On Tuesday evening, lawmakers released the text of the massive spending bill that Congress must approve to avoid a government shutdown. Buried on page 615 of that 1,603-page piece of legislation is a provision entirely unrelated to government funding that a few lawmakers managed to sneak into the bill without any public debate during last-minute negotiations. It's a Wall Street giveaway—written by Citigroup—that would allow banks to engage in more types of risky trading with taxpayer-backed money. Progressive Democrats and their allies have since launched an all-out campaign to strike the Citi-written provision from the spending bill. Elizabeth Warren railed against the provision on the Senate floor Thursday afternoon, warning, "A vote for this bill is a vote for taxpayer bailouts of Wall Street." As of Thursday afternoon, it was unclear whether House Speaker John Boehner (R-Ohio) could secure enough votes to pass the spending bill containing this measure and send it to the Senate. (Update: The bill passed the House.)
Here are the problems with the Citigroup-drafted provision, according to Michael Greenberger, a former derivatives regulator at the Commodity Futures Trading Commission who is now a law professor at the University of Maryland.
What is so bad about this provision? If Congress okays this measure, taxpayers could be on the hook in the event of another financial crisis. This provision guts the so-called push-out rule created by the 2010 Dodd-Frank financial reform act. This rule forbids banks from trading certain derivatives—complicated financial instruments with values derived from underlying variables, such as crop prices or interest rates. Instead, banks would have to shift these high-risk trades into separate nonbank affiliates that aren't insured by the Federal Deposit Insurance Corporation (FDIC) and are less likely to receive taxpayer bailouts. If the Citi-written measure becomes law, the largest FDIC-insured banks in the country will be able to make a wider range of these risky trades.
What will happen if there's another financial crisis? If there's an economic downturn triggered by derivatives trading gone bad, banks will be able to count on a taxpayer bailout—just like they received in 2008. "It's very dangerous," Greenberger says. "If [banks] lose on this type of trading and that causes a disruption in the markets, the taxpayer will be confronted with whether to let the banks fail or bail them out to the tune of trillions of dollars."
Could taxpayers be at risk even in boom times? Yep. In 2012, JPMorgan Chase lost $6 billion on a bad trade that has come to be known as the London Whale. "JPMorgan was essentially gambling with FDIC-insured money, secure in the knowledge that major losses would be borne by the public while profits would stay in the bank," David Dayan wrote in Salon last year. JPMorgan, it turned out, was able to withstand that loss without a bailout, but a lot of other US banks couldn't, Greenberger explains: "You could have a trade that loses a lot more than $6 billion by a rogue trader, in which case taxpayers have to foot the bill."
How were lawmakers able to sneak this into the big appropriations bill? It's common for lawmakers to force bills through Congress by attaching them to larger must-pass legislation. The practice is part of the wheeling and dealing that allows Republicans and Democrats to come to agreement on major legislation. But, Greenberger says, "putting these substantive provisions in appropriations bills is very, very dangerous stuff…If you want a controversial provision in there that you couldn't get in under regular order, this is the way to do it." He adds, "Then the president has problems vetoing it because the government will shut down. It's a bad way to do business."
If Congress approves this measure, what does it mean for economic populism? "Economic populism is alive and well," Greenberger maintains. "It's just that nobody in leadership wants to take advantage of it, whether they're Republican or Democrat." Lawmakers from both sides of the aisle worked to push the Citi-written provision into the spending bill.
On Thursday afternoon, Sen. Elizabeth Warren (D-Mass.) took to the Senate floor to rail against a Wall Street giveaway that corporate-friendly lawmakers snuck into the massive spending bill that Congress needs to pass this week in order to avert a government shutdown. The measure—which was written by Citigroup—would allow big banks like Citigroup to engage in a broader range of risky trades with taxpayer-backed money. "A vote for this bill is a vow for taxpayer bailouts of Wall Street," Warren warned in her speech. Here's the whole thing.
Update Friday, December 12, 2014: On Thursday night, the House passed the spending bill with the Citigroup-written provision. The Senate is expected to approve the legislation.
A year ago, Mother Jonesreported that a House bill that would allow banks like Citigroup to do more high-risk trading with taxpayer-backed money was written almost entirely by Citigroup lobbyists. The bill passed the House in October 2013, but the Senate never voted on it. For months, it was all but dead. Yet on Tuesday night, the Citi-written bill resurfaced. Lawmakers snuck the measure into a massive 11th-hour government funding bill that congressional leaders negotiated in the hopes of averting a government shutdown. President Barack Obama is expected to sign the legislation.
"This is outrageous," says Marcus Stanley, the financial policy director at the advocacy group Americans for Financial Reform. "This is to benefit big banks, bottom line."
As I reported last year, the bill eviscerates a section of the 2010 Dodd-Frank financial reform act called the "push-out rule":
Banks hate the push-out rule…because this provision will forbid them from trading certain derivatives (which are complicated financial instruments with values derived from underlying variables, such as crop prices or interest rates). Under this rule, banks will have to move these risky trades into separate non-bank affiliates that aren't insured by the Federal Deposit Insurance Corporation (FDIC) and are less likely to receive government bailouts. The bill would smother the push-out rule in its crib by permitting banks to use government-insured deposits to bet on a wider range of these risky derivatives.
