Make or Break Time

Back in the Clinton era, Congress and regulators shredded many of the ground rules that had been keeping our financial system working safely since the Great Depression. The people making the big money (and creating the toxic assets) set themselves and their cronies up as the "experts" and told the rest of us not to worry our pretty little heads about it.

The crash of 2008 made it painfully clear it was time to stop letting Wall Street make up the rules. Last June, Congress passed, and President Obama signed into law, the Dodd-Frank Wall Street Reform and Consumer Protection Act. In addition to creating the much-needed Consumer Financial Protection Bureau, the act contains reforms that can head off future crashes. But, to put that law into action, various agencies have to write ground-level regulations and definitions.

How these rules get written can make Dodd-Frank either an effective, strong law or -- if Wall Street’s swarm of lobbyists gets its way -- a washed-out shell. "The number of people that have come in requesting to be exempt from the law, or to have the law delayed, has literally shocked me," a Commodity Futures Trading Commission official told Bloomberg News.

If the love of money is the root of all evil, let's just say the devil is trying to get into the details.

Of the many Dodd-Frank reforms for which rules are being written, one of the most important is the shadowy world of so-called "over-the-counter" (OTC) derivatives, complicated investments that were routinely sold with no collateral and no public reporting, let alone oversight. In these secretive deals, firms such as Lehman Brothers and AIG made promises that would come due in case of a market crash -- promises they had no earthly way of keeping. Worse yet, then no firm could trust any other enough to do business, as no one knew who had OTC deals with a failed firm: "No one knew where the danger lay, or how to responsibly unwind," Lisa Donner of Americans for Financial Reform told Sojourners. "It was just a vast black hole."

Dodd-Frank fixes this problem by requiring most OTC derivatives to be sold via "clearinghouses," agencies that make sure buyers put down collateral and that both parties are on the level (as the New York Stock Exchange does for stocks). But the five biggest OTC derivatives dealers (JP Morgan, Goldman Sachs, Bank of America, Morgan Stanley, and Citigroup), which dominate the U.S. market, are trying to expand a loophole to get out of this requirement.

It's very important for us to get this right -- not only for the U.S. economy, but because the U.S. law has helped inspire the European Union to work on OTC rules of its own.

How can you help? Well, thank God for the Internet. A number of advocacy groups can tell you where and when public comment periods are open among the alphabet soup of agencies that are making rules over the next year or so. A good starting point is the 250-group member list of the Americans for Financial Reform coalition; pick an organization you trust and check their action alerts or blogs for quick ways to have a voice in the rule-making process.

And be sure to let your members of Congress know that you'll take a dim view of legislative efforts to undermine reform by failing to fund it. This is work that we need to get right, for all of our sakes.

Elizabeth Palmberg is an associate editor of Sojourners.

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