Congressional Democrats, in an attempt to prevent another government shutdown this year, may agree to let some troubling provisions into this year’s omnibus spending bill. Among the concessions made to the newly GOP-controlled legislature, the bill would strip critical restrictions on Wall Street under the Dodd-Frank Act. It would also permit a 3-fold increase in the amount of money a wealthy individual would be able to contribute to campaign funding. As of this afternoon, a number of Democrats, led by progressives, have held up the legislation. But, the White House has made clear that it won’t veto an omnibus spending bill with the problematic language included.
The provisions of the bill are troubling, because they will remove restrictions on Wall Street banks that prohibited them from using federally-insured deposits to underwrite derivatives trading. Derivatives are transactions in which two parties bet on the future price of a good, often commodities, to cushion against unexpected price shocks. In the early 2000’s derivatives were applied to the mortgage-backed securities market, and largely contributed to the financial collapse of 2008. The Dodd Frank Act required banks to underwrite derivatives in separate departments, forbidding the use of deposits for this purpose.
The new language in the spending bill allows banks to once again underwrite derivatives trading with deposits – that’s the cash that YOU as customers trust the banks (and subsequently the government) to keep safe for you. Just six years ago, we saw the bubble created by this activity and the devastation it caused across the country when it burst. Removing these regulations from banks only encourages more risky behavior, and could very well lead to another bubble situation.
These unfortunate amendments in the bill were allowed to pass without much of a fight so that other goals could be achieved. According to the Washington Post, “White House press secretary Josh Earnest said that ‘it is certainly possible that the president could sign this piece of legislation,’ even though it would undo a pillar of the Dodd-Frank financial regulatory overhaul by freeing banks to more readily trade the exotic investments known as derivatives. The legislation ranks among the administration’s biggest domestic achievements.
Republican leaders predicted that the House would easily approve the sprawling spending bill and send it to the Senate, which would face a midnight Thursday deadline (but as of this writing, the bill has hit snags from both Democrats and Republicans). The measure provides funding through September for the Pentagon and dozens of other federal agencies and contains hundreds of individual policy instructions… The bill includes some good news for the White House, including fresh funding to battle the deadly outbreak of Ebola in West Africa and the rise of the Islamic State in Iraq and Syria. And it would do nothing to upend Obama’s contentious executive action on immigration or his health-care law.”
Not every battle can be fought and won at the same time, but the concessions made in this bill to Wall Street and wealthy donors stand to create real problems for American democracy. As wealthy individuals have an increasingly powerful say in the political process, and financial institutions grow to enjoy lax regulation once again, the officials we elect have less and less power to represent their constituents. Today, we urge you to contact your representatives and tell them to stand up to Wall Street and the wealthy and fight for regulations that protect our people, planet, and our democracy.
Writing by Sam Catherman