NACBA
12-17-2014, 10:06 AM
That doesn’t happen very often, so it’s worth taking note of before discussion of the Cromnibus—the $1 trillion spending bill Congress passed this past weekend — fades in the rearview mirror.
During last week’s showdown over the bill, Warren objected to a provision eliminating a certain rule in the 2010 Dodd-Frank law. (Hang on, don’t fall asleep just yet.) That rule prevented traditional banks from betting on financial derivatives with federally insured deposits. The banks could still trade in such exotic securities, but they had to do so with their own capital stock, through non-bank affiliates unsecured by FDIC backing. (In short, they had to “push out” such business.) The idea was to prevent future bailouts like the ones that took place six years ago.
The Cromnibus removes that barrier to bailouts. As Warren has noted several times, the relevant provision repeals a part of the law titled, “Prohibition Against Federal Government Bailouts of Swaps Entities.” Most people understand why it’s not a good idea to bail out financial institutions for making risky bets: It only encourages them to assume more risk than they otherwise would. If they bet right, then they get to keep the profits; if they bet wrong, then the taxpayer gets stuck with the bill. Warren is right to oppose such moral hazard.
She’s right on a couple of other points, too:
http://reason.com/archives/2014/12/17/elizabeth-warren-is-right-the-cromnibus
During last week’s showdown over the bill, Warren objected to a provision eliminating a certain rule in the 2010 Dodd-Frank law. (Hang on, don’t fall asleep just yet.) That rule prevented traditional banks from betting on financial derivatives with federally insured deposits. The banks could still trade in such exotic securities, but they had to do so with their own capital stock, through non-bank affiliates unsecured by FDIC backing. (In short, they had to “push out” such business.) The idea was to prevent future bailouts like the ones that took place six years ago.
The Cromnibus removes that barrier to bailouts. As Warren has noted several times, the relevant provision repeals a part of the law titled, “Prohibition Against Federal Government Bailouts of Swaps Entities.” Most people understand why it’s not a good idea to bail out financial institutions for making risky bets: It only encourages them to assume more risk than they otherwise would. If they bet right, then they get to keep the profits; if they bet wrong, then the taxpayer gets stuck with the bill. Warren is right to oppose such moral hazard.
She’s right on a couple of other points, too:
http://reason.com/archives/2014/12/17/elizabeth-warren-is-right-the-cromnibus