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“Cromnibus” Put Taxpayers On Wall Street Hook for $9.7 Trillion

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House oversight committee ranking member Elijah Cummings (D-Md.) and Sen. Elizabeth Warren (D-Mass.) have concluded after an almost year-long investigation that last year’s eleventh hour budget deal left taxpayers this year insuring Wall Street bets worth about $9.7 trillion.

The two lawmakers said in a letter published Tuesday that their conclusion was based on estimates offered by two major financial regulators, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC).

Warren and Cummings noted, however, that an impact assessment of the so-called “swaps push-out” policy rider has not been conducted by “any prudential regulator.” They said this lack of information “raises critical questions about whether federal policymakers are sufficiently attentive to the risk” posed by last year’s legislation.

Section 716 of Dodd-Frank, before late last year, would have forced banks to refrain from trading certain derivatives with consumer savings insured by the federal government.

The repeal passed the House by a razor-thin seven-vote margin after an intense Wall Street lobbying campaign that included a personal appeal from JP Morgan CEO Jamie Dimon. Fifty-six Democrats supported the legislation. Seventeen of those lawmakers were among the twenty members of the House Democratic Caucus who received the most in campaign contributions from JP Morgan in the 2014 election cycle.

The vote took place amid a flurry of year-end legislative activity. It also occurred just before Republicans regained control of the Senate and increased their House majority.

In their letter to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), Cummings and Warren called on the two bodies to enact tougher regulations.

“[Y]our agencies are in position to mitigate these risks,” the lawmakers said, noting rules that each have proposed.

In February, Sen. Warren accused Federal Reserve chief counsel Scott Alvarez of playing a role in the Section 716 affair. She said his public disparagement of the rule prior to its repeal indicates he encouraged the central bank to hold off on the implementation process; a delay that gave the industry time to undermine before it even took effect.

“I think this might be worth looking into,” Warren told Fed Chair Janet Yellen, when the latter said she did not know if Alvarez lobbied internally against Section 716. “The Fed is our first line of defense against another financial crisis, and the Fed’s General Counsel or anyone at the Fed should not be picking and choosing which rules to enforce based on their personal views.”

Warren noted that Alvarez had, late last year, “a month before the repeal” disparaged the statute in front of the corporate lawyer-laden American Bar Association.

“You can tell it was written at 2:30 in the morning and so it needs to be, I think, revisited just to make sense of it,” Alvarez had said.

Listen to District Sentinel Radio Episode 14 for more information about the delay in implementation of another Dodd-Frank Rule; one on risky executive compensation packages (start at 13:54).

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Since 2010, Sam Knight's work has appeared in Truthout, Washington Monthly, Salon, Mondoweiss, Alternet, In These Times, The Reykjavik Grapevine and The Nation. In 2012, he worked as a producer for The Alyona Show on RT. He has written extensively about political movements that emerged in Iceland after the 2008 financial collapse, and is currently working on a book about the subject.

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