Wall Street banks welcome health care reform debate

( – promoted by buhdydharma )

Yes, the big banks on Wall Street support the endless national discussion across the United States over health care reform because the longer such legislation is debated and delayed, the less chance any banking regulation will get through Congress and that’s great as far as Wall Street bankers are concerned.

For Wall Street, the longer it takes to get legislation passed the better. As stock market values and the economy improve, anger at banks is likely to subside.

So while most everyone is distracted, Bloomberg News reports that Wall Street’s “stealth lobby” is working “to protect one of its richest fiefdoms” and keep derivatives from being regulated.

“If we don’t pass it by early 2010, we get into the congressional election period where this is just too controversial an issue,” said Charles Peabody, an analyst at Portales Partners LLC in New York, which provides institutional equity research.

“You’ve got too many different financial interests with opposing views that Congress just isn’t going to go out on a limb and pass it and put their re-election in jeopardy. We don’t think we’re going to see legislation until 2011.”

During the August recess, the Obama administration sent to Congress its plan to bring a modicum of law and order to derivatives. When the plan was introduced, McClatchy News reminded its readers that derivatives “played a key role in the near-meltdown of the global financial system last year.”

“It is a comprehensive reform, going right to the very heart of the problems we saw in the last crisis,” Assistant Treasury Secretary Michael Barr said.

The Obama plan is an effort to gain oversight and control of the market for derivatives traded over the counter, which Bloomberg reports, is currently “unregulated and prices aren’t public.”

The five biggest derivatives dealers in the U.S. are JPMorgan Chase, Goldman Sachs, Bank of America, Morgan Stanley, and Citigroup. Together they hold “95 percent of the $291 trillion in notional derivatives value of the country’s 25 largest bank holding companies”.

This year alone, they “are on track to earn more than $35 billion this year trading unregulated derivatives contracts.” About half of each banks trading revenue over the past two years have come from derivatives.

The world over-the-counter derivatives market is worth $592 trillion, and the banks are doing everything possible to keep it lawless (unregulated) corner of the markets.

While the Obama administration’s plan is less than what some derivatives critics have advocated, it is causing concern by the banks. The plan would require standard derivatives to be processed through a clearinghouse and the prices be reported and made public. “That could cost Wall Street a lot of money”.

Obama’s plan also deals a blow to bank secrecy and their ability to spontaneously ‘create’ money. Banks would be required to put forward more capital for nonstandard derivatives that could not be processed by a clearinghouse. Plus, “the plan would also require they put up more money, known as margin, to insure they make good on the trades.”

The current secrecy that surrounds derivatives would be partially lifted. Under the plan, regulators would see “all the trades” and everyones positions. The public would have data on trading volume and open positions.

While the proposed Obama legislation goes further than some banks expected, it was derived from a broader plan released in June that the industry had already helped influence, said Lauren Teigland-Hunt, managing partner of Teigland-Hunt LLP, a New York law firm that represents hedge funds and institutional investors in the derivatives market…

“They did their homework, they didn’t want to roll out something stupid,” Teigland-Hunt said of the administration. “Once they did that, they said, ‘We’re going to do this legislation. We’re not going to have it written for us.‘”

But as long as the nation is focused on health care, the Obama plan is likely to go nowhere. In the meantime, Wall Street banks are wasting no time shaping the battleground for the debate when, and if, Congress gets around to acting.

“In recent months, Wall Street firms have embarked on a lobbying campaign to influence the media and legislators.” Since the banking lobby didn’t get to completely write the Obama plan, they need members of Congress to reshape the bill.

Goldman Sachs is ‘educating’ the financial media and “off-the-record” seminar for reporters” explaining to them how the ‘real world work’. JPMorgan is contacting their friends and clients in corporate America, “advising them that the proposed changes could hurt their ability to hedge against losses”.

Already in Europe, the impact of such ‘friendly’ advice is being heard. According to the Wall Street Journal, European corporate financial officers are already complaining that regulation will increase their costs and limit their ability to hedge risk exposure.

But so far in America, Bloomberg notes, “the Washington fight, conducted mostly behind closed doors, has been overshadowed by the noisy debate over health care. That’s fine with investment bankers, who for years quietly wielded their financial and lobbying clout on Capitol Hill to kill efforts to regulate derivatives.”

The Obama administration has proposed legislation to regulate derivatives that is slowing being ‘worked over’ by Wall Street. With the health care debate sucking attention away from the banking and the upcoming 2010 midterm elections, derivatives are unlikely to come under the rule of law with this Congress. Better luck next time America.

 

^{Cross-posted at Daily Kos.}

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