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Say It Ain’t So, Ben

Sun, 04/19/2015 - 10:30

By James Kwak

Is it the money?


Federal Reserve Chair Ben Bernanke, the man who saved the global economy, is becoming an adviser for Citadel, a hedge fund management company. Bernanke will provide advice to Citadel’s fund managers and will also meet with its clients (that is, the limited partners who invest in those funds).

It’s easy to see why Citadel wants Bernanke. He’s a smart man. He knows the inner workings of the world’s central banks as well as anyone. Although he won’t be a registered lobbyist, he can pick up the phone and get anyone in the world to answer, if he wants to. And, perhaps most importantly for the bottom line, the wow factor of having Bernanke meet with investors will help immeasurably with sales — bringing investments in the door.

The bigger question, as always, is why Bernanke wants Citadel.

Read more at Medium.

No More Cheating: Restoring the Rule of Law in Financial Markets

Wed, 04/15/2015 - 13:20

By Simon Johnson

The political debate about finance in the US is often cast as markets versus regulation, as if “more regulation” means the efficiency of private sector decisions will necessarily be impeded or distorted. But this is the wrong way to think about the real policy choices that – like it or not – are now being made. The question is actually what kind of markets do you want: fair and well-functioning, with widely shared benefits; or deceptive, dangerous, and favoring just a relatively few powerful people?

In a speech on Wednesday, Senator Elizabeth Warren (D., MA) laid out a vision for better financial markets. This is not a left-wing or pro-big government agenda. Senator Warren’s proposals are, first and foremost, pro-market. She wants – and we should all want – financial firms and markets that work for customers, that encourage innovation, and that do not build up massive risks which can threaten the financial system and bring down the economy.

Senator Warren puts forward two main sets of proposals. The first is to more strongly discourage the deception of customers. This is hard to argue against. Some parts of the financial sector are well-run, providing essential services at reasonable prices and with sound ethics throughout. Other parts of finance have drifted, frankly, into deceiving people – on fees, on risks, on terms and conditions – as a primary source of profits. We don’t allow this kind of cheating in the non-financial sector and we shouldn’t allow it in finance either.

The unfortunate and indisputable truth is that our rule-making and law-enforcement agencies completely fell asleep prior to 2008 with regard to protecting borrowers and even depositors against predation. Even worse, since the financial crisis, the Securities and Exchange Commission, the Justice Department, and the Federal Reserve Board of Governors proved hard or near impossible to awake from this slumber.

We need simple, clear rules that ensure transparency and full disclosure in all financial transactions – and we need to enforce those rules. This is what was done with regard to securities markets after the debacle of the early 1930s. The Consumer Financial Protection Bureau (CFPB), for which Senator Warren worked long and hard, has started down a sensible road towards smarter and simpler regulation. The CFPB needs to go further – including on auto loans – and for this it needs renewed political support.

The second proposal is to end the greatest cheat of all – the implicit subsidies received by the largest financial institutions, structured so as to encourage excessive and irresponsible risk-taking. These consequences of these subsidies have already caused massive macroeconomic damage – this is why our crisis in 2008-09 was so severe and the recovery so slow. Yet we have made painfully little progress towards really ending the problems associated with some very large financial firms – and their debts – being viewed by markets and policymakers as being too big to fail.

If you could visit a casino with the prospect of keeping all your winnings, while your losses would be partially or completely paid by someone else, how much would you gamble? You would bet a huge amount – presumably as much as the house allows. Big banks are run by smart, rational people. The incentives they face – which themselves have worked long and hard to retain – are not acceptable from a broader social point of view.

Senator Warren wants to cut through the complex morass of modern regulation. Force the biggest half dozen banks to become smaller, simpler, and more transparent. Limit the tax deductibility of interest for large highly leveraged financial institutions, so they choose to fund themselves with relatively more equity and less debt.

And reform the emergency powers of the Federal Reserve – to strengthen its ability to deal with genuine disasters while also ensuring an appropriate level of democratic review and control. The days of secretive bailouts should end.

