On Dec. 11, Washington effectively changed the name of Pennsylvania Ave., which links the White House to Capitol Hill, to "S. Wall Street."
In a must-pass spending bill to keep the United States government functioning, JPMorgan Chase & Co. CEO Jamie Dimon personally lobbied enough Democrats to win a provision that subsidizes the bank derivatives business, a.k.a. the gambling part.
Four pages of the 1,600 spending bill known as the "cromnibus" allow financial institutions to use their Federal Deposit Insurance Corporation (FDIC) insured banks as the base for this gambling. Some of them are the same credit default swaps that brought down AIG and led to a $180 billion taxpayer bailout for the firm. Many of these swaps don't serve any clear banking purpose; they don't hedge the bank's loans, they don't help real economy firms hedge their own resource purchases. They are simply gambles. The Senate's Permanent Subcommittee on Investigations explored how JPMorgan trader "London Whale" lost $6 billion on one such gamble. Exposure to this loss sent JPMorgan's stock down 30 percent. Previously, this same trading desk gambled that American Airlines would go bankrupt. It's hard to see how gambling on the failure of a major American firm squares with a bank's primary purpose of using the money of savers to build their business.
Section 716 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act provides that the gambling must take place in a separately capitalized affiliate of the bank holding company that is not the FDIC-insured bank affiliate. The gambling must be "pushed out" into that affiliate. The bank can't use the taxpayer-insured money to gamble. And if the bets fail, it won't be the FDIC — that means taxpayers — that bails it out.
What does this policy have to do with funding the government? Nothing. But gutting the "push out" made its way into the must-pass bill cromnibus. House Minority Leader Nancy Pelosi (D-Calif.) called it "blackmail." Many valiantly fought this blackmail. U.S. Sen. Elizabeth WarrenElizabeth WarrenBipartisan senators to hold hearing on 'toxic conservatorships' amid Britney Spears controversy Senate advances Biden consumer bureau pick after panel logjam White House faces increased cries from allies on Haitian migrants MORE (D-Mass.) made Senate floor speeches to rally her fellow Democrats. U.S. Rep. Maxine WatersMaxine Moore WatersAdvocates call on top Democrats for 0B in housing investments Cori Bush hits her stride by drawing on activist past Cawthorn to introduce resolution condemning political violence after warning of 'bloodshed' if elections are 'rigged' MORE (D-Calif.), the ranking member of the House Committee on Financial Services, publicly highlighted the problem. "Please stay strong," she told her colleagues. The White House criticized the deal, but stepped away from supporting a vote that would have forced the House to remove the offending provision before final passage.
The provision drew bipartisan, deep opposition. Progressives joined in active efforts to lobby the House, including Public Citizen, Americans for Financial Reform, the AFL-CIO, BetterMarkets, Demos and others. Louisiana Republican U.S. Sen. David VitterDavid Bruce VitterBiden inaugural committee to refund former senator's donation due to foreign agent status Bottom line Lysol, Charmin keep new consumer brand group lobbyist busy during pandemic MORE also spoke out. Former Securities and Exchange Commission Chair Arthur Levitt called the subsidy measure "disgraceful." Several Republican experts decried the provision. FDIC Vice Chair Tom Hoenig, an independent, called it "illogical." Trade associations representing fuel vendors, recognizing the dangers of subsidized gambling on the economy, issued a similar statement. Even some Tea Party Republicans seemed agog over the subsidy.
JPMorgan wasn't alone in pressing for the cromnibus. The provision was authored by lobbyists for Citigroup. The Bipartisan Policy Center was one of the few organizations openly justifying the Wall Street subsidy. While the name might suggest independence, a Public Citizen report shows that the center started its financial policy analysis after securing funding from Citigroup.
Outsiders might view JPMorgan and Citigroup as unlikely influencers in a capital city where the U.S. Department of Justice recently fined these firms more than $30 billion for massive fraud.
But apparently, campaign contributions weigh more persuasively than sound argument. Warren made repeated reference to Public Citizen's reports on the link between political expenditures and Wall Street's influence over Congress.
As it happens, another unhappy provision in the cromnibus raises political spending limits for contributors to the political parties. Now, individual donors can contribute more than $1.5 million to a national party each election cycle; the previous limit was $97,200. This is an eight-fold increase in spending and likely means a commensurate increase in the access it will secure to elected officials for the biggest and most moneyed donors, who often represent corporate perspectives and interests such as the big banks.
Dec. 11, 2014, should be dissected by political economists. It revealed heroes of sensible reform such as Warren, Vitter and Waters. But it revealed the need for a White House advised by experts attuned to real economy interests, as opposed to Wall Street apologists. When Republicans control both the Senate and House in the next Congress, we can expect more Wall Street treats attached to must-pass legislation. Public Citizen intends to intensify our efforts to mobile our 350,000 members and supporters to protect the integrity of the Wall Street reform. Pennsylvania Avenue should remain so-named.
This piece has been updated to correctly note FDIC Vice Chair Tom Hoenig as an independent.
Gilbert is the director of Public Citizen's Congress Watch division. Naylor is the financial policy advocate at Public Citizen.