The Citi-drafted legislation will benefit five of the largest banks in the country—Citigroup, JPMorgan Chase, Goldman Sachs, Bank of America, and Wells Fargo. These financial institutions control more than 90 percent of the $700 trillion derivatives market. If this measure becomes law, these banks will be able to use FDIC-insured money to bet on nearly anything they want. And if there's another economic downturn, they can count on a taxpayer bailout of their derivatives trading business.
In May 2013, the New York Times reported that Citigroup's proposed language was reflected in more than 70 lines of the House financial services committee's 85-line bill. Mother Jones was the first to publish the document showing that Citigroup lobbyists had drafted most of the legislation. Here is a side-by-side of a key section of the House bill:
The bill—sponsored by two Dems and two Republicans—passed easily out of the House financial services committee on a 53-6 vote. The six no votes came from Democrats. In October 2013, the measure passed the Republican-controlled House 292-122. Seventy Dems voted in favor, but that was far fewer than expected, partly due to press coverage of Citi's involvement in the bill's drafting.
Back then, the bill's chances of becoming law seemed dim. Treasury Secretary Jack Lew voiced his opposition to the measure, saying it would be "disruptive and harmful." Obama signaled to lawmakers that he opposed it. It never came up for a vote in the Senate.
And the legislation was left on the table for corporate-friendly lawmakers on both sides of the aisle to now sneak into the pending spending bill. But Democratic leadership is raising concerns about the Wall Street-friendly provision. House Minority Leader Nancy Pelosi (D-Calif.) blasted out a statement Wednesday morning slamming the provision for allowing "big banks to gamble with money insured by the FDIC." And Sen. Elizabeth Warren (D-Mass.) is calling on the House to strike the Citi-written language from the spending bill.
"I am disgusted," Rep. Maxine Waters (D-Calif.), the ranking Democrat on the House financial services committee, said in a statement. "Congress is risking our homes, jobs and retirement savings once again."
Rep. Alan Grayson (D-Fla.) issued an even more dire warning, calling the bill "a good example of capitalism's death wish."
Now that Republicans control Congress, they're again threatening to end Obamacare. On Monday, Senate Majority Leader-elect Mitch McConnell (R-Ky.) vowed to hold a repeal vote when Republicans take over the upper chamber in January, adding that GOPers "will go at that law…in every way that we can." Obamacare is not going anywhere as long as President Barack Obama is in office. But there is a sneakier way GOPers could deal a blow to the health care law in the next two years: They can make the law look more costly than it is, boosting the case for dismantling it.
In 2012, the Congressional Budget Office (CBO)—which produces official budget projections—calculated that the combined effect of the tax increases and spending cuts in the Affordable Care Act will reduce the deficit by $109 billion over the next decade. (This is the CBO's most recent estimate.) Conservatives cried foul, saying that the CBO double-counted savings in the law and ignored billions in health care spending in order to make the economic effects of the law seem rosier than they were. They charged that Obamacare actually adds billions to the deficit. The CBO and other economists say these assertionsare nonsense. But Republicans kept complaining. Now that they control both houses of Congress, they can do something about it. All GOPers have to do is install a new CBO director who is willing to change the agency's budget math to make it appear that Obamacare adds to the deficit. Republican leaders are reportedly considering roughly a dozen candidates to replace the current CBO chief, Doug Elmendorf, and conservatives are demanding a new director who doesn't "cook the books" on Obamacare.
In a letter to House and Senate GOP leadership last month, conservative anti-tax activist Grover Norquist called Elmendorf's analysis of how Obamacare would affect the budget a "facade" and urged Republicans to replace him. Democrats fear that Republicans will appoint someone who is willing to change the math to make Obamacare look more expensive, according to a congressional aide. At least one of the candidates Republicans are reportedly considering—James Capretta, a health care policy expert at the conservative American Enterprise Institute—is on record claiming the law increases the deficit.
Spokesmen for Senate budget committee chair Jeff Sessions (R-Ala.) and House budget committee chair Rep. Tom Price (R-Ga.), who will have the final word in selecting the new CBO director, declined to comment. But Sessions and fellow Republicans on his committee agree that the CBO should change how it calculates Obamacare's effects on the budget. In October, the Senate budget committee's Republican staff released a report claiming the Affordable Care Act will increase the federal deficit by $131 billion over the next decade, and touted support for the new analysis from several conservative health policy experts.
The CBO stands by its math. Elmendorf wrote in June that the CBO and the Joint Committee an Taxation, which calculates how tax laws affect revenue, "have no reason to think that their initial assessment that [health reform] would reduce budget deficits was incorrect."
"CBO has accounted for deficit reduction in exactly the same way in previous Congresses, under both political parties," Paul Van de Water, a senior fellow at the left-leaning Center on Budget and Policy Priorities (CBPP), wrote in 2012. "Until opponents of health reform latched onto the notion, no one accused CBO of faulty accounting."
