Henserling’s Hash

Failing to derail Obamacare before most of its benefits become abundantly clear– and dear– to Americans, Republicans have now intensified their attack of President Obama’s other landmark achievement, namely Wall Street reform.

Texas Republican Rep. Jeb Henserling’s WSJ column (July 25) is part of a sprawling GOP attack on the Dodd-Frank Wall Street Reform Act. In July alone, the assault included more than a dozen congressional hearings. The common theme of all: red tape wound around bankers from this law is stifling the economy.

For starters, Dodd-Frank remains largely unimplemented. Public Citizen documented that 80 percent of the rules stemming from Dodd-Frank aren’t in force.

Then there’s the issue of trusting bankers off the leash.  Rep. Henserling demonstrates impressive bravery in his defense of this industry. In the last few months, JP Morgan erased 20 percent of shareholder value with a $6 billion trading loss its CEO admitted was a “terrible mistake.” HSBC admitted to laundering money for Mexican drug lords and Middle East terrorists. Barclays admitted to fixing the world’s leading interest rate index. Peregrine Financial declared bankruptcy after stealing customer funds. Capital One snookered credit card customers.   Financial speculators drove up the cost of gasoline to $4/gallon. Standard Chartered did $250 billion in business with Iranian banks despite sanctions forbidding it to do so. The list goes on and on.

That’s quite a rogues gallery Rep. Henserling serves.  Wall Street campaign contributions may be the liquor behind his courage. Wall Street accounts for $831,000 in cash deposits into Henserling’s re-election efforts since the Wall St crash of ’08. That doesn’t include the hundreds of thousands of more dollars into his leadership PAC.

In his article, Rep. Henserling revises history by claiming misguided government policy promoted  the high risk lending that inflated the housing bubble, not rogue banking, which caused the 2008 financial crash.  His evidence: Government sponsored securitizers bought 70 percent of the high risk loans. He fails to note that these loans accounted for a small percentage of failed mortgages.  Private securitizers account for the lion’s share of the problem. Yes, reform of government securitizers deserves urgent reform. Republicans, including Rep. Henserling, control the House. Yet this body has yet to produce any reform legislation.  Rep. Henserling claims speciously they’re waiting for President Obama.  (Why would they do that, if they consider so ill of his Wall Street reform act? )

Henserling claims existing banking law, well enforced, might have prevented inflation of the housing bubble, and that regulators did enjoy “the authority to prevent Wall Street from taking outsize risks.”  Fair point. Indeed, the regulators appointed by Republican President George W. Bush let Wall Street run wild, and ignored their own tools to arrest recklessness.  Much of that recklessness derived from the measure championed by fellow Texan Sen. Phil Gramm to join commercial and investment banking.

In many ways, the new Dodd-Frank law restates and reauthorizes regulatory power to combat recklessness.

The Volcker Rule, which Henserling decries as complex, aims to prevent bankers gambling with taxpayer-insured money.  A strong Volcker rule would have saved JP Morgan shareholders  from the gambling loss.

Dodd-Frank introduces transparency and price competition in the derivatives trading arena. Such transparency will help ensure consumers have access to competitively-priced energy commodities,  which will come at the expensive of runaway profits that the banks have made in these “dark markets“. The LIBOR scandal demonstrates traders willing to lie (for the price of a bottle of Bollinger champagne). Each dollar of bank derivative trading profit is a dollar that doesn’t go to real businesses attempting to hedge their risk.  Real economy firms who use hedges support derivative reform, such as the gas station owners organized as the Commodity Markets Oversight Coalition.

The Consumer Financial Protection Bureau, which Henserling inexplicably claims would have prevented the creation of the ATM, just returned $140 million to snookered customers of Capital One.

Dodd-Frank isn’t perfect. That’s because bankers blocked key reforms or added rotten provisions when Congress made this sausage. Henserling claims it didn’t truly solve the too-big-to-fail problem.  Bankers successfully blocked a key provision to cap the size of banks.  Even mega-bank creator Sanford Weill, former CEO of Citigroup, now acknowledges the banks should be broken up.

Since Wall Street crashed the economy under a Republican president, Rep. Henserling apparently feels compelled to produce this hash of history and analysis  in service of his political party. But Americans reeling from past and present Wall Street problems deserve better.

Tyson Slocum directs Public Citizen’s Energy Program. Follow him on twitter @tysonslocum. Bart Naylor is Public Citizen’s Financial Policy Advocate. CongressWatch intern Camille Lacour also contributed.