On Friday, a provision that financial reformers consider a critical part of the 2010 Dodd-Frank Wall Street reform act is set to finally go into effect. This measure was designed keep big banks from engaging in risky trading overseas that could contribute to another economic collapse at home—but Senate Democrats are sparring over whether it should be put into action.
The Dodd-Frank law, passed in order to avoid another financial crisis, requires Wall Street regulators to draw up tighter rules governing the trading of derivatives (financial products with values derived from from underlying variables, like crop prices or interest rates), and one question has been how these new standards will apply to US banks operating abroad. Advocates of financial reform contend these regulations must be strictly applied to the overseas trading activity of US banks. They note that Wall Street banks do more than half their derivatives dealing through foreign subsidiaries; if a bet in one of these foreign locations goes sour, the trading loss could come home to roost and threaten economic security in the United States. Foreign branches of US banks have so far been exempt from Dodd-Frank rules on derivatives, and Big Finance wants to keep it that way.
On Friday, the Commodity Futures Trading Commission (CFTC) is due to finalize a rule that will apply these strict regs on derivatives trading to overseas branches of US-based banks. But the agency's chief, Gary Gensler, is facing a crush of opposition from the financial industry and European banking regulators. And he's been getting conflicting messages from Senate Democrats. At the end of June, six Democratic senators—Chuck Schumer (D-N.Y.), Kirsten Gillibrand (D-N.Y.), Kay Hagan (D-N.C.), Michael Bennet (D-Colo.), Heidi Heitkamp (D-N.D.), and Thomas Carper (D-Del.)—sent a letter to the Treasury Department urging that the CFTC delay finalizing the guidelines on overseas trading. Last week, another eight Senate Democrats, including Elizabeth Warren (D-Mass.), Barbara Boxer (D-Calif.), and Jeff Merkley (D-Ore.), sent a letter to the CFTC pushing for a rule on overseas derivatives trades that is even stronger than the one Gensler has floated, and urging him to implement it soon.
Schumer & Co. argue that the CFTC should first coordinate its overseas rules with similar regulations being proposed by the Securities and Exchange Commission (SEC) and by banking regulators abroad. They say they merely want to protect banks from being subjected to "duplicative" rules. The senators insist they are pushing for a delay only to help banks make an orderly transition to new rules.
And waiting to coordinate US rules with foreign regulations is a fool's errand, financial reformers assert. European regulators are years behind the United States in developing derivatives regulations. "Rather than start to implement the strongest parts of Dodd-Frank, the finance industry and its supporters are pushing for endless delays, hoping people lose interest from exhaustion," says Mike Konczal, an expert on financial reform at the Roosevelt Institute. "This rule has been delayed enough already." (It was supposed to go into effect six months ago.) None of the six senators who are pushing for a delay responded to a request for comment.
Bart Naylor, a financial-policy advocate at Public Citizen, says that it's no surprise that Gillibrand and Schumer are urging a delay for this regulation; Wall Street is in their backyard. The Democratic senators pushing for slow-walking on the overseas rule took in an average of $1,879,161 in campaign contributions from the financial-services and banking industries in 2011 and 2012, according to campaign finance records compiled by the Center for Responsive Politics. The Senate Dems in favor of a strong cross-border rule banked an average of $592,696 from the industry.
The Elizabeth Warren camp is hoping Gensler will resist the anti-reform efforts and draft a strong rule by Friday. "The big banks should not be able to escape oversight just by conducting their derivatives trading through an offshore affiliate or branch. That makes no sense," Warren says. "We should learn from the mistakes that went wrong before the crisis, not repeat them."