Senator Warren’s main point is this:

“without some basic rules and accountability, financial markets don’t work. People get ripped off, risk-taking explodes, and the markets blow up. That’s just an empirical fact – clearly observable in 1929 and again in 2008.”

Of course you cannot outlaw all cheating or prevent all forms of future potential macroeconomic problems. But the legislative framework and presidential priorities matter. This is demonstrated by what happened since the 1980s, when the deregulation of finance distorted incentives in very ways that proved very dangerous.

We can choose now to make markets function better. Put in place simpler, clearer rules and enforce them.

This is a completely centrist agenda. As a result, there is real potential here for bipartisan policy initiatives – and there are senators on both sides of the aisle who show signs of being willing to go to bat for exactly these kinds of sensible pro-market ideas.

All presidential candidates, Republican and Democrat, would be smart to embrace this agenda.

It Can Wait. Really.: The Real Solution to Notification Overload

Mon, 04/13/2015 - 09:21

By James Kwak

Beeping iPads! Buzzing phones! Zapping watches! Soon, apparently, we won’t be able to complete a thought without being interrupted by some “intelligent” piece of technology.

The solution, according to Steven Levy, is yet more technology:

a great artificial intelligence effort to comb through our information, assess the urgency and relevance, and use a deep knowledge of who we are and what we think is important to deliver the right notifications at the right time. . . .

the automated intake of our information will allow us to “know by wire,” as super-smart systems learn how to parcel things out in the least annoying and most useful fashion. They will curate better than any human can.

First of all, I’m skeptical. So is Levy, apparently; just a few paragraphs up, he writes, “the idea of One Feed to Rule Them All is ultimately a pipe dream.” The same factors that make it impossible for one company to create a perfectly prioritized feed make it impossible for one company to create a perfectly prioritized stream of notifications.

Read more at Medium …

Good Ideas Are Not Enough

Mon, 04/13/2015 - 09:20
By James Kwak

Dan Davies put together a brilliant roundup of the clever business models that financial technology startups are pitching to their investors — and why most of them are deeply flawed. Some of them apply much more broadly than to just the financial services industry. Number three, for example — “Hoping that a load of people who actively mistrust each other will trust you instead” — is a decent description of the business-to-business marketplaces that Ariba was trying to build when I worked there back at the beginning of the millennium.

I’d like to add two more general principles that apply to technology companies that are trying to serve the financial services industry — mainly learned during my years working at an insurance software company before going to law school.

Read more on Medium …

(I’m going to try switching to a Brad DeLong-style approach in which I put the beginnings of my Medium posts here, and then you can decide if you want to read more or not. I can’t put the whole post here because they have thirty-day exclusivity.)

Vaguely Monthly Roundup

Wed, 04/08/2015 - 15:27

By James Kwak

Did you know that blogging is dead? That’s what I hear, anyway. I plan to say something about it once I figure out if I have anything to say on it.

Anyway, as you have probably noticed, I do most of my sporadic writing over at Medium these days. Since I last checked in here, I wrote stories about:

I also posted an essay by Walt Glazer about inequality.

You can see all of my Medium stories here, or you can read the whole Bull Market publication (now including Brad DeLong!).

“Middle-Class Economics”

Fri, 02/27/2015 - 09:46

By James Kwak

Supposedly President Obama is making “middle-class economics” one of the key themes of his final two years in office. I don’t really know what this is supposed to mean in a country where people making ten times the median household income call themselves “middle class” and there are tens of millions of people in poverty.

For starters, I think it’s important to understand the distribution of wealth in the country as it stands today. That’s the theme of a story I wrote on Medium earlier this week, “The Magnitude of Inequality,” which uses charts and pictures to try to convey just how unequal a society we live in.

Yesterday I published another story on Medium about one of Obama’s “middle-class economics” proposals: the forthcoming Department of Labor rule that will try to protect people’s retirement savings from financial advisers’ conflicts of interest. It’s a complicated topic to understand, and the administration proposal will undoubtedly help—but not very much, given the scope of the retirement security problem.

