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"Citigroup Shutdown" Or "Elizabeth Warren Shutdown"?

Elizabeth Warren has been steaming about the "Wall Street giveaways" in the spending bill that just passed the House, and was even urging a government shutdown (which she would have dubbed a "Citigroup shutdown" due to the influence of Citigroup lobbyists in writing the bill).

But--leaving aside that these types of riders don't really belong in a spending bill in the first place--the actual rule in question is not such a big deal, whether it is in place or not. Here are the reasons:

  • Senator Warren is incorrect to say the change allows risky trading by banks. The change does not affect the Volcker Rule, which prohibits all proprietary trading by commercial banks. If banks are trading for profit at all, they are breaking the law.
  • Warren is wrong to say the change will create more bailouts in the future. The change does nothing whatsoever to address the Too-Big-To-Fail issue that necessitated the bailouts of 2008.
  • The change would have had no effect whatsoever on the last financial crisis, since the primary mishandling of derivatives was by AIG, which is not a bank and not FDIC-insured. Regardless of the changes, AIG could still do exactly the same thing today. (It would be stupid, but not illegal.)
  • The change does not affect "structured finance swaps," which include the swaps on mortgage securities that were a part of the 2008 financial crisis. That is, the same restrictions passed under Dodd-Frank still apply in the cases that you might consider relevant. (Of course, these restrictions do not have much teeth anyway. Trading and dealing derivatives was not prohibited in Dodd-Frank, but just had to move to another office.)

All in all, the change is not particularly significant, even taking all of Warren's professed interests into account. It certainly helps banks, but it belongs more in the category of cutting red tape rather than in the category of "handouts" and "giveaways." Unfortunately, I don't think Warren's shutdown threat amounts to anything other than self-interested political grandstanding.