The Obama administration is nearing the end of negotiations on one of the most far-reaching international free trade agreements in US history. The deal, called the Trans-Pacific Partnership (TPP), is aimed at boosting trade among 12 participating countries, and the next and final round runs July 15-24. The negotiations don't just concern the selling of shoes and toothpaste across borders; the trade deal, which will be the product of a three-year process, has the potential to affect many areas of American life. And because information on the negotiations is not public, it's hard to know what those impacts will be. Here's what we do know so far:
How will it affect US law? The agreement, which has a total of 26 chapters, could affect a host of policy areas, ranging from intellectual property rights to product safety and environmental regulations. Here's how: To make trade easier between countries with different sets of regulations, parties to international trade pacts have to bring their regulations into accordance with common international standards. This can lead to pressure to revise rules in areas like the environment and food and workplace safety in the United States, according to trade experts Josh Meltzer, professor of international studies at Georgetown Law School, and Susan Aaronsen, professor of international affairs at George Washington University. Once the agreement becomes international law, countries can also sue the United States for what they see as violations of the agreement, which can compel Washington to alter US law and regulations.
Trade deals always operate under a certain level of secrecy, trade experts say, which makes it easier for countries to negotiate amongst themselves without too much noise from advocacy groups and others inside countries. "That is how trade deals have worked…if they are made public, all interested groups can start tearing things apart before it's even done," says Bryan Riley, a senior policy analyst at the Heritage Foundation. But there is precedent for releasing proposed trade deal information to the public. A full draft text of the Free Trade Area of the Americas was released in 2001 during negotiations on that 34-nation pact; a draft text of the recently-completed Anti-Counterfeiting Trade Agreement was released; and the World Trade Organization posts negotiating texts on its website.
The Dodd-Frank financial reform act, the law designed to clean up the abuses that led to the financial crisis, celebrates its third birthday this month. But only about a third of the rules required by the legislation have been finalized so far, and even those are not going into effect as scheduled. This week provided a perfect example of why that is: The Federal Reserve granted Goldman Sachs a two-year extension to implement a key Dodd-Frank rule that would require banks to move risky trading into separate affiliates that are not backed by the Federal Deposit Insurance Corporation (FDIC). Several other of the nation's biggest banks won the same exemption last month.
Financial reformers are not shocked. "Quelle surprise!" quips Bart Naylor, a policy advocate at the consumer advocacy group Public Citizen. "The Federal Reserve decides to heed the crush of Wall Street lobbyists."
The Dodd-Frank rule, which Goldman Sachs was supposed to implement by July 16, requires FDIC-insured banks to move most of their derivatives trades into separate firms so that when a trade goes bad the bank will have to handle the fallout, not taxpayers. (Derivatives are financial products with values derived from underlying variables, like crop prices or interest rates; they were a major catalyst in the economic meltdown of 2008.) In its request for an extension, Goldman told the Federal Reserve—the main overseer of derivatives dealers—that complying with the deadline would mean the firm would need to either divest or stop a big portion of its swaps trading; a transition period, Goldman said, would be needed to ensure that the rest of the economy is not damaged by the shift. On Tuesday, the Fed agreed.
The economy added 195,000 jobs in June, according to jobs numbers released Friday by the Labor Department, and the unemployment rate held at 7.6 percent. The news was better than expected, and continues several months of generally positive employment news. But economists say that the joblessness situation in the country is not nearly sunny enough to justify the Federal Reserve reigning in the stimulus measures it has deployed since the recession, a move the Fed has hinted it may make in the coming months.
Employment growth in June was in line with the average monthly gain in jobs over the past year, and numbers for the past few months have been revised upwards—in April from 149,000 to 199,000, and in May from 175,000 to 195,000. More than 62 percent of the job increases last month were in leisure and hospitality, which picked up 75,000 jobs; retail, which gained 37,000; and temp services, which added 10,000. Low-wage service sector jobs have been a hallmark of this recovery; occupations paying less than $13.83 have accounted for 58 percent of the job gains since 2010. This follows a longer-term pattern of middle-income jobs being hollowed out by low- and high-wage jobs after recessions. Here's what that has looked like since the 2001 recession, via the National Employment Law Project:
And here's more grim news in June's report: The number of people working part-time because their hours had been cut back or were unable to find full-time work increased by 322,000 people to 8.2 million between May and June. Last month, there were 1 million discouraged workers—meaning people not looking for work because they believe there are no jobs available for them. That's an increase of 206,000 from a year ago. When you include these workers, you get an alternative June unemployment rate (which the Labor Department terms the U6 unemployment rate) of 14.3 percent. That's a significant uptick from May (13.8 percent), and the highest level since February.