What Is Citigroup Hiding From Its Shareholders Now?

Wed, 02/11/2015 - 10:53

By Simon Johnson

In the early and mid-2000s, Citigroup had compensation practices that can fairly be described as a disaster for shareholders (and for the broader economy). Top executives, such as then-CEO Chuck Prince, received big bonuses and generous stock options. Lower level managers and traders were paid along similar lines. These incentives encouraged Citi employees to take risks and boost profits. Unfortunately for shareholders, the profits proved largely illusory – when the dangers around housing and derivatives materialized fully, the consequences almost destroyed the firm.

The market value of Citigroup’s stock dropped from $277 billion in late 2006 to under $6 billion in early 2009. The shareholders could easily have been wiped out – they were saved from oblivion by a generous series of bailouts provided by the federal government (see Figure 7 in the final report of the Congressional Oversight Panel; direct TARP assistance was $50 billion but “total federal exposure” was close to $500 billion). In the next credit cycle, the experience for Citi shareholders could be even worse. So it is entirely reasonable for shareholders to look carefully at, among other things, the details of how executives and other key employees are paid – and to understand the current incentives for taking and managing risk.

But Citigroup is resisting efforts to disclose fully the structure of relevant compensation contracts. What is Citigroup hiding now?

The specific issue is a request by Richard Trumka, president of the AFL-CIO, for Citigroup to disclose precisely how employee compensation is affected when a person takes a government position. (See David Dayen’s article in the New Republic for more detail and context, including requests for similar information from other large banks. I use Mr. Dayen’s very helpful links to documents below.)

As Mr. Trumka puts it, “Like many institutional shareholders, the AFL-CIO supports the use of compensation plans that align the interests of senior executives with the long-term interests of the company. We oppose compensation plans that provide windfalls for executives that are unrelated to their performance.”

Citigroup’s compensation arrangements remained troubled long past the financial crisis. In 2011 shareholders rejected Citigroup’s executive compensation plan, in part because of concerns about the incentives for then-CEO Vikram Pandit. (Mr. Pandit was subsequently eased out of Citigroup, on generous terms relative to the value he provided to shareholders.)

The current board of directors has stated repeatedly that the problems with these policies are now fixed, precisely because executive compensation is now related to performance – including what happens after decisions are taken (see, for example, the company’s 2014 proxy statement).

But Mr. Trumka is flagging a major issue – and one the board does not want shareholders to review or apparently even understand in detail. When an executive or other manager leaves Citigroup to join the government, what exactly happens to their deferred compensation? What is the precise wording in their contracts and how much money is involved?

Goldman Sachs offers a lump-sum payment to employees who leave to join the government (see section 9 in this filing.) The logic here is that a government official should avoid any appearance of a potential conflict of interest; see Mr. Antonio Weiss’s ethics statement to Treasury in November.

Such an arrangement obviously raises an important issue for shareholders. If deferred compensation is supposed to encourage more careful risk-taking, then acceleration of vesting and immediate payments will tend to do the opposite.

Citigroup argues that its arrangements are different – and that vesting will continue on the original schedule. It’s hard to see how this can be a credible commitment. If a Citi executive becomes, for example, Treasury Secretary or US Trade Representative or First Deputy Managing Director of the IMF (all positions occupied by Citi alums), how can such a person continue to gain in significant material fashion from Citigroup’s performance? Anyone with broad responsibility for economic policy and financial sector oversight should not be in a position to gain or lose large amounts of money from the performance of a single financial firm (let alone one of the world’s biggest banks, with interests spread around the globe.)

Presumably the board of directors can – and would – make an exception for anyone joining the government at a sufficiently senior level. Some statement of policy along these lines would presumably provide helpful guidance to shareholders, who are entitled to agree or disagree with the details.

