The Derivative Project

The Working Agenda for Tomorrow’s House Hearing on Costs of Dodd-Frank

The Working Agenda for Tomorrow’s House Hearing on Costs of Dodd-Frank

The House Financial Services Committee on Oversight and Investigation will hold a hearing tomorrow afternoon on “The Costs of Implementing the Dodd-Frank Act:  Budgetary and Economic”.

Here is the Majority of Americans Wish for a Working Agenda and Lively Debate
What are the unbiased costs and implications of regulatory arbitrage to the U.S. taxpayer, given the European Union has adapted and is moving forward with a ban of naked credit default swaps?
The SEC is compelled under the Act of 1934:
(Section 3(f) of the Securities Exchange Act of 1934 states: CONSIDERATION OF PROMOTION OF EFFICIENCY, COMPETITION, AND CAPITAL FORMATION.— Whenever pursuant to this title the Commission is engaged in rulemaking, or in the review of a rule of a self-regulatory organization, and is required to consider or determine whether an action is necessary or appropriate in the public interest, the Commission shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation)
Why is it in the best interest of U.S. Taxpayers to ban credit default swaps?
Quite simply, because systemic risks are lower and regulated futures markets are more efficient, more cost-effective, transparent and allow for greater price discovery and competition than over -the-counter markets.
Speculation on credit default swaps is not “capital formation”. The U.S. must give up the desire for quick, speculative profits and focus on job creation and capital formation.
What are the costs and implications of regulatory arbitrage, given the European Union is moving
forward with a speculation tax on derivatives?
If the European Union imposes a tax on speculations, given this arbitrage if the U.S. government does not do the same, the movement will be to the U.S. markets, to avoid the tax, creating global financial instability and greater regulatory costs and systemic risk for the U.S. taxpayer.
Why can’t the U.S. banks pay a tax on speculation that can be used for investment in capital formation?
Note to Congress on Misleading Information on Regulatory Arbitrage in Advance of your Public Hearing 

The New York Times, DealBook reported March 28 in their misleading article “CFTC Officials Warn of Regulatory Arbitrage”, whereby the reporter states CFTC Commissioner Chilton is concerned with derivatives business moving to Europe.
The New York Times Dealbook implies Commissioner Chilton stated he was worried about European banks stealing business from their U.S. rivals.  Commissioner Chilton never made that statement, which one can read in this link to his Speech at Goldman Sachs.
Here is the statement made by the NYT reporter:

“Analysts at JPMorgan Chase’s British investment bank raised similar concerns this month. Dodd-Frank could encourage big European banks to steal business from their United States rivals, a report by JPMorgan Cazenove said. Big banks in Britain, Germany and France “could benefit from regulatory arbitrage opportunities and gain market shares,” the report said.”

Why is the European Union taking these measures? 

As we all know, following the financial crisis, the deficits and budget needs are overwhelming.  It is estimated this tax will bring in close to $200 billion annually, according to Sarah Anderson’s report at the Huffington Post on March 10:


The Derivative Project’s  Opinion:  The European Union is taking a stand.  Funds to expedite job creation are critical.  A speculation tax can aid in earmarking funds to aid innovation.  Ironically, those against the tax, particularly the UK and the U.S. argue it will impede innovation.  Here is the definition of innovation by our major financial institutions: “quick profits, that lead to ever-increasing bonuses, that add nothing to sustainable economic value.”

Taxpayers might not be aware but these “public” hearings typically just bring witnesses before the Committee to document their point, as the House Financial Services Committee did at its February Hearing with the Keybridge Research study, that was proven to be false and misleading. (See past Blog post on Keybridge Research Report testimony)
The Derivative Project filed a public comment with the SEC and CFTC on February 17, 2011 proposing a more fair and honest hearing that also focuses on the costs and benefits of the Dodd Frank regulation.