By Pam Martens: July 8, 2013
Senator Charles (Chuck) Schumer of New York is writing letters and pounding the table to try to stop sweeping new regulation of derivatives from being put into effect by the Commodity Futures Trading Commission (CFTC) four days from now on July 12.
Schumer is leading an assault against Gary Gensler, Chair of the CFTC, who wants to impose cross-border rules which would prevent firms like JPMorgan Chase from simply moving its derivative trades to London or another foreign trading venue to escape U.S. rules – the situation that allowed JPMorgan to lose $6.2 billion of deposits in its infamous London Whale derivatives episode.
Schumer’s actions and those of other Senate Democrats who joined with him in a letter to Jack Lew, Treasury Secretary, brought a sharp rebuke last week from the editorial board of the New York Times:
“In the letter to Mr. Lew, the senators say that to avoid confusing the banks, the C.F.T.C. cross-border guidelines should not take effect until the Securities and Exchange Commission completes a separate set of derivatives rules. That is ridiculous. The C.F.T.C. oversees virtually all of the multitrillion-dollar derivatives market; the S.E.C. a relative sliver. The C.F.T.C. has diligently issued its required rules under the Dodd-Frank law over the past three years and has set a deadline of July 12 to put the cross-border guidelines into effect. The S.E.C. first got around to issuing a pathetically weak derivatives proposal in May.”
It’s not often we see the words “ridiculous” and “pathetically weak” in editorials about Wall Street in the New York Times. The New York Times editorial board sounds particularly steamed in this instance. Perhaps they, like us, have had about all they can stomach of Chuck Schumer as Wall Street’s enabler.
On November 1, 2006, the Wall Street Journal published an opinion piece by Schumer and Mayor Michael Bloomberg titled, “To Save New York, Learn from London.” Keep in mind that this opinion piece came exactly one year before Wall Street would begin its apocalyptic meltdown from lax regulation, secret off balance sheet holdings, rigged accounting, and too cozy a relationship with Washington.
But on November 1, 2006, Schumer and Bloomberg weren’t looking at the real, festering hubris on Wall Street that would shortly bring the country within a hairsbreadth of the Great Depression, they were pounding the table for looser regulation of Wall Street and tighter reins of those who would hold them accountable in a court of law.
The Bloomberg administration had hired the consulting firm, McKinsey & Company, to study and issue a report on making sure New York City remained the financial services capital of the world. Schumer and Bloomberg were worried about competitiveness at a time when the screaming problem was systemic corruption.
Two of the biggest problems identified by the duo in their Wall Street Journal opinion piece were “overregulation” and “frivolous litigation.” They wrote that “our regulatory bodies are often competing to be the toughest cop on the street,” while “the British regulatory body seems to be more collaborative and solutions-oriented.”
Got that – “toughest cop on the street.” As the public would soon learn in short order, those tough cops let Bernie Madoff slip through their fingers despite reams of evidence handed to them; ignored the creative accounting at Lehman Brothers and Citigroup until both firms blew up; allowed massive and imprudent derivatives exposure at AIG until it collapsed; and permitted insured bank deposits to be imperiled across Wall Street by allowing lobbyists to bully legislators into repealing the Glass-Steagall Act which had prevented Wall Street casinos from endangering the national economy since its enactment during the Great Depression.
So out of touch were Schumer and Bloomberg with the reality of what was really happening on Wall Street at the time that they saw not a collapse in corporate ethics but a “worrisome trend of corporate leaders focusing inordinate time on compliance minutiae rather than innovative strategies for growth, for fear of facing personal financial penalties from overzealous regulators.”
Having uttered the words “overzealous regulators” on November 1, 2006, just one year before the onset of the greatest financial collapse from regulatory rot since the 1930s, one would have expected Schumer to crawl into a hole and keep silent about Wall Street for the remainder of his public life.
And yet here Schumer is once again sounding the alarm against regulation when the critical problem is a potential doomsday financial meltdown from hundreds of trillions of derivatives being secretly traded by Wall Street firms – the same firms which continue to hold taxpayer-backed insured bank deposits.