In any case, Mr. Trumka is only requesting more disclosure of Citigroup’s precise arrangements. And, not satisfied with the lack of response from Citigroup, the AFL-CIO is now asking that shareholders be allowed to vote on making these details known, as part of the process surrounding the 2015 annual meeting of stockholders. The proposed motion reads,

“RESOLVED: Shareholders of Citigroup (the “company”) request that the Board of Directors prepare a report to shareholders regarding the vesting of equity-based awards for senior executives due to a voluntary resignation to enter government service (a “Government Service Golden Parachute”). The report shall identify the names of all Company senior executives who are eligible to receive a Government Service Golden Parachute, and the estimated dollar value amount of each senior executive’s Government Service Golden Parachute.”

“For purposes of this resolution, “equity-based awards” include stock options, restricted stock and other stock awards granted under an equity Incentive plan. “Government service” includes employment with any U.S. federal, state or local government, any supranational or international organization, any self-regulatory organization, or any agency or instrumentality of any such government or organization, or any electoral campaign for public office.”

Citigroup has asked the Securities and Exchange Commission for permission to exclude this proposal from its proxy statement, i.e., for permission not to put the issue before shareholders.  (See Mr. Dayen’s article for more details.)

What exactly is Citigroup hiding this time?

Tax Breaks (for the Rich) Are Forever

Thu, 01/29/2015 - 22:13

By James Kwak

This week I returned to one of my favorite topics: raising taxes, particularly on the rich. First I wrote an article for Medium about the single most obvious change that should be made to the tax code: eliminating the step-up in basis at death for capital gains taxes. If you’re not sure what step-up in basis means, or why it’s a ridiculous idea, you should read the article.

Then today I wrote an article for the Atlantic about why (a) killing 529 plans was a great idea in President Obama’s latest tax proposals and (b) why 529 plans are impossible to kill. Here’s the crux of the matter:

“If you’re poor, a 529 plan gives you nothing, since you don’t pay income taxes; the American Opportunity Tax Credit gives you $4,000 ($5,000 under Obama’s proposal) because you can take $1,000 of the credit per year even if you pay no taxes. If you’re in the ‘middle class’ (making at least $74,900 and able to save $3,000 per year per child), a 529 plan gives you $5,800; the AOTC gives you $10,000 ($12,500 under Obama’s proposal). If you’re in the upper class, a 529 plan gives you $26,300; the AOTC gives you nothing. Do I even need to write the rest of this article?”

My editor took out that last sentence, but I liked it so much I’m putting it back here. (Those number are based on some basic scenarios I described in the article.)

Every politician likes to say that he is in favor of simplifying the tax code, eliminating tax breaks for people who don’t need them, and helping the middle class. Only it just isn’t true.

Nominate A Qualified Undersecretary Of Domestic Finance Now

Sun, 01/25/2015 - 15:36

By Simon Johnson

The Obama administration urgently needs to nominate a qualified individual as Undersecretary for Domestic Finance at the Treasury Department. The Dodd-Frank financial reforms are under sustained and determined attack, and the lack of a confirmed Undersecretary is making it significantly harder for Treasury to effectively defend this important legislation. Failing to fill this Undersecretary position would constitute a serious mistake that jeopardizes a signature achievement of this presidency.

In the continuing absence of an Undersecretary for Domestic Finance, the administration has recently displayed an inconsistent – or perhaps even incoherent – policy stance on financial sector issues. On the one hand, in mid-December, the White House agreed to rollback a significant part of Dodd-Frank – the so-called “swaps push-out,” which was shamefully attached at the behest of Citigroup to a must-pass government spending bill. The White House put up little resistance to this tactic and, at the critical moment, lobbied House Democrats to support the repeal of Section 716.

Also in December, the White House pushed hard for the confirmation of a Wall Street executive, Antonio Weiss, as Undersecretary for Domestic Finance. (In mid-January, in the face of continuing legitimate questions about his qualifications, Mr. Weiss withdrew himself from consideration. He has become a Counselor to the Treasury Secretary, but this in no way addresses the need for a well-qualified Undersecretary and the equally pressing need for a consistent administration policy.)

