The big banks snuck in a provision to gut the Dodd-Frank legislation that was passed to prevent another financial crisis, says Professor Gerald Epstein from Political Economy Research Institute at University of Massachusetts, Amherst
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I’m Sharmini Peries, coming to you from Baltimore. Also, welcome to this edition of the Gerry Epstein report.
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Joining us to discuss how the budget will affect Dodd-Frank legislation is Gerry Epstein. Gerry is the codirector of the Political Economy Research Institute (PERI) at UMass Amherst.
Thanks so much for joining us, Gerry.
GERALD EPSTEIN, CODIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE:
Thanks, Sharmini, for having me.
PERIES: So, Gerry, let’s begin with what you see as changes as a result of this budget to Dodd-Frank rules and legislation.
EPSTEIN: Well, it’s outrageous what is going on. The Republicans and the Democrats are negotiating this huge budget bill, as you described, in order to prevent another government shutdown, which is an admirable thing to do.
But, of course, when this happens, people try to sneak in all kinds of irrelevant sort of wish-list bills in–provisions into these bills. And one of the most outrageous ones is the banks have stuck in a provision that’s going to [blunt (?)] one of the most important aspects of the Dodd-Frank legislation, which, as you said, was designed to reduce the chances of another big financial crisis, and therefore it was designed to reduce the chances that the taxpayers would have to bail out these massive banks.
A provision of the Dodd-Frank that they’re repealing by sticking this into this budget bill was designed to prevent the big banks from speculating using derivatives. These derivatives are these complex financial instruments that they use to speculate to make billions of dollars. But when they turn south, they caused Citicorp and Bank of America and these other big banks to virtually go bankrupt, and then the government bailed them out.
So the Dodd-Frank bill said, look, financial institutions can engage in these kinds of complex derivatives speculation if they want, but banks that are supported by the government through FDIC insurance, through deposit insurance, and through having access to the Federal Reserve bailouts and so forth, they can no longer engage in this kind of speculation. So they have to push out this sort of derivatives speculation. It’s called the push-out bill. It was very hardly–it was [incompr.] they had a very difficult battle over a long period of time, but it finally get passed. And the big banks have been fighting against it now for three or four years, ever since Dodd-Frank passed.
And now they see the chance to get into this big must-do bill, and it’s going to gut even further the Dodd-Frank legislation and make it much more likely that these big banks could start speculating or continuing to speculate, and it makes it much more likely that the taxpayer is going to have to bail them out again. So, Gerry, businesses and the Republicans are saying that the Dodd-Frank bill is too restrictive, that they need the positive use of derivatives to grow the economy, create jobs, and invest. How do you respond to that?
EPSTEIN: Well, first of all, they don’t need to be doing this. There are all kinds of other institutions that can do it. But second of all, that’s not how they use the derivatives. They use the derivatives to speculate on commodities. They use derivatives to speculate on municipal bonds, as we saw in Detroit. They use derivatives to cheat their customers. They use derivatives to cheat homeowners when they write these mortgages and pack them into these complex products, like collateralized debt obligations. And they do it with subsidized funds. That is, when these big banks that have deposit insurance and that they know the Federal Reserve will bail them out if they get into trouble, they get to borrow money more cheaply. Therefore, they get to speculate using cheaper money. They make much more profits. They pay their CEOs and their rainmakers millions and millions of dollars each year. And then, when things go bust, we have to bail them out.
So these are not designed to help the economy. These are designed to make traders and bank CEOs tons of money.
PERIES: And finally, Gerry, what is the $35 million increase for CFC in the budget? What is it for if it’s not to implement the Dodd-Frank legislation?
EPSTEIN: Good question. So the banks, with their Republican allies and some Democratic allies, have been trying to gut Dodd-Frank in a variety of ways. One of the ways is that they’ve been trying to cut the budget for the regulatory institutions that are supposed to monitor the financial institutions and implement Dodd-Frank. So I think it’s kind of a little cover for getting rid of this Dodd-Frank legislation out of the bill. They’ve kind of given some money to one of the regulatory institutions, so that they look like they’re still implementing brought Dodd-Frank. But it’s just a cheap cover for what they really want, which is to be able to make billions of dollars trading these dangerous derivatives.
By the way, one point that I didn’t make is that The New York Times reported that Citicorp, they actually wrote this provision that’s going into the budget bill, the bank that we bailed out for $10 billion–or, excuse me, $100 billion dollars. They’re the ones who wrote this bill and they’re the ones who are going to profit, along with their other cronies on Wall Street. [So it’s (?)] even getting worse, if that’s possible.
PERIES: Alright. As always, thank you so much for joining us, Gerry.
EPSTEIN: Thank you, Sharmini.
PERIES: And thank you for joining us on The Real News Network.
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