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Who Does Congress Work For?

Elizabeth Warren Tells The Truth About Washington

United States Senator Elizabeth Warren (D) Massachusetts recently asked on the floor of the Senate:

“Who does Congress work for? Does it work for the millionaires, the billionaires, the giant companies with their armies of lobbyists and lawyers, or does it work for all the people”?

Warren made this statement while discussing the $1.1 trillion federal spending bill that funds the government through September of next year. The 1603 page legislation caused an interesting group of conservative/ tea party and liberal Senators to complain about corporate welfare.

One of the items contained in the bill was language drafted by Wall Street lobbyists that deleted part of the Dodd Frank legislation passed in 2010 to address the fiscal crisis that occurred back in 2007.

What Is Dodd Frank?

In 2007-08, the United States experienced its worst financial crisis since the great depression of the 1930’s. In order to prevent the collapse of large financial institutions, taxpayer funds were used to bail them out. There are differing opinions as to what caused the financial crisis but The U.S. Senate’s Levin–Coburn Report concluded that the crisis was the result of “high risk, complex financial products; undisclosed conflicts of interest; the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.”

The Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd-Frank) was signed into federal law by President Barack Obama on July 21, 2010. The legislation introduced by Barney Frank and Chris Dodd had a stated purpose of:

“To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end “too big to fail,” to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”

Prior to the Great Depression, U.S. consumer bank deposits were not guaranteed by the government. During the Depression, hundreds of banks became insolvent and depositors lost their money. The Great Depression and the 2007 financial meltdown were caused by overzealous commercial bank stock market investments. Commercial investment banks seeking more and more profits took on too much risk with depositors’ money. To prevent investment banks from going too far in the future the Banking Act, sometimes called the Glass-Steagall Act, was passed in 1933. The Glass-Steagall Act created the Federal Deposit Insurance Corporation (FDIC) to insure deposits up to a limit ($250,000 in 2013). In exchange for the deposit insurance provided by the federal government, depository banks are highly regulated and expected to invest customer deposits in lower-risk assets.

The Glass-Steagall Act established regulations separating investment and depository banking. For Sixty Six years separating deposit banking activity from investment banking activity worked. In 1999 due to Wall Street lobbying the Glass-Stegall Act was repealed. With the regulations removed it only took eight years for overzealous investment bankers to once again crash the U.S. economy in 2007.

During 2008, the five largest U.S. investment banks either failed (Lehman Brothers), were bought out by other banks at fire-sale prices (Bear Stearns and Merrill Lynch) or were at risk of failure and obtained additional Federal Reserve support (Goldman Sachs and Morgan Stanley).

With the passage of Dodd Frank in 2010 Wall Street banks were again required to have two different types of arrangements. Normal plain vanilla banking activities are required to be kept in accounts that are insured by the Federal Deposit Insurance Corporation. Other risky speculative contracts like derivatives and credit default swaps are pushed out into accounts that are not insured. Derivatives and swaps allow banks to speculate on interest rates and currency prices going up or down. Banks have lost billions of dollars on such speculative investments. Warren Buffet once called derivatives “financial weapons of mass destruction”.

The derivatives business is lucrative generating an estimated $50 billion a year in profits and 95% of the trading in derivatives in the U.S. are done by the five biggest banks, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley and JP Morgan. AIG as the largest insurance company in the world nearly went bankrupt in 2008 due to $500 billion of Credit Default Swaps on their balance sheet. Lehman Brothers went out of business in 2008 due to Credit Default Swaps. JP Morgan in 2012, lost $6 billion on a derivative investment.

Under Dodd Frank banks can engage in such speculative investments but any losses will not be covered by taxpayers as they were a few years ago. Wall Street does not like the regulations imposed by Dodd Frank and has utilized their tremendous lobbying power to fight every aspect of it.

Wall Street’s Relentless Attack On Dodd Frank

Before Dodd Frank was passed more than 3,000 lobbyists swarmed the Capitol in hopes of killing off pieces of the proposed bill, nearly six lobbyists for every member of Congress. An estimated $1 billion was spent by big banks and Wall Street firms in an effort to prevent Dodd Frank from becoming law.

Two months after passage of Dodd Frank the first of six separate lawsuits were filed with the goal of repealing or at least delaying the implementation of Dodd Frank. At least 30 bills have been proposed in Congress, aimed at chipping away at aspects of Dodd-Frank. Part of Wall Street’s strategy has also been to delay or cut funding for agencies preventing employees from being hired to write and enforce Dodd Frank rules. Three years after Dodd-Frank was passed, only 148 of the 398 rules requiring action by regulators had been finalized.

The federal spending bill recently debated and approved by Congress is 1,603 pages long. Buried on page 615 of that 1,603-page piece of legislation, is a provision which deletes the requirement that banks push out speculative risky investments to an uninsured account. This particular item was drafted by lobbyists for Citigroup which received $50 billion in taxpayer bailout funds several years ago. According to data collected by the Center for Responsive Politics Citigroup has spent at least $10.6 million on lobbying over the past two years. Former members of Congress and former staff members frequently leave government service to make big money utilizing their government contacts as lobbyists. Citigroup has 54 registered lobbyists, nearly 90 percent of which previously held government jobs.

Elizabeth Warren Tells The Truth

The removal of a key part of the Dodd Frank legislation was moving along quietly with Democratic and Republican support until Senator Elizabeth Warren drew attention to the issue. Elizabeth Warren represents a new populist politics challenging the power of corporate special interests. Warren is the first major national politician in decades who is willing to openly challenge the power of Wall Street. Her speeches advocating for average Americans are inspiring and long overdue.

Americans know that government is rigged against them and that politicians are bought and paid for by wealthy special interests. As jobs and incomes decline for average Americans, Wall Street is able to get legislation passed to bailout their risky investments with taxpayer dollars. Americans want someone to stand up for them and to champion their interests.

Elizabeth Warren is telling the truth about Washington and it is about time that someone had the courage to do so.

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