On the other hand, the President has recently issued veto threats to protect financial reform. His first threats were made during the opening two weeks of the new Congress as House Republicans pushed bills to de-regulate Wall Street and rollback financial reform. And, in his State of the Union address last Tuesday night, President Obama threatened to veto any legislative “unraveling” of “the new rules on Wall Street”.  In addition, the administration is also proposing a new targeted tax on the liabilities of large banks, motivated by the – well-founded – concern that these banks receive dangerous implicit subsidies from taxpayers.  And on January 9, 2015, Treasury Secretary Jack Lew published an article in the Washington Post strongly defending financial reform.

What exactly is the Obama administration’s policy on the financial sector in general and on sticking up for the president’s reform legacy, the Dodd-Frank Act, in particular?  Are top officials willing to sell this potential legacy in pieces, as part of deals with Republicans to get spending bills?  Or, as is the case with the Affordable Care Act, will the administration refuse to repeal any part of Dodd-Frank – so if the Republicans want to undo any part, they will need to seek enough votes to override any veto?

These questions will be asked repeatedly in the months ahead, including with regard to the Volcker Rule (which limits proprietary trading by big banks) and the orderly resolution authority (Title II of Dodd-Frank, which provides for a government-run bankruptcy process, again for big banks). The Consumer Financial Protection Bureau (CFPB) will also likely come under intense pressure. The big bank lobby is pressing hard on all these dimensions and more – supported, naturally, by large campaign contributions.

The House Republicans show every sign of doing what they can to help Citigroup, JP Morgan Chase, and others remove all effective restrictions on megabanks’ ability to take on large amounts of risk.  The big banks want to return to the days of executives getting the upside when things go well and the taxpayer left holding the bag whenever disaster strikes.

The Treasury Department urgently needs to focus intellectual and administrative attention on the substance of defending Dodd-Frank, including shoring up support with Democrats, resisting the political onslaught led by House Republicans, and reaching out to senators of both parties who are willing to help. A key piece of becoming properly organized – intellectually and in terms of liaison with Congress – involves appointing a credible, qualified Undersecretary for Domestic Finance who hits the ground running and really knows what he or she is talking about.

Mr. Weiss’s failed nomination obviously generated a great deal of controversy. And there appear to be hurt and angry feelings among some officials who were in the Weiss corner. But the Undersecretary position is too important – and the financial reform stakes are far too high – for this appointment to be held up by any kind of emotional debris.

There are only three Under Secretaries at the Treasury Department , with responsibilities for: International Affairs; Terrorism and Financial Intelligence; and (all of) Domestic Finance. Leaving Domestic Finance vacant for the remaining two years of this administration would be akin to political malpractice.

Various excuses are being offered for not filling the position of Undersecretary. Some well-placed people say, “if not Weiss, then no one”. Others are more explicit that they think leaving the position vacant will teach a supposed lesson to those – across the political spectrum – who questioned Mr. Weiss’s credentials. And it has even been claimed that no one will want the job after observing the experience of Mr. Weiss.

All of these arguments are, frankly, absurd.

This is a large and well-educated country, with a vast pool of talent – including highly qualified people who would be honored to help defend Dodd-Frank. As for the process, the Weiss nomination failed for reasons that should not impact any candidate with more plausible credentials.

Mr. Weiss’s principal problem was simple: he was not qualified for the job. Contrary to some of the spin from the pro-Weiss camp, this was in no way about having worked on Wall Street. There are plenty of talented people who have worked on Wall Street and who have a proven track record of using that experience to defend financial reform. Two prominent examples spring to mind: Gary Gensler, previously with Goldman Sachs and most recently the pro-reform head of the Commodity Futures Trading Commission; and Sheila Bair, a former New York Stock Exchange executive who was a bastion of pro-reform views while chair of the Federal Deposit Insurance Corporation, 2006-2011. (Full disclosure: I am a member of the independent and non-partisan Systemic Risk Council founded and chaired by Ms. Bair.)

