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Financial Collapse: The Sequel?

Wall Street lobbyists have snuck into the budget package an amendment that would repeal the part of Dodd-Frank that reins in the financial weapon of mass destruction called Credit Default Swaps. Per usual, it is Elizabeth Warren that explains this best.

You will hear a lot of folks say that the rule that will be repealed in the Omnibus is technical and complicated, and that you shouldn’t worry about it because smart people who know more than you about financial issues say that it’s no big deal. Don’t believe them. Actually, the rule is pretty simple. Here’s what it’s called — the rule that the House is about to repeal — and I’m quoting from the text of Dodd-Frank: “PROHIBITION AGAINST FEDERAL GOVERNMENT BAILOUTS OF SWAPS ENTITIES.” What does it do? The provision that’s about to be repealed requires banks to keep separate a key part of their risky Wall Street speculation so that there’s no government insurance for that part of their business. As the New York Times has explained, “the goal was to isolate risky trading and to prevent government bailouts” — because these sorts of risky trades — called ‘derivatives’ trades - were “a main culprit in the 2008 financial crisis.”

It was Mitch McConnell that demanded this repeal, and House Republicans who are leading the charge on it, but Democrats have the power to stop this terrible idea that would practically guarantee an explosion of new high-risk Wall Street speculation, and make another financial panic likely within the next few years. In the House, Boehner will need some Democratic votes for the omnibus budget package because his tea party caucus doesn’t like this bill. In the Senate, Democrats — who are still in the majority — could walk away from this terrible idea and force a new package to be crafted. And the president does still have the veto pen, and he could say no to this craziness.

Now there are some heavily pro-Wall Street Democrats like Chuck Schumer who are actually for this idea, but a lot of them are saying that this is a big, complicated package with lots of good and bad in it, and it is too hard to renegotiate this provision and walk away from the deal. But Credit Default Swaps will, sooner or later and probably sooner, destroy our economy, and this is a battle that has to be fought.

Call your House and Senate members right now, because the House vote will probably be tomorrow, and the Senate will come shortly thereafter: the Capitol switchboard is 202-224-3121. And call the White House as well, they can stop this: 202-456-1414. And listen to Warren explain this beast of an amendment:

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