Economics of Contempt, a blog written by a structured finance lawyer in New York, claimed that the Merkley-Levin amendment banning proprietary trading is “a joke” because it relies on too-specific readings of complex securities arrangements and doesn’t give regulators the ability to follow the law’s intent. I saw the value in this argument to an extent, but as Sen. Merkley’s office writes today, it’s a little jumbled:
The Economics of Contempt argument turns reality on its head. Merkley-
Levin specifically puts the provisions banning proprietary trading in law, providing additional clarity and tighter limits across the board. Are we worried that the regulators will blow a hole through it just based on their inherent interpretive power of what “market-making” means? Sure, but the argument of Economics of Contempt is that we should trust the regulators. So which one is it? Moreover, the writer’s concern of watering down the provision could happen even more easily with the underlying 619 version, where the Council is explicitly permitted not only to interpret the words of the statute but to actually modify all the prohibitions, definitions, restrictions, etc. (See section 619(g).) We don’t do that whatsoever. The ban on prohibiting proprietary is as clear a legislative intent as possible.
And as for the specific permitted activities, they are a floor, not a ceiling. That is, we permit the regulators to add additional restrictions to the permitted activities – see the beginning of subsection (d) – and direct additional capital placed against permitted activities if appropriate (subsection (d)(3)). We are as tight as it comes.
More from Mike Konczal. Clearly there’s a reason that Wall Street lobbyists have gone to the mats against this amendment. Opposition lobbyists outnumber advocates for reform 11-to-1 on Capitol Hill, and they are justifiably worried that they will see many of the opportunities for casino gambling dry up, and that they might have to go back to (horrors!) providing for the smooth flow of capital in the economy again. If the big financial institutions want to engage in high-risk trading, they can do it separate from depositor accounts, lending and the real economy.
This will come to a head today. The Merkley-Levin amendment will get a vote, according to Senate sources, later this afternoon (though this has changed before). Without Blanche Lincoln or Arlen Specter around, getting what could be 60 votes for passage will be an immense struggle. But if Senators want to roll up the gambling casino once and for all, they have one simple way to go about it – vote Yes on the amendment. I’ll re-attach my whip count:
Sources close to the debate have released a pretty good target list for the Merkley-Levin amendment, which is basically the Volcker rule. There are apparently two definite No’s among Democrats (Hagan, Warner) and one definite GOP Yes (Lugar). If a 60-vote threshold is required, which is likely, Merkley-Levin would need two more Republicans supporting among the remaining votes than Democrats opposing. Here are the rest of the votes in play:
Republican Undecided (6)
Collins, Snowe, Voinovich, Grassley, McCain, Scott Brown (lean Yes)
Democratic Leaning No (2)
Klobuchar, Ben Nelson
Democratic Undecided (6)
Lieberman, Gillibrand, Schumer, Carper, Byrd, Bayh (lean Yes)