Mr. Weiss did not have the relevant general domain expertise and also lacked a sufficiently convincing grasp of the economic and political details surrounding financial regulation.

The search now should be quite straightforward. Find someone with relevant experience and a good track record – including statements and actions that are on the public record and that demonstrate willingness to challenge the megabanks’ worldview. To make things smoother, this person should not be carrying the kind of extraneous baggage that weighed down Mr. Weiss – such as work on “tax inversions”, or a huge exit payment from a major financial firm, or anything along these lines.

The ideal candidate should be someone with a public and private sector track record along the lines of Gary Gensler or Sheila Bair (both of whom would be great to have fill positions at the very top of this or any future administration). Depth of expertise and experience in dealing with the public policy dimensions of issues such as banks, derivative markets, and asset management will be critical.  Ideally, the nominee would bring people (and Senators across party lines) together – although presumably no one can command unanimous support.

There are some very good people at the Treasury Department, but they need stronger engagement with Capitol Hill.  The Department must put its best team on the field to resist the myriad lobby-driven efforts that are headed our way.

Nominating a credible Undersecretary for Domestic Finance quickly is an essential step towards helping the Treasury Department most effectively serve the American people – and towards preventing the collapse of financial reform.

Shareholders, Managers, and Capitalism

Wed, 01/21/2015 - 11:06

By James Kwak

This morning I posted an article over at Medium about the question—raised again by Goldman analysts earlier this month—of whether JPMorgan should be broken up. The answer is obviously yes. The interesting thing is that this is not a socialist-vs.-capitalist, academic-vs.-manager, regulator-vs.-businessman sort of argument. It’s a shareholder-vs.-manager issue, and the shareholders are wondering why Jamie Dimon insists on defending an empire that is best known for crime and ineptitude.

Earlier this month I wrote another Medium article about whether or not directors have a so-called fiduciary duty to maximize profits. The answer is no. They can do pretty much whatever they want, as long as they have enough sense to come up with some sort of plausible justification for whatever else it is that they want to do. Whether that’s a good thing or a bad thing is a closer question, and it depends on whether you view directors as protectors of great institutions against rapacious fund managers, or whether you see them as cronies who are too willing to cater to their golf-club buddies in the executive suites.

Vote in the Democratic Shadow Primary Now: Support Elizabeth Warren

Wed, 01/14/2015 - 20:48

By Simon Johnson

The shadow primary for the Democratic Party is in full swing. What will be the ideas, themes, and messages that win support in 2016 – and will they carry the day in the presidential election?

You can vote now at the Big Ideas project on almost every viable proposal from the progressive wing of the Democratic Party. Expressions of interest will feed into conversations on Capitol Hill and with presidential candidates. Nearly 1 million votes have already been cast.

Voting ends Friday at noon. Currently, in the section on the Economy & Jobs, the proposal to restore Glass-Steagall is in third place; breaking up Citigroup is close behind. (Vote now for these or for your own priorities.)

I suggested Break Up Citigroup, but it is based directly on Elizabeth Warren’s December 12, 2014, speech on the Senate floor. (The Restore Glass-Steagall idea was proposed by Byron Dorgan, former Democratic Senator from North Dakota; Senator Warren has also proposed bipartisan legislation along these lines.)

Senator Warren made another powerful speech last week laying out what has gone wrong in America – and what can be done better in the future. She covers a lot of ground and lays out a compelling statement of the issues, including how to raise incomes for most Americans.

But everyone has to start somewhere, and this is where she begins,

We know that democracy doesn’t work when congressmen and regulators bow down to Wall Street’s political power – and that means it’s time to break up the Wall Street banks and remind politicians that they don’t work for the big banks, they work for US!”

You could start by reading Senator Warren’s recent speech and, if you agree with what she says, vote for her Big Ideas.