In other bad news, the unemployment rate for adult women edged up to 6.8 percent, and the ongoing sequester accounted for a loss of 7,000 government jobs.
A total of 11.8 million Americans remain unemployed, and the proportion of people in the workforce remains at its lowest level since 1979.
For these reasons, economists are saying this is no time for the Federal Reserve to cut back on stimulus measures. In May, Federal Reserve chair Ben Bernanke hinted the Fed may begin increasing interest rates from their current near-zero levels, and cut back on its purchasing of tens of billions of dollars per month in government bonds. Dean Baker, director of the Center for Economic and Policy Research, says that the proportion of people in the workforce should drive the Fed's stimulus policies, not the unemployment rate. Here's Baker:
Ironically Bernanke made this exact point about declining [employment-to-population ratio (EPOPs)] back in January 2004 when he was justifying the Fed’s decision to keep the [interest] rate at what was then considered an extraordinarily low 1.0 percent. Bernanke noted that the unemployment rate at the time was not terribly high, but pointed to a sharp decline in the EPOP from the pre-recession level. Since it was implausible that so many people had suddenly lost the desire or ability to work, Bernanke argued that the falling EPOP was strong evidence of continuing slack in the labor market.
Apparently Bernanke views the recent fall in the EPOP differently than the drop following the last recession.
A hemp flag will fly above the Capitol on our nation's birthday this year to celebrate a recent legislative victory for the cannabis lobby.
Growing hemp is illegal under federal law. Even in the 11 states where cannabis cultivation is technically allowed under state law, federal law trumps that unless the feds grant farmers specific permission. In June, Rep. Jared Polis (D-Colo.) introduced an amendment to the farm bill in the House that would allow colleges and universities in states that permit cultivation of the plant to grow industrial hemp for research purposes. The amendment passed by a vote of 225 to 200. The farm bill it was attached to failed in late June, but Polis' request to commemorate the amendment's success by flying a hemp flag on July 4 had already been submitted. On Wednesday, the Capitol's flag office granted the request.
"Last month, I was proud to hold an American flag made of hemp on the floor of the House of Representatives as I joined my colleagues from both sides of the aisle in favor of a commonsense amendment to the farm bill," Polis said in a statement Wednesday. Reps. Thomas Massie (R-Ky.) and Earl Blumenauer (D-Ore.) cosponsored the amendment.
Hemp is a type of cannabis plant and a cousin of marijuana. It is used to make a range of products, from paper and cloth to biofuel and auto parts. Polis, whose home state allows hemp cultivation, wants to see the plant made legal throughout the US. In the statement Wednesday, he touted "the important role [hemp] can play in America's economic future." As Pierce Willans of Policy Mic explains:
The US is the world's number one consumer of hemp, with total sales reaching $500 million dollars in 2012. Unfortunately, that money is benefiting Canadian, rather than American farmers. 90% of the hemp consumed in the United States is produced in Canada, where it has been legal since 1998… [M]any farmers would love to see hemp made legal here, so that money could be used to boost the U.S. economy, rather than Canada's.
Colorado wasn't the only state pushing for hemp legalization through the farm bill. Sens. Rand Paul (R-Ky.) and Mitch McConnell (R-Ky.) also advocated for an amendment to the Senate version of the bill that would have removed hemp from the federal government's list of controlled substances. Senate Democrats blocked consideration of the amendment.
The lawmakers argue that hemp is unfairly stigmatized; the plant is different from weed in that it contains negligible amounts of the mind-altering compound THC. "Hemp is not marijuana," said Polis, "and at the very least, we should allow our universities—the greatest in the world—to research the potential benefits and downsides of this important agricultural commodity." (Polis has also introduced legislation to legalize marijuana nationwide.)