If Republicans succeed in making the law look like a huge burden on taxpayers, they could ease the way for efforts to chip away at the health care law, says Lawrence Jacobs, a political science professor at the University of Minnesota and coauthor of Health Care Reform and American Politics: "The conservative push is serious and part of the subterranean attack to 'prepare the battlefield' for the new Republican Congress."
It is still possible that GOPers will reappoint Elmendorf as CBO director. Several prominent conservative economists havepraised his work. But congressional aides told the New York Times last week that they are betting against him.
Update, Monday, January 12, 2015: On Monday, Antonio Weiss asked that the White House withdraw his nomination for Treasury undersecretary for domestic finance, according to Politico.
Last year, liberal darling Sen. Elizabeth Warren helped doom President Barack Obama's effort to nominate former Treasury Secretary Larry Summers to head the Federal Reserve. Now the Democratic senator from Massachusetts is leading the charge to derail another Wall Street-friendly Obama nominee: investment banker Antonio Weiss. Last month, the president tapped Weiss to become the Treasury Department's undersecretary for domestic finance, a position with immense power over big banks. If confirmed, consumer advocates fear, Weiss may not go to bat for average Americans while helping craft banking rules and battling Republican-led efforts to gut financial reform.
Weiss' job at Treasury would include overseeing the implementation of Wall Street reforms and consumer protection measures. He would help shape banking rules that the Treasury Department and other financial regulators must finalize over the next two years. And he would be in the room with congressional leaders and administration officials negotiating over GOP proposals that would water down financial reforms.
Weiss has spent the past 20 years at Lazard, an asset management firm that advises companies on mergers and acquisitions. He is now the firm's head of investment banking. Warren contends that Weiss is not the right man for the job because he has no experience in banking regulation and is too cozy with the financial sector. And she is leading the effort to take him down. In November, Warren vowed to vote against Weiss' confirmation, and her political operation blasted out an email ginning up opposition to him. In an op-ed in the Huffington Post last month, she said the Weiss nomination "tells people that whatever goes wrong in this economy, the Wall Street banks will be protected first."
Warren contends that Weiss is not the right man for the job because he has no experience in banking regulation and is too cozy with the financial sector.
A source familiar with the administration's thinking says that Weiss' background does not determine what policy positions he may take if confirmed. But since he has little regulatory experience and most of his relationships are with people in finance, a Democratic aide tells Mother Jones, those are the people he will likely listen to.
A White House spokeswoman declined to comment on how Weiss' connections to Wall Street might conflict with his mandate to protect consumers, noting only that "Antonio Weiss is a highly qualified nominee and we look forward to the Senate's consideration of his nomination and swift confirmation." Weiss did not respond to a request for comment.
Weiss will have a long to-do list if he's confirmed. Not only would he weigh in on banking rules, he would also advise the president on whether to compromise with Republican efforts to modify the Dodd-Frank Wall Street reform bill. (Obama will veto any all-out attack on Dodd-Frank, but Republicans could slip smaller measures to water it down into larger pieces of legislation that must get passed.) Here are some of the issues that could come across Weiss' desk:
One of the bills that might pass the Republican-controlled Congress in the next two years would gutnew restrictions on private equity fund advisers. Weiss' current firm, Lazard, runs two private equity funds. The administration source counters that this area of the company's business is separate from the investment banking work Weiss does.
Another bill that has already passed the House would weaken a section of Dodd-Frank that requires more oversight of derivatives trading. (Derivatives are financial products whose value is based on things like currency exchange rates and crop prices.)
The Financial Stability Oversight Council, chaired by Treasury Secretary Jack Lew, is looking into whether asset management firms like Lazard should be subject to tighter regulations. Weiss would serve in an advisory role on this matter.
The administration source says that Weiss' résumé does not mean that he would work to weaken rules on the financial industry. The source adds that if Weiss is confirmed, he would no longer have ties to his former employer; ethics rules require that he divest his holdings or put his investments in a blind trust.
Weiss' defenders—including Gene Sperling, a former senior economic policy maker in both the Obama and Clinton White Houses, and Neera Tanden, the president of the liberal Center for American Progress—say that his policy stances largely line up with Warren's positions. He has called for higher taxes on the rich and a more progressive tax code. Treasury Secretary Lew told the New York Times last month that Weiss opposes US companies moving overseas to avoid domestic taxation—even though his firm has helped companies do just that.
That hasn't mollified Warren and the crew of progressives she has lined up behind her. Sens. Dick Durbin (D-Ill.) and Bernie Sanders (I-Vt.) have also formally declared their opposition to Weiss.
Warren's anti-Weiss broadside is just the latest in her battle to push the Democratic party to the left. "This is not at all about Antonio Weiss," Steve Rattner, an investment banker who worked on the 2009 auto industry bailout, told Politico on Wednesday. "It is part of a much broader narrative of the fight for the soul of the Democratic Party and whether so-called progressives are going to capture that or whether more mainstream Democrats…are going to retain it."
Weiss' confirmation process likely won't get going until after Republicans take control of the Senate in January. He may be able to win confirmation with largely Republican votes.