Puts and Calls: More good news for bankers, bad news for the climate bill

Tom Karol Occasional Political Commentator
Font Size:

Financial reform next steps: There have been reports that Democratic leaders are looking to move the financial reform bill, possibly with a vote to end debate as early as Monday, and a vote on the bill itself Tuesday. Late Thursday, it appeared that votes would continue through the night. Amendments will continue to be filed Friday, but no votes are expected. More Senate votes are scheduled for Monday and, “We’ll be in until at least the early part of next week,” according to Banking Committee Chairman Chris Dodd, Connecticut Democrat. Reconciliation of any Senate bill with the December House bill, may progress very differently than it did for health-care bill, where the House simply approved the bill that the Senate passed. In the case of financial reform, the plan may be for a formal “conference,” perhaps televised, with House and Senate leaders and administration officials discussing, debating and making changes. Both the House and Senate must vote again before it can be sent to President Obama.

Some remaining points of contention: The House bill includes an independent consumer protection agency. The Senate put that agency within the Fed, which the House Financial Services Committee Chairman called “crazy” and a “a bad joke.” The Senate is completing work on derivatives and its bill will likely be more onerous to business than the House’s. The House set up a $150 billion “too-big-to-fail fund,” which the Senate rejected. The House authorized a Fed audit, while the Senate allows for only a limited Fed audit of certain emergency loans. Other issues are likely to arise as well. Some leading Senate Democrats are pushing for federal regulators to have more power to pre-empt state consumer financial regulations, while the White House, most congressional Democrats, state attorneys general and consumer advocates want stronger state consumer regulations. House Democrats also want to raise taxes on hedge fund managers and venture capitalists to pay for such tax breaks as research and development credits for business and college tax credits.

Bank business is good: We reported Tuesday that 14 of the largest investment banks posted a combined $79 billion in first-quarter revenues, marking the best numbers in three years and falling 1 percent short of the record. Four of the largest banks made profits everyday of their trading businesses between January and March. Bank of America, JPMorgan Chase and Goldman Sachs Group, the first-, second- and fifth-biggest U.S. banks by assets, all reported that they had no daily trading losses in the first quarter. Citigroup, the third-largest bank did not report daily trading revenue, but it did record a profit on each trading day, two people with knowledge of the results said.

Maybe too good: The New York attorney general has launched an investigation to determine whether Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Credit Agricole and Merrill Lynch provided rating agencies with false information in order to get better ratings on risky securities. At the same time, according to the Wall Street Journal, the Manhattan U.S. Attorney’s office and SEC are conducting a preliminary criminal probe into whether J.P. Morgan Chase, Citigroup, Deutsche Bank and UBS misled investors about their roles in mortgage-bond deals. Nice timing to support financial reform, but what took them so long to look at four-year-old deals? And why — if so many firms committed so many frauds against so many investors in the most litigious country in history — has there not been a flood of civil suits from supposedly injured investors?

Climate bill summary: After eight months of wrangling and the loss of a Founding Father, the nearly1000-page American Power Act was introduced on Wednesday with great fanfare. A New York Times blog characterized the bill as “a classic piece of American legislative compromise, with multi-billion-dollar incentives and investments and favors aimed at enthusing states rich in coal and agribusiness (despite big questions about the carbon value of some supposedly carbon-sopping farming methods).” A 21-page summary of the bill outlines the major themes and more details will be forthcoming, but a first glance of the proposal notes two key provisions for business: (1) global warming pollution reductions for specific sectors starting in 2013, and (2) covered sources can reduce their compliance costs by investing in “offsets,” which can be used, saved or sold off in an open market.

Climate bill reaction: Given the very full legislative calendar before the summer recess and November elections, it may be difficult for this bill to be considered, debated and enacted “this year” as its sponsor Senator John Kerry, Massachusetts Democrat, has requested. Not only did the bill’s sponsors lose their original Republican author, several senators have voiced concerns with the bill and some others have competing climate bills already introduced. Obama has endorsed the bill and Senate Majority Leader Harry Reid of Nevada will to meet with committee chairs next month to discuss reconciling provisions in the bills. Perhaps most importantly, the reactions from both the business community and the environmental groups has been mixed, with few champions for the cause emerging.