It's easy to be cynical and say that Wall Street calls all the shots in America. But this week brought a precious dose of optimism in the modern Gilded Age.
The stock market might be up, but could big banks' clout in our culture be fading? Photo via Flickr user otto-yamamoto
It's tempting to say Wall Street calls all the shots in America. After all, Goldman Sachs employees were Barack Obama’s single greatest source of campaign contributions from the business world back in 2008, and he hasn’t exactly made his pals pay for causing the epic financial crisis. Stadiums and concert venues across the country are named after big banks. And Hillary Clinton, who by most accounts is a shoe-in to be our next president, is super tight with this crowd, thanks in part to her husband (and former president) Bill's axiom that the Democratic Party should make nice with financiers or else risk incurring their wrath.
But this week has offered a precious dose of optimism for those disenchanted with our modern Gilded Age. On Tuesday, a federal judge tossed out a challenge from banking industry trade groups trying to gut the 2010 Dodd-Frank financial reform law’s new rules for overseas derivatives trading. These nebulous financial instruments helped sink AIG, the firm that eventually received billions in US taxpayer money—which it famously doled out in the form of massive bonuses in 2009. The new law empowered the Commodities Future Trading Commission (CFTC) to set guidelines for swaps—contracts that make it easier for derivatives traders to rack up risk—carried out in other countries by American banks. CFTC guidelines now require these swaps to be reported and transparent, which is essential given that derivatives helped tank the global economy. So that court decision was pretty important: For the first time in recent memory, the legal system actually sided against the banks and the scions of high finance.
"The majority of the plaintiffs' claims fail because Congress has clearly indicated that the swaps provisions" called for by the new law "including any rules or regulations prescribed by the CFTC—apply extraterritorially," Judge Paul Friedman wrote in a 92-page ruling.
Whoa. Given the widespread corruption in the American legal system, which often treats white-collar crime like littering, I didn't see that one coming. I asked Brad Miller, a former Congressman from North Carolina who worked extensively on financial regulation and issued an amicus brief in the case, why this ruling matters.
“If they had gone the other way, it would've been a very big deal,” he told me. “It would have essentially have invalidated all swaps regulation. These transactions exist largely in the ether—it's not like they're closely tied to the planet earth at any given point.”
So score one for those of us who don't like invisible financial products that threaten civilization's essential fabric. What's more, the ruling was actually the second blow in as many days to America's financial class. On Monday, California's pension system—CALPERS, the largest in the country—announced it would no longer make investments in hedge funds. The reason? The fees are too expensive and the hedge funds often underperform against the market. Now hedge fund managers are sweating ever so slightly that the jig is up and the uselessness of the services they provide has been laid bare for all to see.
"CALPERS is the 800-pound gorilla. When they do something, plus or minus, everybody pays attention," says Dennis Kelleher, the CEO of Better Markets, a financial regulation advocacy group.
So not only are Wall Street guys actually experiencing a whiff of regulation, but the legitimacy of one of their most celebrated products is in doubt. It's almost as if bankers' grip on American institutions is fading. Now if only we could start renaming some of the football fields, baseball parks, and music venues, I'd be convinced things were really beginning to change. Until then, I'll settle for a couple of seemingly obscure stories in the financial press suggesting Wall Street bankers' days at the top of our national (and global) power structure might, eventually, come to an end.
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