On Tuesday, May 21 Elizabeth Warren, one of the few members of Congress left who might actually care about the rest of us, grilled the new prospect for Treasury Secretary Jack Lew during a Senate Banking, Housing and Urban Affairs Committee hearing.
Warren asked Lew, going into overtime, about the numerous scandals popping up around the “Too Big To Fail (TBTF) banks” and specifically asked about Treasuries intentions to curb TBTF.
"The question I want to ask now is, has Treasury Department's position changed, or are you still opposed to capping the size of the largest financial institutions?" Warren said.
Lew’s responses were canned, contrived, and, for the most part, would leave one to wonder if he’s even mildly aware of what’s going on around him.
After a volley back and forth of, “blah, blah, blah,” and stammering from Lew, Warren asked him, point blank:
How big do the biggest banks have to get before we consider breaking them up? They're 30 percent bigger now than they were five years ago. Do they have to double in size, triple in size, quadruple in size before we talk about breaking up the biggest financial institutions?
Lew somehow managed to sputter something out about parts of Dodd-Frank having been implemented and were helping Treasury to more effectively regulate banks. Interesting concept considering that while Lew flaps his gums about how great regulation is working to protect the American economy, lobbyists are ripping through and gutting provisions of Dodd-Frank like hyenas picking at the bones of a carcass on the Serengeti. Last spring nine bills were being considered:
[They] take a variety of approaches to gutting Dodd-Frank. Two bills, H.R. 1840 and H.R. 2308, are essentially stalling tactics, requiring regulators to undertake more of those sweeping cost-benefit analy-ses that result in lengthy delays. Another bill, H.R. 3283, is more substantive: Sponsored by Connecticut Democrat and hedge-fund industry BFF Jim Himes, it exempts foreign affiliates of U.S. swaps dealers from all Dodd-Frank oversight. The rule, if implemented, would make the next AIG possible, given that AIG was undone by half a trillion dollars in derivative bets produced by such a foreign affiliate – its London-based financial products outfit, AIGFP. If passed, says Rep. Brad Miller, a Democrat from North Carolina, H.R. 3283 would leave a "massive, gaping hole" in Dodd-Frank. "It would be very easy to move those trades to whatever the most indulgent country would be," Miller explains.
The latest one being looked at and has a good chance of getting through, is H.R. 992, that would essentially lay waste to what’s known as the Lincoln Rule, or Section 716 of the Dodd-Frank Act. Section 716 begins with, “Notwithstanding any other provision of law no Federal assistance may be provided to any swaps entity with respect to any swap, security-based swap, or other activity of the swaps entity."
Simply put: the Government does not bail out swap entities – those things that caused the melt down.
So to sum up, we banks would like to remain eligible for bailouts when we engage in hedging, which we think is everything we do, and also additionally when we engage in "certain structured finance swap activities," which will mean whatever we tell the rule-makers it means after the bill is passed.
And yet, Lew seems completely oblivious to the same kind of violent gutting that made Swiss cheese of the Glass-Steagall Act of 1933. That took nearly four decades. Dodd-Frank will be rendered useless in comparatively record time.
Lew also made some mention of capitol surcharges and reserves during the hearing. If we assume that he was referring to Brown-Vitter TBTF Act, which would require banks with over $500 billion in assets to maintain higher capital reserves than they do now. The biggest banks would have to keep about 15 percent of reserves – about twice the amount.
Shortly after the bill was introduced, Wall Street went into to overdrive and even got a little help from the S&P, who issued a report, “Brown-Vitter Bill: Game-Changing Regulation For U.S. Banks”
[The report] is so incredibly hysterical in its tone that, reading it, one cannot help but deduce that people on Wall Street are genuinely afraid of this bill. The paper essentially hints that forcing banks to retain more capital could lead to world financial collapse, the onset of a new Ice Age, mammoths roaming Nebraska, etc.
You would think that a financial rating agency would be shouting the praises of a rule that would prevent a failing bank from taking the rest of the economy down with it, but that’s apparently not how things go in today’s market. Particularly when those rating agencies are paid by the very people they are rating and corrupt enough to help sell garbage on the world marketplace.
Are we supposed to believe that Lew knows nothing about this?
The icing on the cake came this past February during Lew’s confirmation hearing during Sen. Orrin Hatch’s questioning. Check it out:
First, could you explain what you did in 2008 for Citi that warranted payment to you of close to $1 million, most of which was a bonus. Second, what was it about your performance that merited your bonus from a company that was being propped up by taxpayer money and are there any records of your performance assessment – or are there any assessments of your performance. Third, your employment agreement included a clause stating that ‘your guaranteed incentive and retention award’ would not be paid upon exit from Citigroup but there was an exception that you would receive that compensation ‘as a result of your acceptance of a full time high level position with the United States Government or a regulatory body.’ Now is this exception consistent with President Obama’s efforts to ‘close the revolving door’ that carries special interest influence in and out of the government?
You can read the entire exchange at Wall Street on Parade, but the short story is, that Lew was offered a $940,000 bonus from Citigroup if he could land a job in government. That’s one hell of a carrot. And here he is interviewing for Geithner’s job.
At this point it’s hard to determine whether it’s more of the same or if they’ve actually taken it up a notch.