in the Senate bill," Kaufman said Friday morning on CNBC.

Senator Kaufman is referring to the rule conferees have the ability to introduce new additions into an already passed bill. But now (rule changed in 2007), someone can object and the Senate must "re-pass" the bill by a 60 vote margin. That said, assuredly they can remove provisions without a 60 vote margin due to the differences between the two bills. If it's already in one passed version of the bill in some form, the conferees are free to change it, as long as the scope of the change is in the House or Senate version of the bill.

In other words, the House bill has an audit the Federal Reserve section completely. The Senate version is much weaker. Therefore the conferees can adopt the Senate version and remove the House version. The same is true with derivatives. The House version has more loopholes, which exempt almost all derivatives from exchanges and regulation in actuality, than the Senate version (which has no consequence to violations). Therefore, the conferees can strip out the Lincoln amendment, the derivatives section of the Senate version and adopt the House version. All of this can be done without the required 60 votes in the Senate, instead an up or down vote.

Meanwhile Wall Street is gunning to kill any reforms on derivatives.

Wall Street banks, surprised that the Senate’s financial overhaul passed with language that could curtail their derivatives trading, are now hoping the rule can be killed in Congressional negotiations.

Lawmakers have been telling Wall Street the Senate provision would fail, “but it passed, so people are nervous,” said Paul Miller, analyst at FBR Capital Markets in Arlington, Virginia. “The problem is that everybody in Congress wants it out, but nobody wants the responsibility of taking it out.”

The Senate bill demands that companies like Bank of America Corp., JPMorgan Chase & Co., and Goldman Sachs Group Inc. conduct derivatives trading outside of their commercial banking units that benefit from federal support. They could still escape the impact if the rule is stripped out during a conference committee to resolve differences between the Senate bill and one passed by the House of Representatives in December.

“There’s a reasonable chance it will remain only because anti-bank sentiment has increased since the House bill was passed,” said Robert Litan, vice president of research and policy at the Kansas City-based Kauffman Foundation, which promotes entrepreneurial economic growth. While the likelihood is hard to handicap, he said, “it’s certainly not zero.”

Raj Date, a former Deutsche Bank managing director and now executive director of New York-based research group Cambridge Winter Center for Financial Institutions Policy, said he expects the rule to get watered down in conference.

Bear in mind the bill does not have the Volcker rule (sorry fellow bloggers but a study is not a law!), does not stop too big to fail, does not limit the powers of the Federal Reserve, in fact expands them. Most importantly, the derivatives reform legislation is incomplete and this is the stronger Senate version.

So, while everyone and their brother is rushing out to write a piece on the Financial reform bill, this site will hold off and see what's going down in conference committee. To date, we know a manager's amendment cannot be introduced, yet it has happened and is possible to completely change a bill in conference committee.

Reference, Library of Congress:

The House conferees are strictly limited in their consideration to matters in disagreement between the two Houses. Consequently, they may not strike or amend any portion of the bill that was not amended by the other House. Furthermore, they may not insert new matter that is not germane to or that is beyond the scope of the differences between the two Houses. Where the Senate amendment revises a figure or an amount contained in the bill, the conferees are limited to the difference between the two numbers and may neither increase the greater nor decrease the smaller figure. Neither House may alone, by instructions, empower its managers to make a change in the text to which both Houses have agreed.

When a disagreement to an amendment in the nature of a substitute is committed to a conference committee, managers on the part of the House may propose a substitute that is a germane modification of the matter in disagreement, but the introduction of any language in that substitute presenting specific additional matter not committed to the conference committee by either House is not in order. Moreover, their report may not include matter not committed to the conference committee by either House. The report may not include a modification of any specific matter committed to the conference committee by either or both Houses if that modification is beyond the scope of that specific matter as committed to the conference committee.



Barney Frank to Chair Conference Committee

the other members are not chosen yet. Frank wants to put this on C-SPAN, so maybe if he is chair that will happen. Not that it would stop any further weakening of course.

The Hill says 7 Dems, 5 GOP, but of course that doesn't mean much since we have corporate representatives in both parties.

This is like "The Patriot Act"

They create a situation through gross negligence or worse which, meticulously, they turn into a legislative victory to advance their interests.  Oh, but, wait!  I'm supposed to say, "it's flawed but at least it's a start."  Well, I just said that but I'm clued into the poorly kept secret -- people saying that over and over (not just a random opinion) know better ergo they're just shilling for Wall Street. 

Health reform, financial reform, the newly minted American Power act are all just means to increase the concentration of wealth and decrease any potential liability by the perpetrators. 

Barney Frank is the conference committee chair.  We'll get lipstick on a pig with his deft hand.

it's Blanche Lincoln against the rest

Frankly, she's not exactly known for her in the interests of America, the overall economy, the middle class, etc. voting record~! So, how committed is she to fight for what she managed to get through on derivatives is of interest. As it is there is a major loophole but it's still 1000% better than what the house did.

I predict disaster. We're all so trapped by these huge corporations who run the government.

Biggest Reform in the Works

The FASB is going to reenact mark to market rules for banks.

If the banks are against this I am for it.

Whats great here is that independent from control by politicians and banks.

“FASB’s proposal for mark-to-market accounting presents significant problems, not only for banks, but also the general economy,” Edward Yingling, chief executive officer of the American Bankers Association, said in a statement. “The proposal would greatly undermine the availability of credit by making it difficult to make many long-term loans, the value of which, even if performing perfectly, would likely be reduced on the day a loan is made.”

Whats the Real Value?


Right they have managed to pressure FASB previously, which has a lot of independence. I just wrote up a little blurb on how the CBO believes all of those MBSes and Maiden Lane holdings have value and will make the taxpayer money. You might check it out and see if there is anything about mark-to-market or methods in their "fair value" accounting methods to reach that conclusion. I didn't.

An Argument (Mark to Market) That Will not End

FDR killed mark-to-market in 1934. FASB fought for this since the mid seventies! And they lost. It is a classic practicality vs. good theory argument.

In the History of Ideas, when opposing theories are argued
for centuries, it means that they are both partly right and partly wrong.

So how do you disclose M2M without horrific consequeces
(say taking down all insurance companies with the banks
like 1934 or now)? You can maybe do this when values are at their rosy best or at their very worst and nothing is left to lose.

Burton Leed

It Was in Place Already Earlier This Decade

And its coming back.

How else are we supposed to know what the banks are sitting on? The system was changed back FROM mark to market to allow for fraudulent book cooking.

The only reason not to use it is to perpetuate fantasy accounting and crooked books to again maintain the status quo.

I can guarantee that banks are showing home values on their books right now that they would NEVER lend against.
Ahhh! The double standard that we need to keep right?