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Why President Obama Should Veto This Budget and Shut Down the Government

By       Message Carl Gibson       (Page 1 of 1 pages)     Permalink    (# of views)   8 comments

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Derivatives trading contributed to a financial meltdown in 2008.
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A shiver is running through Congress, looking for a Democratic spine to run up.

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When this Congress works together to get something done, it's almost always a great deal for their donors and a profoundly shitty one for the rest of us. The omnibus spending bill that Congress is about to pass is just about the most corrupt and dangerous piece of legislation to come out of Washington in a long time.

Spineless Democrats are caving to Republican hostage demands, doing anything to avoid a government shutdown. But Obama could send a strong message with his veto pen to the 114th Congress -- any deal this bad won't get his signature, regardless of a shutdown threat from Republicans. So what's so bad about this deal that a government shutdown is preferable? A lot of things, but one stands out more than the rest.

Last year, House Republicans passed a bill that would've repealed the government's new regulations preventing derivatives trading from being insured by the FDIC, but the Senate killed it. The current spending bill expected to hit President Obama's desk by Thursday night includes the same language from that bill, and Republicans buried it in the massive document betting on Democrats to pass it rather than have a government shutdown fall on their shoulders. The kicker is that lobbyists working for Citigroup, which received $476 billion in cash and guarantees in the 2008 bailouts, wrote 70 of the 85 lines in the derivatives deregulation bill that was just concealed in the omnibus spending bill.

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The previous financial collapse happened largely because Wall Street lost big making risky bets on derivatives, and demanded a taxpayer bailout lest we watch all of our assets go down the drain. Most people who have real jobs and actually contribute value to the economy don't know what a derivative is, but a layman's explanation for a derivative is a security that Wall Street trades in high numbers that's based on the value of another asset, like a homeowner's mortgage or another nation's credit.

Derivatives were specifically invented to avoid being categorized as something the federal government is tasked with regulating, like securities, bonds, insurance, or gambling, which is why Dodd-Frank's provisions on derivatives regulation are so important. Given all of that, what the House just slipped into the federal budget for next year is guaranteed to eventually cause a financial crash that would make 2008 look like a bumper getting tapped by a moped at a red light.

According to Forbes, the amount of derivatives trading on the global market is valued at over $700 trillion, which is 10 times the size of the global economy. The U.S. derivatives market is approximately $230 trillion, and Bank of America and JPMorgan Chase have close to $150 trillion in derivatives. What makes this so dangerous is that 71 percent of BofA's derivatives are held in the bank's depository arm, and 99 percent of JPMorgan's $70 trillion in derivatives are in their depository arm. While a lot of those numbers exist only tangentially, there's still $12 trillion of actual cash that's at risk.

The problem with this is that both BofA and JPMorgan have just $1 trillion in cash deposits. The bigger problem is that section 716 of the Dodd-Frank act forbids government bailouts of banks with taxpayer money, meaning the only way the big banks can save themselves in the event of another crash is by seizing the cash in all of our accounts in a "bail-in," as Public Banking Institute president Ellen Brown covered in this detailed article. The biggest problem is that by sneaking this Citigroup-written derivatives deregulation into the federal budget, Republicans have put the FDIC back on the hook for insuring derivatives trading, which only has $25 billion in its depositor insurance fund.

Obviously, the FDIC's insurance fund won't be able to cover the next derivatives crash once the bubble eventually pops. In that situation, the only way to stop the global economy from imploding would be to reinstate the Glass-Steagall Act, which President Clinton repealed in 1999. If reinstated, the act would force banks to separate commercial operations from investment operations. But since this hasn't happened, all of the money we keep in bank accounts because it's presumably safer than having it in our pockets will eventually be seized by the banks when they lose at the derivatives casino. And if President Obama signs the spending bill into law as is, it won't be a question of if this ever happens, but when.

Obviously a government shutdown is a terrible thing. Federal employees and members of the military won't get a paycheck, leaving spouses and children in the lurch. Low-income families won't get any food assistance or heating assistance. Early childhood education will stop. Nobody will be on the clock to inspect whether or not working conditions at factories are safe. Nobody will be around to monitor whether or not delicate nature preserves are being used as dumping grounds. Meat and pharmaceuticals won't get inspected. Nuclear waste won't get cleaned up. National treasures like the Grand Canyon and the Smithsonian will be closed. But as bad as all of that is, it doesn't come close to nobody being able to withdraw any money from their accounts.

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If President Obama is serious about protecting our life savings from being pillaged by the big banks, he has no other choice but to stand firm and veto any budget deal that includes derivatives deregulation. And we the people must be firm in pushing for a reinstatement of the Glass-Steagall Act that breaks up the big banks for good and prevents any future possibility of losing every cent we own.


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Carl Gibson, 26, is co-founder of US Uncut, a nationwide creative direct-action movement that mobilized tens of thousands of activists against corporate tax avoidance and budget cuts in the months leading up to the Occupy Wall Street movement. Carl and other US Uncut activists are featured (more...)

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