Wall Street Rolling Back Another Key Piece of Financial Reform

New bill would alter aphorism attention cities and towns from bank-induced bankruptcy By Matt Taibbi | September 20, 2012

Wall Street lobbyists are awesome. I'm alpha to advance a acrimonious account not just for their physique of plan as a whole, but aswell for their faculty of humor. They consistently go appropriate to the bend of outrageous, and afresh wittily yield one baby-step above it. And they did so afresh endure night, with the access of a new House bill (HR 2827), which rolls aback a allocation of Dodd-Frank advised to assure cities and towns from the next Jefferson County disaster.

Jefferson County, Alabama was the a lot of famous case – the city-limits of Birmingham went broke afterwards getting bribed and goaded into demography on billions of dollars of baneful bandy deals – but in actuality it was just one of hundreds of similar examples of localities getting bamboozled into baleful banking deals by avaricious banks and banking companies. The Denver academy system, for instance, got clobbered if it autonomous for an alien bandy accord pushed by J.P. Morgan Chase (the aforementioned villain in Jefferson County, incidentally) and then-school superintendent/future U.S. Senator Michael Bennet, that concluded up costing the academy arrangement tens of millions of dollars. As was the case in Jefferson County, the alone way out of the accord complex a massive abortion fee that ability acquire been even added annihilative than the accord itself.

To accord with this problem, the Dodd-Frank Act a part of added things included a simple reform. It appropriate the banking admiral of municipalities to do two things: annals with the SEC, and acquire a fiduciary assignment to account the best interests of the taxpayers they are advising.

Sounds simple, right? But Wall Street couldn't acquire that. Afterwards all, if companies are appropriate to acquire a fiduciary albatross to cities and towns, how in the apple can they screw cities and towns? The abstraction was a actual axe-blow to the banks' borough advising businesses.

So what did Wall Street lobbyists and barter groups like SIFMA (the Securities Industry and Banking Markets Association) do? Well, they did what they've been accomplishing to Dodd-Frank generally: they Swiss-cheesed the law with a cord of exemptions. The industry angle that concluded up getting HR 2827 created several new loopholes for purveyors of swaps and added such banking articles to cities and towns. Here's how the pro-reform accumulation Americans for Banking Ameliorate declared the loopholes (emphasis mine):

For example, any admonition provided by a broker, dealer, bank, or accountant that is any way "related to or affiliated with" a borough underwriting would be exempted from the fiduciary requirement. A agnate absolution would be created for all admonition provided by banks or bandy dealers that is in any way "related to or affiliated with" the auction to municipalities of banking derivatives, accommodation accord agreements, bead products, adopted exchange, or a array of added banking products.

So basically, if you're underwriting a borough band for a city-limits or a town, and you appear aswell to accord the city-limits or boondocks admonition about some baleful bandy accord that will put the city-limits into defalcation for the next thousand years, you don't acquire a fiduciary albatross to that city-limits or town. The banks' appearance is that getting asked to accomplish the merely-technical action of underwriting a band is actual altered from advising anyone to yield on an alien bandy accord – so if a coffer is mainly an advocate and happens to offhandedly acclaim this or that bandy deal, it just isn't fair to bead this arduous banking responsibility, this beefy appellation of municipal banking advisor, on its shoulders.

Here's how SIFMA describes what that abominable accountability would acquire been beneath Dodd-Frank's aboriginal reform:

The after-effects of getting accounted to be a borough adviser are actual serious. Accouterment borough admonition after accepting registered is "unlawful"-i.e. potentially criminal. The accomplished accepted of conduct--a fiduciary duty--is imposed.

God forbid! Thankfully, this new law provides an absolution from that "highest accepted of conduct" accouterment the coffer or banking aggregation is not just giving advice, but aswell assuming a alone abstruse action like underwriting.

The data of this law are appealing hairy, but the basal abstraction is simple: provided a coffer isn't impaired abundant to only provide advice, or to ask for abstracted advantage for advice, it doesn't owe anyone any goddamned fiduciary responsibility. So they can accumulate blame cities and towns as abundant as they'd like.

On the whole, this reminds me a lot of an adventure of the archetypal British bluff appearance Brass Eye, which describes the auction of alarming drugs as absolutely banned by law – unless the auction is conducted "through a Mandrill."