The Republican Strategy To Repeal Dodd-Frank

Wed, 01/07/2015 - 18:44

By Simon Johnson

On January 7, 2015, Day 2 of the new Congress, the House Republicans put their cards on the table with regard to the 2010 Dodd-Frank financial reforms. The Republicans will chip away along all possible dimensions, using a combination of legislation and pressure on regulators – with the ultimate goal of relaxing the restrictions that have been placed on the activities of very large banks (such as Citigroup and JP Morgan Chase).

The initial target is the Volcker Rule, which limits the ability of megabanks to place very large proprietary bets – and their ability to incur massive losses, with big negative consequences for the rest of us. But we should expect the House Republican strategy to be applied more broadly, including all kinds of measures that will reduce capital requirements (i.e., make it easier for the largest banks to fund themselves with relatively more debt and less equity, taking more risk while remaining Too Big To Fail and thus benefiting from larger implicit government subsidies.)

The repeal of Dodd-Frank will not come in one fell swoop. Rather House Republicans are moving in several stages to reduce the scope of the Volcker Rule and to gut its effectiveness.

The first step in this direction came on Wednesday, with a bill brought to the floor of the House supposedly to “make technical corrections” to Dodd-Frank. This legislation was not considered in the House Financial Services Committee, and was rushed to the House floor without allowing the usual debate or potential for amendments (formally, there was a “suspension” of House rules).

Buried in this legislation is Title VIII, which will extend the deadline for one important aspect of Volcker Rule compliance to 2019. (The specific topic is by when big banks should divest themselves of some Collateralized Loan Obligations, CLOs – on how these investments function as internal hedge funds at the largest three banks, see this primer from Better Markets, a pro-reform group.)

Some very large banks and House Republicans previously asked to extend this deadline for CLO compliance through 2017, and a full extension was actually granted by the Federal Reserve in 2014. (Specifically, in April 2014 the Fed extended the divestment deadline for CLOs to 2017and then, in December 2014, extended the divestment for all covered funds under the Volcker Rule until 2017.)

Now that Citigroup, JP Morgan Chase and Wells Fargo already have the extension through 2017, they immediately ask for… an extension through 2019.

The strategy here is clear: delay for as long as possible. Perhaps the regulators will cave in, again, under pressure. Perhaps the White House will agree to another rollback of Dodd-Frank, for example attached to a spending bill – which is what happened in December 2014. (Remember that government spending is only authorized until September 2015, so there will be plenty of opportunities).

And perhaps, after November 2016, a Republican president will work with a Republican Congress to eliminate all parts of Dodd-Frank that crimp the style of very large leveraged financial firms.

On Wednesday, the Republican bill that would have weakened the Volcker Rule actually failed – under the suspension of the rules, it needed two-thirds of all members present in order to pass, and the vote was 276 in favor and 146 against. When enough Democrats hold together, they can make a difference.

But all of this is just a warm-up. In coming months we should expect: the largest few banks (always masquerading as representing the social interest) will pressure for a change in technical definitions, e.g., what kind of hedge fund they are allowed to own and what it means to “own” something. They will ask for more delays and “clarifications”. And they will argue that lending to some category of firms (“job creators”) should be exempt from any kind of restriction.

Section 716, which would have forced big banks to keep their derivatives business somewhat separated from their insured deposits, was repealed in December 2014. This measure primarily benefited Citigroup and JP Morgan Chase. At the time, some Democrats – including people close to the White House – said, not to worry, “we’ll always have the Volcker Rule.”

In fact, the signal from the repeal of Section 716 is that the store is open. The White House had previously said “no” to any proposed repeal of Dodd-Frank, including when attached to a spending bill. This moratorium has clearly been lifted, and the lobbyists are hard at work.

The House Republican rhetoric will be “technical fixes” and “job creation”. But the reality is that they are determined to strip away all meaningful restrictions imposed on Citigroup, JP Morgan Chase, and other megabanks – and to roll-back Dodd-Frank as far as possible, until it becomes meaningless or they are finally able to repeal it completely.