How Wall Street is chipping away at reform

After the financial crisis, Washington vowed to never again let Wall Street "write the rule book for itself," said Edward Luce at the Financial Times. How quaint that promise seems today. Four years after lawmakers passed the Dodd-Frank financial reform act, Wall Street is busy "arm-twisting Congress" to roll back some of the law's toughest rules. Earlier this month, on the brink of a government shutdown, an item written by Citigroup lobbyists was quietly slipped into the $1.1 trillion spending bill. It allows banks to resume trading risky derivatives in their units backed by taxpayers, reversing a key Dodd-Frank restriction. JPMorgan Chase CEO Jamie Dimon even personally called several lawmakers to support the repeal. Sen. Elizabeth Warren denounced the stealth change on the Senate floor, saying it "raises the risk that taxpayers will have to bail out the biggest banks once again," said Noah Bierman at The Boston Globe. She rallied some fellow Democrats to her cause, but the bill ultimately passed.

This victory for the banks "is not as major as it may initially seem," said Stephen Gandel at Fortune. The original reform demanded that banks funnel some of their derivatives trades through separate subsidiaries that aren't backed by the Federal Deposit Insurance Corp., in order to force the banks to absorb more risk themselves. But that rule "had huge loopholes"; billions of dollars of interest rate swaps and currency derivatives were already immune from it. In fact, just 0.5 percent of total U.S. bank assets were ultimately covered — hardly worth the fuss Warren made. This rollback also "didn't come completely out of the blue," said Jon Healey at the Los Angeles Times. More than a third of House Democrats and virtually every House Republican voted last year to change the rule, and many top bank regulators opposed it way back in 2010.

But from a taxpayer's perspective, the original reform was a no-brainer, said Matt Taibbi at Rolling Stone. All it said was that banks guaranteed with taxpayer money shouldn't "use your bank accounts as a human shield to protect their dangerous gambling activities." Wall Street cronies now want to convince us the rule wasn't that important, or that Warren's outspoken opposition was just grandstanding to further her political ambitions. That's just some clever counterspin designed to distract from the fact that banks are once again partaking in the same risky behavior that led straight to the 2008 bailouts. It just goes to show you how both parties are in the thrall of Wall Street, said Paul Krugman at The New York Times. Because no matter which side of the political aisle you fall on, "you should be against letting Wall Street play games with government-guaranteed funds."

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If this episode teaches us anything, it's that the big banks are "willing to play the long game" to water down Dodd-Frank "one provision at a time," said Dave Clarke at Politico. The industry now knows that the White House and Democrats are willing to swallow unpalatable changes to the law if it means getting big deals done. Wall Street heard the message loud and clear, and the big banks are no doubt weighing where to strike next.